Changing the Mortgage balance. Is this possible?

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tmare_IHB

tmare_IHB

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Our neighbor informed us two months ago that he has stopped paying his mortgage. He realized that for the $6,500 payment (including taxes and insurance), he could be renting something much better than the small 3 bedroom N. Santa Ana house he currently owns. I don't know him well and he doesn't seem very well educated. His mortgage balance is somewhere around $575 K. He now says that the bank is negotiating with him and has offered to drop his balance to $250K with a 4.5% fixed 30 year mortgage. I told him that he must have misunderstood and to go back and get something in writing. This seems outrageously impossible. Has anyone else seen reductions in principal as a part of a modification? If so, what percentage of the loan balance? This just doesn't seem possible in any universe. I'm fairly certain that the house could sell for $350-$400K right now.
 
[quote author="Astute Observer" date=1231512581]IF this is true, and he is dumb enough to tell everybody in the neighborhood, nobody will pay mortgage if they still owe more than 75%.</blockquote>


This is exactly what his next door neighbor said. However, I can't help but feel that he really believes this and once again, like when he signed up for the adjustable mortgage, he is being lied to. His neighbor next door neighbor says that they have been great neighbors (despite having 2 families living in the house) and will hate to see him go. I really wish these people would bring some actual paperwork with them when they tell me what they think the bank is telling them because this isn't the first time I've seen this type of thing.
 
Whether this guy's bank freely offered the principal reduction is one thing. Having it forced down the lender's throat by a bankruptcy judge is another. And it's about to become law.



<a href="http://hosted.ap.org/dynamic/stories/C/CITIGROUP_MORTGAGES?SITE=CAANR&SECTION=BUSINESS&TEMPLATE=DEFAULT&CTIME=2009-01-08-15-27-20">Link</a>
 
IMO, the lenders will start reducing principal balances when the government starts paying for the reductions or compensating the banks in some other manner, but not before then.

And there is no way the bank is going to reduce the principal from $575k to $250k, unless the bank is libel for something and they need the situation to go away. At most, the principal reductions will be 10% to 15%.



Can you imagine how many folks will stop paying their mortgages if banks start reducing principal amounts by over 50%? Hilarious.
 
[quote author="awgee" date=1231561721]IMO, the lenders will start reducing principal balances when the government starts paying for the reductions or compensating the banks in some other manner, but not before then.

And there is no way the bank is going to reduce the principal from $575k to $250k, unless the bank is libel for something and they need the situation to go away. At most, the principal reductions will be 10% to 15%.



Can you imagine how many folks will stop paying their mortgages if banks start reducing principal amounts by over 50%? Hilarious.</blockquote>


This is correct. There will be cramdowns that make sense, but it is my thumbnail guess that if the cramdown exceeds one year's salary of the borrower, it doesn't have a snowballs chance in hell of getting done.



If they let one cramdown like the one Awgee describes go, they can essentially write off thier whole book of business with anyone whos close to being upside down. Everyone will default just to get the discount.



Poker tip - limping aces under the gun in a limit game is a bad idea.
 
[quote author="acpme" date=1231555574]how the heck does he get a $6500/mo pymt on a 575k balance???</blockquote>


According to him, it's adjustable mortgage that has adjusted recently. This is including property taxes on what I believe was a sale for 660K. I'm hoping he gets clarification from the bank and lets me know, but who knows.
 
[quote author="tmare" date=1231572697][quote author="acpme" date=1231555574]how the heck does he get a $6500/mo pymt on a 575k balance???</blockquote>


According to him, it's adjustable mortgage that has adjusted recently. This is including property taxes on what I believe was a sale for 660K. I'm hoping he gets clarification from the bank and lets me know, but who knows.</blockquote>


That's 12% interest which would seem to indicate a subprime option ARM recast.
 
[quote author="No_Such_Reality" date=1231588100][quote author="tmare" date=1231572697][quote author="acpme" date=1231555574]how the heck does he get a $6500/mo pymt on a 575k balance???</blockquote>


According to him, it's adjustable mortgage that has adjusted recently. This is including property taxes on what I believe was a sale for 660K. I'm hoping he gets clarification from the bank and lets me know, but who knows.</blockquote>


That's 12% interest which would seem to indicate a subprime option ARM recast.</blockquote>


Yes, I would imagine so. Undereducated and Hispanic, completely fits the profile for these loans. We know another couple like this but their mortgage company delayed the reset until 2010. They wouldn't listen to us when they bought the house and I'm sure they are going to lose it eventually.
 
principal does matter.... I suspect that your neighbor stopped paying the mortgage because he no longer could. The write down in the principal sounds very suspicious, so I do suspect that maybe it was one of those countrywide loans where they have to do this. If the lender did something overtly illegal, which many did, then they could end up losing their entire right to the house and the buyer gets a free and clear title.
 
[quote author="stepping_up" date=1231590690]principal does matter.... I suspect that your neighbor stopped paying the mortgage because he no longer could. The write down in the principal sounds very suspicious, so I do suspect that maybe it was one of those countrywide loans where they have to do this. If the lender did something overtly illegal, which many did, then they could end up losing their entire right to the house and the buyer gets a free and clear title.</blockquote>


Do you have any links with this info?
 
I still smell a rat on this. The big lie on a lot of these cram downs is one they give up thier right to ever sue the bank for loan fraud and second that if they go belly up and forelose that it becomes a recourse loan and they will have a judgement on them for balance left after the home gets sold by the bank. These loan mods screw the homeowners into zombie renters and save the banks from having to show the toxic loss on thier books for this tax year. 60% of these loan mods go to hell in the first year anyhow if not more and they are taking advantage of desperate homeowners by screwing them with terms that favor nothing but the bank. In reality most banks are insolvent now its just Ben and Hank blowing smoke up your ass and you watch by the end of the year half of the banks will be gone...
 
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