bacon dreamz writes:
how exactly does one go about eating a blog?

(good mornin', Tanta!)
bacon dreamz | 05.31.08 - 8:22 am | #

Tanta writes:
Mornin', bacon dreamz.

With a lot of horseradish, I suspect.
Tanta | 05.31.08 - 8:24 am | #

rent_to_own writes:
Mmmm - blog in the morning.

It smells like victory.
rent_to_own | 05.31.08 - 8:35 am | #

Mel writes:
Tanta,
You are honest, forthright, and concise (at times). Time to start an online subscription newspaper with similarly adept commentators. I'd be more than happy to plop down a couple of bucks a week for such an effort. That is the future and you should profit by being on the ground floor!
Mel | 05.31.08 - 9:05 am | #

dg writes:
Morning, all.

No fan of Countrywide here, but hey... if we're going to be consistent, unsustainable practices ought to be looked down upon, whether they be conducted by lender or borrower.

Borrowers make out like bandits in any loan modification to begin with (I wish I could have contracts modified post-hoc in my favor!), so 30% of what should have already been paid is not unreasonable.
dg | 05.31.08 - 9:08 am | #

robert writes:
I find it interesting that people like Diane C. feel they're qualified to dole out advice on this topic, yet when faced with a new challenge, they respond with comments like this:

[“We are all in some cases hitting a brick wall,” said Diane Cipollone, attorney and director of the Sustainable Homeownership Project at Baltimore-based Civil Justice. “The response time is months — months — to get a workout, and the workout is often unaffordable.”]

I've been consistently getting around this issue for my clients since CW first started this "policy."

If you don't know how to play the game, how can you look your clients in the eye?
robert | Homepage | 05.31.08 - 9:09 am | #

Elvis writes:
The good thing about Countrywide is they named their company after our country. They are fine patriots. That is about the only good thing I can think of...
Elvis | 05.31.08 - 9:11 am | #

Tanta writes:
If you don't know how to play the game, how can you look your clients in the eye?

And speaking of playing games, Robert, how much do you charge borrowers for your services?

I can't speak for Diane Cipollone, but I rather suspect you're the kind of fast-talking for-profit bottom-feeder that she warns people about.
Tanta | 05.31.08 - 9:27 am | #

Anonymous writes:
How many years can a mountain exist
Before it's washed to the sea?
Yes, 'n' how many years can some people exist
Before they're allowed to be free?
Yes, 'n' how many times can a man turn his head,
Pretending he just doesn't see?
The answer, my friend, is blowin' in the wind,
The answer is blowin' in the wind.
Anonymous | 05.31.08 - 9:37 am | #

Paul writes:
Sometimes I wonder if personal finance in the USA today is just beyond the average person's (certainly for subprime slime) understanding. For so many to get so screwed up over such things boggles the mind.

To now ask those same folks to enter into complicated negotiations with "loss mit specialists" seems to be asking too much, even though it is necessary.

It's almost like - "Thank you sir, may I have another?" They all need credit counselors or lawyers representing them. Maybe this is the only proper bailout for these folks - provide them with free legal represenation in their work out negotiations.
Paul | 05.31.08 - 9:38 am | #

Bankruptcy Lawyer writes:
I don't have a problem with any servicer policy that is clear, fair, and publicized. Something like that helps borrowers weigh their options.

But how about these other "loss mit" procedures: taking months to respond while proceeding to foreclose; making promises over the phone that the mod docs, when they arrive, contradict; and finally sending out mod docs which require the intial payment to be back in Omaha or Texas the same day.

Bad faith tactics like these lead one to wonder whether servicers are shining on the noteholders, the borrowers, the regulators, and the public while they beef up their bottom lines with late charges, inspection fees, and the float on payments in suspense.

Not that I'm a cynic or anything.....just call it like I see it.
Bankruptcy Lawyer | 05.31.08 - 9:41 am | #

Petey Wheatstraw writes:
Countrywide and a borrower are in a lifeboat on the high seas, surrounded by sharks and bad weather, and lacking food and water.

C: I want you to know, if we're ever saved, you'll be my slave. Now start rowing.

B: I was your slave when we got in the boat, why would I want to return to that?

C: Because you got in the boat, voluntarily.

B: That was the big boat with all of the food, liquor and comfy beds - this is a lifeboat, and you need me as much as I need you.

C: But I'm the master, you are the slave.

B: Looks like we're both goin' go die out here.

C: I'm much larger than you - you'll die first, and I'll eat you, and make my way back to shore.

B: Yeah? Well, check this out: (throws oars into water, and jumps in). Good luck wit' dat, biotch.

Neither Counrtywide or the borrower were ever seen again.


Sorry. It just came out.
Petey Wheatstraw | 05.31.08 - 9:47 am | #

Lawyerliz writes:
The auther seems to be using "arrearages" as being equivalent to "fees". It is not at all clear whether or not this includes atty fees & costs and late charges as well as principal and interest. Arrearages can include "fees", but I don't think fees include principal and interest payments.

The very few offers to mitigate I've seen were completely unworkable. Which is ok, the lenders have the right to do anything they want. . . But I'm stickin' to my position that they'd lose less money if cramdowns were allowed, and they are too stupid or nefarious to realize this.

Or, perhaps, the accounting, regulation and tax consequences are such that they can hang in there longer if cramdowns are not allowed, and that's all they are doing, hanging in there one month at a time.
Lawyerliz | 05.31.08 - 9:49 am | #

byzantine_ruins writes:
Sorry. It just came out.

Ten pieces of gold to this wag!

Luckily, that's it's cheap, as we now use plastic tokens covered in a thin veneer of gold-colored foil! Ha ha ha!
byzantine_ruins | Homepage | 05.31.08 - 9:54 am | #

Shnapster writes:
I hear Countrywide is working on a new headquarters. This one will be in geostationary orbit 22,240 miles above Calabasas.

It's about the same color and square footage as the Sears tower, only this baby's spherical. Construction is not quite complete.
Shnapster | Homepage | 05.31.08 - 9:57 am | #

Tanta writes:
But how about these other "loss mit" procedures: taking months to respond while proceeding to foreclose; making promises over the phone that the mod docs, when they arrive, contradict; and finally sending out mod docs which require the intial payment to be back in Omaha or Texas the same day.

I cannot and will not excuse any of those things.

I will, however, observe that the only way to correct those problems is for servicers to beef up staffing with very highly qualified people who can keep up with the case load, draw up the mod docs accurately, track the mailing times carefully enough to make sure the dates are reasonable, etc. This costs a lot of money, which of course the servicers are having some trouble with that we don't need to waste any sympathy on.

But Mr. Reality tells me that they will certainly not spend that kind of money to clean up the process if the expectation is that they will then waste money on no-hoper cases or just give away the farm on mods to people who are flat broke after six months of free housing. They will not do it, and I wouldn't do it.

I really don't know how some of these "advocates" pass themselves off as "negotiators" when they have not understood the basic requirement of any negotiation, which is that there must be some alternative in which the other side is not "damned." They simply will not give CFC one single inch in the "PR war": they're damned if they do and damned if they don't.

I don't happen to care if these folks hate CFC so much they choke on bile every time the Tanned One's name gets mentioned. You are not a "negotiator" if all you do is engage in public attack. You are, in that case, an enemy combatant. They will treat you as such. That will rub off on the people you claim to "represent."

Why aren't these people saying, "Look: FC has the right to ask for "earnest money" in these 11th hour negotiations. In return, we ask CFC to commit to the following for those borrowers who do play by the rules."

Nobody should particularly care what happens to the Laura Richardson borrowers. We should care what happens to people who do make the contact, do send in the paperwork, and then wait and wait and get the wrong mod doc and such. But there's a knee-jerk reaction out there to defend the indefensible borrower at all times that just isn't helping.
Tanta | 05.31.08 - 9:59 am | #

Ministry of Truth writes:
Why are homedebtors not hiring loss mitigation specialists too?

You know, someone who can do basic math, advise homedebtors if they should just walk away or help negotiate a workout with the lender.
Ministry of Truth | 05.31.08 - 10:04 am | #

Tanta writes:
It's about the same color and square footage as the Sears tower, only this baby's spherical. Construction is not quite complete.

Are they changing Angelo's title from CEO to "Grand Moff"?
Tanta | 05.31.08 - 10:05 am | #

Tanta writes:
Why are homedebtors not hiring loss mitigation specialists too?

You know, someone who can do basic math, advise homedebtors if they should just walk away or help negotiate a workout with the lender.

Hire them? There are non-profit no-fee outfits all over the place who are working with these borrowers and getting them mods.

The WAPO article I just linked to starts out with a borrower who went to NACA, got a counselor who put together all her financial docs, wrote a budget, went directly to Loss Mit on her behalf (skipped the "customer service" people), and got her a 4% fixed rate modification. So it took 60 days. Well, she wasn't delinquent, so it's not all that surprising that she wasn't on the fast-track triage list. She also didn't have to pay for NACA's services.

We just looked at the Hope Now report yesterday that says over 77,000 modifications were completed in April. Somebody is getting mods done.

There's just too much hyperbole going on for my taste.
Tanta | 05.31.08 - 10:10 am | #

Ministry of Truth writes:
So homedebtors can get free loss mitigation specialists. Thanks Tanta, I did not know that. All I hear is ads for mortgage brokers trying to roll a homedebtors mortgage.
Ministry of Truth | 05.31.08 - 10:21 am | #

Allen C writes:
What is the cure rate for a borrower that can't scrape up 30% of arrearages?

It's bad enough when the conservative borrower puts down 20% and is now underwater. Add the 95%+ CLTV situation with an exotic loan product and it's nearly incomprehensible. I presume the servicers have developed numerous approaches depending on the situation.

If the players don't develop some mod program involving a principle reduction in the extreme cases, it seems like delaying the inevitable.
Allen C | 05.31.08 - 10:24 am | #

Lawyerliz writes:
Ministry--that would be me. Usually the answer is walk away. In fact, nearly always, the answer is walk away.

I see the bottom is 50 cents on the dollar, give or take 5%. In some transactions in Miami, that level has already been reached. The towers will be at least 60% off and maybe 70-80%. That's why I think cramdowns really would help everybody. When the foreclosure REOs pile up to the extent that the lenders are getting less than 50 cents on the dollar, they will be really sorry that they didn't accept 30% off and kept the borrower in the property and avoided all the carrying charges and costs involved in kicking somebody out and then trying to get somebody to buy.

I got a moderately frantic call from a hard equity lender Friday. These people are either using their very own money, or somebody they owe real loyalty to. His loan and the first mtg are still current at the moment, and he only loaned 65 or 70% of the value he estimated the property was worth, in 2007. He probably has a very small cushion, still, on this particular house. Every month the borrower makes a payment,
he is behind a slightly smaller first. But, he is weriously worried about his money. And the total loan to value ratio was nowhere near 100% when he made the loan.

We are seeing incredible amounts of fraud here. Forgeries, straw men, let alone liars loans. I was talking to a fellow who is in a position to know at the Dade State attorney's office, and he said that they were prosecuting 60 people (rather proudly that it was that many), and had 18 detectives detecting. I said, F., that's a drop in the bucket; this is not 10% of those that need prosecuting, this may not even be 1% of those that need prosecuting. But he sez, the powers that be see this as a mere money/property crime, ie, not rape, murder, child abuse, kidnapping, and they just don't have any more resources. I said yeah, not so important, it may only bring down the whole financial system. He laughed and we hung up.

As to people who don't make any mtg payments and then can't even put a few hundred dollars a month away towards a workout, or towards first last and a security deposit for rent, I think that people, particularly those under 30, have had
absolutely no experience of hard times and no idea how to live reasonably cheaply or deny themselves anything.

People on this blog are always ragging on the boomers, and we are hardly perfect. But the under 30s have no idea that if times are hard, you cut out the expensive entertainment, and the stuff you don't need. They simply have no concept. My 27 year old son is actually a lot better than many of his peers, but still has no idea. He tends to spend what he makes, or just a little bit more than what he makes, rather than a whole lot more than what he makes, which the rest of them seem to be doing. The hub and I have decided to jerk his chain and stop the minor mooching we've allowed. He's a really good person, but still needs just a bit of toughlove.
Lawyerliz | 05.31.08 - 10:29 am | #

Bankruptcy Lawyer writes:
Tanta: I will, however, observe that the only way to correct those problems is for servicers to beef up staffing with very highly qualified people who can keep up with the case load, draw up the mod docs accurately, track the mailing times carefully enough to make sure the dates are reasonable, etc. This costs a lot of money, which of course the servicers are having some trouble with that we don't need to waste any sympathy on.

Most servicers don't enough skin in the game to justify the expense. CFC may be an exception if they kept enough of the back tranches of the stuff they originated, but even so, they'd have to wait years for an enhanced loss mit investment to break even, since the first 5 - 10 years of the repayments went out the door on origination.

The classic loss mit model makes sense for borrowers who can otherwise afford the mortgage but had an income interruption. It can never work if the borrower couldn't afford the mortgage at the outset, which describes a couple trillion dollars worth of adjustable rate products issued in 2003-06. In those loans, the money is already lost, and the noteholder -- unless it is able to force a principal writedown that the securitization doesn't allow -- is probably better off taking its lumps in foreclosure than spending money on case-by-case restructuring that will rarely succeed.

Chapter 13 bankruptcy allows the borrower to spread out the arrearage as long as 60 months. Even with attorney and trustee fees this is a better option for borrowers who don't have thousands in the bank for a downpayment. But it only works if the income is there to pay the loan.

When the income never supported the reset loan payment - i.e., most subprime and a big chunk of Alt-A - cramdown is the only thing that will shorten the turmoil and let America's neighborhoods stabilize. With a new Congress we might have it before 2010, which might not be too late to rescue hundreds of millions of dollars of RE investment.
Bankruptcy Lawyer | 05.31.08 - 10:47 am | #

Racer X writes:
Shnaptser, I'm sorry, but I'm afraid that the new headquaters is quite operational
Racer X | 05.31.08 - 11:02 am | #

sdtfs writes:
Well, yeah. Let's see,..you all ready owe CFC a bunch of money, and they're asking for something back in advance of a possible workout,...I suppose the suspicion is that they're going to take the money and not give you the workout that you want. I guess that's the chance you've got to take if you want to go the workout route. I've got no problem with that. It's nice shorthand way for them to reduce the workload to manageable levels.

But my thought is that very few people who are more than two months in arrears are going to be able to catch up, although my experience is more with renters than home owners. For lose mit, it's like shoveling the horse shit at a small hole and although a lot bounces back, at least some goes through.
sdtfs | 05.31.08 - 11:14 am | #

Tanta writes:
But my thought is that very few people who are more than two months in arrears are going to be able to catch up

CFC isn't asking them to "catch up." It's asking for 30% of "catch up."

Absolutely you "risk" paying part of your arrearage and then not getting the mod you "want." The whole point of this policy is to weed out people who are not serious about keeping the home.

Legally, a servicer who has started FC proceedings must "reinstate" you if you pay the full amount past due plus fees and costs. CFC is basically offering to do a "reinstatement" for 30% of the full amount. That is already a "workout" of sorts.

The bottom line is that these are not folks who have been making partial payments for months under a repayment plan. They have been making NO payments. So they have a $1800 payment they can't afford. Could they afford 30% of that, or $600? If so, why aren't they saving that $600 a month rather than spending it?

Modifications are only for people who are committed to staying in the house. I can't quite see how some of these people think that commitment is demonstrated.
Tanta | 05.31.08 - 11:35 am | #

central_scrutinizer writes:
Tanta,

Your efforts to cleanup after the medias' sloppy journalistic efforts are appreciated.

I think the bigger story this week was David Sambol getting a shove out of the BoA airplane (albeit with a 28 million dollar golden parachute to fund his new career as an amateur golfer.)

What do you think - is this just a symbolic gesture to appease the mongol hordes, or a hint that BoA intends to return to traditionally strict underwriting standards, once Countrywide goes to the ash heap?
central_scrutinizer | 05.31.08 - 11:40 am | #

Rob Dawg writes:
I am not suggesting that Richardson is a "typical American borrower,"

Sure she is. That's why her job title is Representative."

Speaks volumes to just how far we've devolved IMO.
Rob Dawg | Homepage | 05.31.08 - 11:43 am | #

Alec writes:
OT-(Tanta, this one's for you)

I was reading some pitch propsals for an entrepreneurial class in a MBA program when I came across the following gem:

This idea is a fresh, innovative approach to the selling process within a relationship based, B2B, complex selling environment. It would be presented in the context of selling Technology Products/Services. The discussion would break down simple barriers to existing norms and habits that exist by comparing the sales process to the implmentation of an IT project and presenting the ideas to technologists and technology company owners/VP's & Sales force in a way that they can understand and comprehend. It serves as an "A-Ha" or "Light Bulb" moment. Creating a selling organization is the biggest hurdle to many technology companies whether start-up or established. The presentation of the ideas and concepts in a context they can understand is an innovative step forward to enable the success of these companies. I have informally done this whiteboard discussion with a few technology company leaders and it has been received very well. It also has been received well by Prof's in Graduate School at -school redacted-. The discussion can fit into the time frame for the presentation is a natural for the visual aspects of a "whiteboard discussion". This opportunity would be a validation step for me in creating my own company hence the Entrepreneur-to-be designation. Thank you for your consideration.

I've been reading this for 2 days and I still haven't a frickin clue as to what he's on about.
Alec | 05.31.08 - 11:46 am | #

Petey Wheatstraw writes:
Any meeting involving a whiteboard is a waste of time.
Petey Wheatstraw | 05.31.08 - 11:53 am | #

Lawyerliz writes:
Alec--this means:

Technology companies need sales or could be better at sales.

I have a new idea to improve sales.

I'm not gonna tell you what it is until you pay me.

(And my idea is probably not very good, otherwise I could probably express myself in standard English, too.)
Lawyerliz | 05.31.08 - 12:06 pm | #

Racer X writes:
Years ago I would hear the complaint that CW was not a good "subprime" servicer. The model they used to build a giant prime servicing platform wasn't well suited for managing subprime borrowers. I'm not sure how well they've managed to address these issues in recent years but there's a real difference in managing prime and subprime servicing to achieve optimal results. It would not surprise me to find out that they are overly reliant on automated processes that are less effective in dealing with subprime borrowers.
Racer X | 05.31.08 - 12:10 pm | #

Kid Clu writes:
Countrywide is not accounting for current borrower psychology. Most mortgage companies told borrowers that they should not worry about future payment affordablity, since their mortgages could be refinianced ad infinitium. As a result, most borrowers already feel that mortgage companies have screwed them. Mortgage companies telling borrowers they have to pay up front money to MAYBE work out a loan that the mortage company should have never written in the first place, while having to deal with a mortgage servicing clerk who would get fired the first day as a WalMart cashier, is like waving a red cape in front of an injured bull.

Countrywide should change their corporate mantra to "REOs and Regulations: Bring It On !", because that is what they are going to get.
Kid Clu | 05.31.08 - 1:05 pm | #

Bloddy fingers writes:
speaking of shills, Cramer and Doug Kass are backing an untenable position. Somebody must OWN them. Why, with no shred of evidence, would they say by June 6 or thereabout will come the bottom of housing and financials? I suspect the contrary, that between June 6 and July 15 will be the worst showing in equities for both sectors. These shills hope the masses will forget, or that their lemming nature will forgive their massive gaffes. NOT!
Bloddy fingers | 05.31.08 - 1:06 pm | #

Nemo writes:
Bankruptcy Lawyer --

I was with you until this point:

When the income never supported the reset loan payment - i.e., most subprime and a big chunk of Alt-A - cramdown is the only thing that will shorten the turmoil and let America's neighborhoods stabilize.

America's neighborhoods will "stabilize" when house prices reach a sane multiple of incomes, and not a moment before.

How exactly are cramdowns going to shorten that process? Cramdowns are simply a gift of property to those same people who took out loans they never were able to afford. How that will help house prices reach equilibrium?
Nemo | Homepage | 05.31.08 - 1:12 pm | #

Broker writes:
Lawyerliz, when a while back I said that condos in most of Florida would go down in value ~70%(in reald $s from `05 peak), you didn`t believe me, remember? And if you think that`s bad, just wait to see what`s going to happen with commercial properties and commercial vacant land.
P.S. These were my predictions in `05 for RE price decline in Florida: ~60% for rez.,~70% for condos, ~70-80% for commercial, and ~80-90% for vacant commercial land.(in real $ from `05 peak)
Broker | 05.31.08 - 1:13 pm | #

Elvis writes:
Broker,
How much do you thing the FL properties will go down in terms of cheese? I've got a lot of cheese (all kinds including a significant amount of cheddar and bleu) and I was thinking about using it to buy FL real estate. I wonder if I have enough.
Elvis | 05.31.08 - 1:17 pm | #

Paul writes:
How exactly are cramdowns going to shorten that process? Cramdowns are simply a gift of property to those same people who took out loans they never were able to afford. How that will help house prices reach equilibrium?

How many folks are you willing to throw out on the street to save a few bucks for a bunch of hedge fund investors? I will never understand this hostility toward overwhelmed dumb people in America that results in more concentration of wealth. Criticize the dumb people for being dumb - but do you really want to extract another few bucks from those who are insolvent and enrich the wealthy just to make a point?

It's not about, IMO, prices reaching equilibrium. It's about limiting the damage to the the borrowers and the rest of us who depend on their meager spending for a living.
Paul | 05.31.08 - 1:27 pm | #

Melancholy Korean writes:
This idea is a fresh, innovative approach to the selling process within a relationship based, B2B, complex selling environment. It would be presented in the context of selling Technology Products/Services...

Hahaha. Almost as good as George Saunders.

What? It's not ironic?
Melancholy Korean | Homepage | 05.31.08 - 1:30 pm | #

Diogenes writes:
Paul, please get real. These deadbeats are not being thrown out on the street. By definition, if they are not paying the mortgage they have or should have money for RENT. Your rationalization to screw the hedge fund managers is a non starter...you and your fellow americans are screwing Norwegian retirees and folks all around the world who "delayed their gratification" and saved so we could go down to the pub and do a few more shooters for $7.00 a pop. Have you ever thought of running for the house or senate? You are qualified.
Diogenes | 05.31.08 - 1:43 pm | #

Jeff's Moped writes:
Bankruptcy Lawyer -

I humbly submit allowing banks to foreclose, and flush out the homeowners who couldn't afford the home from the moment they signed on the dotted line, is also a way out of this mess. I disagree that allowing cramdowns is the "only way" to solve this problem.

Allowing cramdowns certainly is one way, but certainly not the only way.

And, allowing foreclosures has a few advantages over allowing cramdowns, in my opinion: (1) schadenfraude, (2) lowering house values, so that the average working family (who didn't engage in fraud, or otherwise stick their head in the sand) can finally afford to buy a home, and (3) probably lower transaction costs, since relatively few Chapter 13s actually ever get completed (and since the foreclosure process is probably cheaper on the whole, when considering the BK attorney fees and the time cost of money associated with delay of an otherwise inevitable foreclosure).
Jeff's Moped | 05.31.08 - 1:44 pm | #

Lawyerliz writes:
I just think that cramdowns will save the BANKS (and the Norwegians) money.

If the cramdownees can't make it with a, say, 30% cut in principal (in Miami), and a 30% cut in payments, well, the bank has probably got an income stream for a while, and the people can still get foreclosed out.

And people are living in the houses, so they're not rotting or being vandalized. I think this is a win-win situation.

As of 2 months ago, Case-Shiller has Miami down 25%, so if you bought a 400 grand house, now it's worth 300.
And some people who could not buy at 4 can buy at 3, except everyone believes there's further to go. I personally think that it has gone down another 8-10% over the last 2 months. That gets you to 260. Seems to me that's really getting down into affordibility territory for a whole lot more people. Except that no first time buyers have any money. They sure as heck don't have 20%. And as posted above, having never experienced financial adversity, their saving knowledge is nil.
Lawyerliz | 05.31.08 - 1:56 pm | #

Upside down home writes:
Not everyone is making late stage requests, I've been at it since July of 07 and the lender is the one playing dodge reality.
Upside down home | 05.31.08 - 2:08 pm | #

Paul writes:
Diogenes writes:
Paul, please get real.

Sure, I've seen my investments in financial companies reduced. My portfolio hasn't increased in value much this year. I just bought a new car - smaller than I might have otherwise, but still new. My brother still invites me sailing on his boat. My friend still spend $1000 on booze for his birthday party. (I know, I'm so low class still.) I'm just saying, I can afford to lose a little on my portfolio of MBS since throwing people into insolvency just makes the problem worse.

Everyone is going to take a loss. I'm just saying I'd rather it were a little more weighted toward the wealthy deadbeats. We have more of them and they (we) can afford it. If that makes me qualified for public office, then sign me up.
Paul | 05.31.08 - 2:09 pm | #

Alec writes:
bloody fingers,

I would suggest Cramer/Kass is as follows:

Like in March, a bunch more writedowns will be announced starting Monday in financials. After the drops, this should be the last of the minor announcments(relatively speaking) so by next week financials should rally like they did in March up until the July 8k's come out and the big banks say(except citi) "See, we're OK, the worst has passed(for us, anyway)."

A month ago I qould have concurred, but the issue of HELOC writedowns now is clouding things. Is CFC's servicing incompetence unique to the industry(re delayed disclosure of past HELOC defaults)? Much depends on that issue.

Regional banks aee a whole different kettle of rotting fish.
Alec | 05.31.08 - 2:13 pm | #

Bankruptcy Lawyer writes:
Nemo: America's neighborhoods will "stabilize" when house prices reach a sane multiple of incomes, and not a moment before.

How exactly are cramdowns going to shorten that process? Cramdowns are simply a gift of property to those same people who took out loans they never were able to afford. How that will help house prices reach equilibrium?

Cramdowns aren't a gift of anything to anybody. They are a market-value sale to the home's existing occupant, conditioned on a requirement that the buyer make the first 36-60 monthly payments. It's a much better deal for the noteholder (not to mention the neighbors) than foreclosure, vacancy and REO (the servicer, default servicer, foreclosure lawyers, foreclosure inspectors, etc, not so much. Too bad.)

Jeff's Moped: I humbly submit allowing banks to foreclose, and flush out the homeowners who couldn't afford the home from the moment they signed on the dotted line, is also a way out of this mess. I disagree that allowing cramdowns is the "only way" to solve this problem.

If the system were already fully funding the transaction cost of foreclosure you could be right. As it is foreclosure can't take place in many areas for years from the last payment, with delays and costs in the pipeline at every stage of the way from default servicer through the courts to the auctioneer. The collateral damage to homeowners associations, municipalities, and neighbors doesn't have to happen if you just let a person's home be treated the same as the law already treats the boat, investment property or vacation home, by allowing repayment of the home's value in a court-supervised reorganization.

Lawyerliz has it exactly right. The reason to allow cramdown is not for its benefit to the borrower, but for its benefit to the lender, the investors, and the neighbors. Which is all of us.
Bankruptcy Lawyer | 05.31.08 - 2:25 pm | #

Paul writes:
gift of property to those same people who took out loans they never were able to afford.

Let's not forget that EVERYONE knew that going in. The whole point was that rising home prices would make it affordable - and for several years that all worked out just fine thanks. The realtors and mortgage brokers got their commissions. The lenders got their closing costs. The Wall Streeters got their securitization fees. It was a very nice ride until the lending standards got so crazy that the defaults started and the scheme collapsed.

Now we call the borrowers deadbeats and subprime slime (my personal favorite).

The reason to allow cramdown is not for its benefit to the borrower, but for its benefit to the lender, the investors, and the neighbors. Which is all of us.

Exactly.
Paul | 05.31.08 - 2:51 pm | #

sdtfs writes:
The reason to allow cramdown is not for its benefit to the borrower, but for its benefit to the lender, the investors, and the neighbors. Which is all of us.

Yea, but some of us are wondering if we can get some of that without being in dire financial straits.
sdtfs | 05.31.08 - 2:56 pm | #

Lawyerliz writes:
Nope, sdtfs.

Then it would be a free gift.

Maybe the cramdowns should be allowed only for filers in the next 2
years. Would that be an ok compromise.

Hmmm, maybe starting 3-4 months from now. To scare the lenders into to doing the right thing for THEM.

If they really don't want cramdowns, then they could ramp up the mods temporarily and say, see, we can do it!!

Never happen.
Lawyerliz | 05.31.08 - 3:00 pm | #

Taos writes:
NO ONE should give them a dime until Mozillo gives back his ill gotten gains...PERIOD!
Taos | 05.31.08 - 3:05 pm | #

Effective Demand writes:
Tanta,

I thought you might have "fun" reading this blog, Confessions of a Subprime underwriter
Effective Demand | Homepage | 05.31.08 - 3:08 pm | #

Wayne writes:
Outstanding post, thanks for your insight.
Wayne | 05.31.08 - 3:13 pm | #

Paul writes:
some of us are wondering if we can get some of that without being in dire financial straits.

Who are the deadbeats?
Paul | 05.31.08 - 3:25 pm | #

Nemo writes:
Bankruptcy Lawyer --

The reason to allow cramdown is not for its benefit to the borrower, but for its benefit to the lender, the investors, and the neighbors.

Don't the lenders already have the power to forgive and restructure debt? If it is really in their best interest, why do they need a court to order them to do it?

Interesting that the two lawyers on the thread are the ones arguing most forcefully for cramdowns. Gee I can't imagine why.

Also, you did not answer my question: How will cramdowns help house prices reach equilibrium sooner? If the answer is "not at all", then claiming that they will "shorten the turmoil" is pure horsesh*t.

Paul --

I will never understand this hostility toward overwhelmed dumb people in America that results in more concentration of wealth.

I have no hostility toward dumb people. I simply want everyone to get precisely what they signed up for. Plenty of ordinary people (admittedly, myself included) skipped this whole pyramid scheme and have been saving carefully for a long time. I have been waiting for the day I can buy an affordable house, and anything that threatens to delay that day strikes me as irrational, not to mention unsportsmanlike. So yeah, proposals like "interest rate freezes" and "cramdowns" draw a bit of my fire.

But I definitely have no hostility toward dumb people. Lawyers, on the other hand...
Nemo | Homepage | 05.31.08 - 3:27 pm | #

central_scrutinizer writes:
Anyone who listens to Cramoron or Kass the Klown deserves what they get. Remember, Cramer was pitching Thornburg mortgage when it was trading in the mid-teens (for those who don't follow the market day to day, TMA is now trading below $1.00 and about to be delisted.)
central_scrutinizer | 05.31.08 - 3:41 pm | #

Paul writes:
I have no hostility toward dumb people.

I support bailouts, cramdowns or whatever makes this problem less serious because I am willing to put aside my concerns about sportsmanship in favor of preventing serious economic problems. I calculate the risk associated with indulging my self-righteous indignation as higher than the risk of doing nothing. It's really quite simple. I may be wrong in that calculation, but I'm willing to take that calculated risk.
Paul | 05.31.08 - 3:42 pm | #

Paul writes:
OOPS -

I calculate the risk associated with indulging my self-righteous indignation as higher than the risk of doing SOMETHING.
Paul | 05.31.08 - 3:43 pm | #

manu06 writes:
I gotta say K.I.S.S.. The more complicated we make the solution the less likely it is to work. If I think
that I could quit paying my mortgage and have the
principle reduced I'd be tempted. Nemo is 100%
right on the money. I"m sorry if people get thorwn out but there's plenty of rentals coming online .
manu06 | 05.31.08 - 4:20 pm | #

Bankruptcy Lawyer writes:
Nemo: Don't the lenders already have the power to forgive and restructure debt?

No. The "lenders" sold the loans to securitized trusts shortly after funding. None of the decision-makers in the securitization can write off principal without a court order.

Interesting that the two lawyers on the thread are the ones arguing most forcefully for cramdowns.

It's healthy to suspect bias of every player in the process. Those of us with existing expertise in the field are going to be busy for awhile, but I admit that all the retooled closing attorneys might be able to learn bankruptcy instead of finding other work. Let's turn things around -- what benefit do defaults, foreclosures, evictions and REO provide for Nemo?

How will cramdowns help house prices reach equilibrium sooner?

As I said, by selling the home for its market value to a buyer who is already living in it, avoiding all the direct and externalized costs of foreclosing, evicting, and maintaining vacant housing.
Bankruptcy Lawyer | 05.31.08 - 4:55 pm | #

barely writes:
"The reason to allow cramdown is not for its benefit to the borrower, but for its benefit to the lender, the investors, and the neighbors. Which is all of us"

Too much additional danger to the system. If busting contracts and re-writing them with a 30% haircut to principal becomes all the rage, where will it stop? What about the neighbor that's battling to keep payments current now. Why bother? It could spiral out of control. I say let the deadbeats rent and let the banks and MBS holders take it on the chin. The sooner the better.

I want a 30% reduction in principal.
barely | 05.31.08 - 5:29 pm | #

jm writes:
Nemo wrote:

I have been waiting for the day I can buy an affordable house, and anything that threatens to delay that day strikes me as irrational, not to mention unsportsmanlike.

But Nemo, consider that one effect of cramdowns is to enable people to sell at an actual market price without without having to bring more than the realtor's commission (which will be a lot smaller going forward, thanks to the recent court decision breaking the MLS monopoly) to the closing.

Properly implemented, cramdowns should drive market prices down to realistic levels without the enormously wasteful process of foreclosure.

Also, they will greatly diminish the desirability of mortgage-backed securities as investments, raising interest rates and further depressing prices into more affordable ranges for those who can have saved significant down payments.
jm | 05.31.08 - 5:35 pm | #

Invisible Hand writes:
Paul,
Why are you wasting your time on this blog when you can still make the deadline for the Congressional elections this fall? DO SOMETHING!
You already have a red-hot solution for the second-biggest problem on the voters' minds (after gas prices).

All to often the dumbest government policies come from the shrill public demand do "DO ANYTHING, but DO SOMETHING NOW!"

In my opinion cramdowns would be devastating in the longer run because they will further dry up the supply of mortgage investors. The subprime mess has already scared most foreign MBS buyers away from US mortgages, and cramdowns will greatly accelerate the exodus of even US investors.

The lifeblood of US homeownership is mortgage credit. Scare away MBS investors and the bottom of the market is very far down.

But don't waste time reading my message. Run for Congress, now!
Invisible Hand | 05.31.08 - 6:21 pm | #

Bankruptcy Lawyer writes:
Investors have all along been buying MBS and CDO backed by commercial property, second homes, not to mention car and equipment loans. All of these have been subject to cramdown since 1980. Why do you think an established procedure to mark paper to market will frighten them more than foreclosure losses?
Bankruptcy Lawyer | 05.31.08 - 7:01 pm | #

squeezed writes:
IMO many of those underwater were not innocent bumpkins but rather speculators that *believed* that housing could only increase in value. And as such many made the calculated bet to apply as much leverage as possible.

F*** 'em.

Another flawed premise is that home ownership is a critical ingredient to a stable society. I could not disagree more. Some of the most prosperous western democracies have far lower ownership rates. Those same nations also tend to consume less energy and *debt*.
squeezed | 05.31.08 - 7:14 pm | #

Lawyerliz writes:
I don't do bankruptcy, so am not planning on making money out of cramdowns. I send potential bankrupts to the team at the other end of the hall in my building.

Banks are stupid. Haven't you all noticed that. They are completely oblivious of their own best interests, which would be ok by me, except it affects the rest of us.

You can use the slippery slope arguement to oppose doing anything at any time.

I am already hearing of anecdotal evidence of perfectly nice housing
rotting in the hands of the lenders.
Well, I guess that will get rid of some of the housing supply.

In Miami-Dade and Broward (which I have been told is worse!), I anticipate a 50% haircut. Some people given 30% off will be grateful and hang in there whereas otherwise they will walk. Not all. Some. Enough to make a difference.

People walked into this stuff simply because everybody else was doing it.
No thought whatsoever. In my bleaker moods, I long for social darwinism to eliminate some of these stupids from the gene pool. But, I suppose, the herding mentality was probably useful sometime in our past, and who knows? may be useful again.
Lawyerliz | 05.31.08 - 7:20 pm | #

moo goo the majik money maker writes:
Overheard at the Countrywide Corporate Clam Bake:

Flunky #1: "Jesus, Susan from the deadbeat patrol is hot."

Flunky #2: "Shut up, if these projections are right, servicing revenue is gonna flatline soon. If we don't figure something out, your dream girl in loss mit is gonna be shaking ME down for dough!"

"Well, if we can't get'em on the phone, they're broke, and their loan is FUBAR, what are we gonna do? Foreclose'm and move on."

"Move on to what, you nit? Let me paint you a picture: loan FC's, servicing is dead, revenue is gone, our department is toast, our jobs are pinked, our income is lost and we're in the same bread line as these dumbbells on the other end of the line. Jesus, wake up! We didn't get any skin from'em on the front end, maybe we can get some on the back?"

"How we do that?"

"Dunno...We've bled everyone dry. This could be hard because we've gotta seem like WE'RE the harmed party when all we're really trying to do is recoup some of our loss mit costs which are, let's face it-sunk anyway, while not promising to do anything particular up front."

"Except cash their check, and stuff the extra/ new personal info into a database for future collection efforts?"

"Exactly. Wait, I got the carrot."

"Carrot?"

"Yeah, when they finally call us, if they'll pay some % of the fees we've racked up on'em, we'll talk. We won't promise any broad workout plans so it's not like we're on the hook for anything. We don't like what they're offering- BOINK!, thanks for the cash, boner."

"Right. So, you're saying there's probably no blood left in this turnip, why not dangle a little "somebody done somebody wrong song" out there and see what turns up. Easy money, no risk, sunk cost anyway."

"Now you're on the trolley!"

"Wait! If they buy in at 30% or so, we can probably dangle'm in the dead letter office for another 18 months or so and lay claim to another few thou in fees!"

"God I admire you."
moo goo the majik money maker | 05.31.08 - 9:07 pm | #

Invisible Hand writes:
Bankruptcy lawyer notes that cramdowns have been allowable for Commercial Mortgage-backed Securities since 1980. I did not realize that, but it serves to illustrate the contrast with Residential MBS.

The investor market for Commercial MBS is much smaller and more sophisticated than for Residential MBS. Also interest rates are higher for Commercial MBS.

Until recently, most investors in Residential MBS never even thought about cramdowns. The more its discussed, the more they will panic.

This is admittedly anecdotal evidence, but the 401k at my office allows us a number of investment options, among them a fund that includes Residential MBS. I know several people who have recently moved their money out of that one. (I got mine out years ago, and have never regreted it.)
Invisible Hand | 05.31.08 - 9:25 pm | #

Bankruptcy Lawyer writes:
Invisible Hand: Bankruptcy lawyer notes that cramdowns have been allowable for Commercial Mortgage-backed Securities since 1980. I did not realize that, but it serves to illustrate the contrast with Residential MBS.

The investor market for Commercial MBS is much smaller and more sophisticated than for Residential MBS. Also interest rates are higher for Commercial MBS.

To clarify, all secured loans can be crammed down except when the collateral is owner-occupied RE (and certain recent car loans). There's no distinction between portfolio loans, private hard money, or securitized loans.

I agree that the market for MBS and CDO was unsophisicated. This was not a good thing. Wall Street bankers (and rating agencies) out-clevered themselves and left Main St. holding the bag. For the next couple decades mortgage money will come from traditional sources and not from selling derivatives to Norwegian retirees (or the central bank of China).

This is not a bad thing. The American republic did just fine for two centuries with the lender who would take the actual risk underwriting loans based on the actual likelihood of repayment. But for some Wall St. whiz kids who got paid on the flip, we could still be just fine.
Bankruptcy Lawyer | 05.31.08 - 10:04 pm | #

Datahead writes:
As much as I hate to admit it, I actually agree with Countrywide's policy here. Like you said, they are basically willing to begin a workout with 30% of overdue payments. I have heard nightmare stories (perhaps exaggerated) about dealing (or more accurately - not being able to deal with loan mit departments), and I'm not about to let Countrywide off the hook.

In terms of a "one size fits all" policy, you're right they are probably destined to fail. But unfortunately, the loan mit departments don't have time to develop a new strategy for every workout. They have to come up with reasonable and simple templates that can be applied to similar categories of delinquent borrowers. They are in the financial industry, haven't they ever heard of data mining. They already have tens of thousands of cases, find successful workouts and develop a systematic blueprint to clone those.

I believe they're dealing in uncharted territory (in terms of price depreciation), so they have to be forward looking also and understand that keeping families (if they have the desire and ability to pay on reasonable rates) in homes is best serving their fiduciary responsibility. The mortgage industry and Wall Street investors are long past actually recouping all that they first expected to get. It's now about finding the best possible outcome for their shareholders.
Datahead | 05.31.08 - 10:21 pm | #

Lawyerliz writes:
Data mining? Fiduciary duties?

Spending money on people to figure this stuff out?

Worrying about shareholders?

Nope, they probably never did hear about data mining.
And they don't have any fiduciary duties, for real, and they don't know what that is either, and don't want to know.

If Mozillo was worried about shareholders, he would have used some of his immense salary to pay some dividends.

Datahead, you sound like a dear sweet person, but should stay on Planet Happiness where people are competent and caring. I would like to join you there, if I thought it really existed.
Lawyerliz | 05.31.08 - 10:51 pm | #

JLR writes:
Bankruptcy Lawyer,
I agree with your line of reasoning but for one point. The cramdown will result in a new asset value most likey based upon what the borrower can afford not what the market value is, correct? If this is the case, then how will cramdowns effect price discovery with any greater efficiency?

JR
JLR | 05.31.08 - 11:37 pm | #

JLR writes:
Oops, I meant to sign that JLR, there already is a JR poster.

JLR
JLR | 05.31.08 - 11:38 pm | #

Tom writes:
Nemo: Interesting that the two lawyers on the thread are the ones arguing most forcefully for cramdowns. Gee I can't imagine why.

I have repeatedly argued for cramdowns. I am not, nor have I ever been, a lawyer, if that satisfies the requirements of whatever McCarthyite oath I should swear.

I don't believe I should have to state this on Every Thread Where The Topic Arises. In future threads, please stipulate my Forceful Non-Lawyerly Argument For Cramdowns whether I post it or not. Thanks.

By the way, I agree with Countrywide's policy in this instance, as Tanta has explained it. I have no information as to whether I should agree with it's implementation by Countrywide.
Tom | 06.01.08 - 12:08 am | #

republicans are traitors writes:
Is Mozilo in prison yet. Maybe he can fake a heart attack like Ken Lay, which is fine also.
republicans are traitors | 06.01.08 - 12:56 am | #

other jim writes:
To now ask those same folks to enter into complicated negotiations with "loss mit specialists" seems to be asking too much, even though it is necessary....
Maybe this is the only proper bailout for these folks - provide them with free legal representation in their work out negotiations.
Paul | 05.31.08 - 9:38 am | #

See Tanta's suggested letter to the loss mitigation department. As I recall, it went something like, Here is what I can afford to pay (insert dollar amount). Here is the rest of my budget to support that number (insert numbers). Here is the evidence to support notion that recent late payments are only temporary. (insert evidence of job loss, medical problems, etc.)

If the problem is that you bought too much house for your income, then your best option is to move to cheaper housing that you can afford.

There was a mention of houses falling into decay if not occupied. On a distantly related note, many years ago, some friends had their car repossessed for the usual reason. Some months later they happened to go by the repo lot and there was the car. All four tires were flat and the mother remembered where she had lost the baby bottle, behind the back seat still full of milk. Doubtless, the bank finally got some money for the car but nothing like what our friends would have paid if they had a little more time to get caught up.
other jim | 06.01.08 - 2:32 am | #

Broker writes:
I can`t believe these nefarious capitalists pigs from Countrywide are trying to get some of their money back from those poor specuvestors.
P.S. I am no fan of Angelo Mozilo, but when you consider that the great filantropist F.D. Raines( ex CEO of Fannie who donated ~$400 million of company`s money to himself) walked away after paying only 20 million back, I don`t know what to think anymore.
Broker | 06.01.08 - 8:34 am | #

Bankruptcy Lawyer writes:
JLR: I agree with your line of reasoning but for one point. The cramdown will result in a new asset value most likey based upon what the borrower can afford not what the market value is, correct?

No. The value is market value. For cramdown, the Supreme Court has held this means what the borrower would pay to get an equivalent home (which is higher than liquidation value).
Bankruptcy Lawyer | 06.01.08 - 9:21 am | #

Lawyerliz writes:
If anybody reads this, I do think the bankrupt will try to prove that the house is worth what she/he can afford.

If cramdowns were allowed, the number of bankruptcy judges would have to double or triple!!
Lawyerliz | 06.01.08 - 9:52 am | #

Bankruptcy Lawyer writes:
Lawyerliz: I do think the bankrupt will try to prove that the house is worth what she/he can afford.

Yes, and the creditor's appraiser will say the house was worth what the 2005 appraisal said. If our legal system has a valuation specialist, it's a bankruptcy judge -- they've been determining current market value on commercial, investment, and metal collateral all along.
Bankruptcy Lawyer | 06.01.08 - 10:14 am | #

kjm writes:
Cramdowns are another short-term fix with long-term problems. They are NOT 'selling the house to the present owner' because a house sale takes offers from any qualified buyer and requires a down payment.

Cramdowns also don't allow price discovery because, as stated above, they are NOT a sale. Cramdowns on a massive scale will create 2 classes of homeowners -- those who will not have to sell because they got a price adjustment, and those who can't sell because they did not get a price adjustment.

So, cramdowns help a select few while not addressing the underlying problem which is over-priced homes. Those who did not get cramdowns will not be able to sell later and so they will either need cramdowns first in order to sell or they will be a short sale.

There is no easy way out of this over-pricing nightmare and thinking that a million or so cramdowns is the magic wand is just more wishful thinking.

And since most people in danger of foreclosure also have 2nd loans and very often, 2nd houses, I think the cramdown scenario is workable in only a very few cases anyway, which would be a gift to those few while not solving any larger problems.
kjm | 06.01.08 - 10:16 am | #

JLR writes:
Bankruptcy Lawyer,
Then it is a price that is based on existing market prices, based on the bankruptcy judge's valuation estimation, not discovered through market dynamics. Consequently, cramdowns will not more efficiently effect price discovery. That's all I'm arguing.

JLR
JLR | 06.01.08 - 10:39 pm | #

mack writes:
Whatever the asset, it's apparent that discovering a valid market price is the thing to be most feared these days.
mack | 06.02.08 - 1:31 am | #

Pondering the Mess writes:
Paul said: "I support bailouts, cramdowns or whatever makes this problem less serious because I am willing to put aside my concerns about sportsmanship in favor of preventing serious economic problems. I calculate the risk associated with indulging my self-righteous indignation as higher than the risk of doing nothing. It's really quite simple. I may be wrong in that calculation, but I'm willing to take that calculated risk."

So, you're willing to have housing permanently unaffordable AND reward idiots to "reduce risk?" Rewarding idiots, IMHO, never reduces risk - it just encourages them to be stupider next time.
Pondering the Mess | 06.02.08 - 9:06 am | #

DonKei writes:
Let me confess, before I begin, that I am a lawyer. First, IMO there is nothing wrong w/ Countrywide's policy.

Second, cramdowns are fine, and should be a routinized part of Chapter 13 bankruptcies, but of nothing else so far as residential real estate is concerned. Forcing cramdowns outside of the bankruptcy court would be sheer insanity. I'm not sure whether that was what the other lawyers were after. Inside of bankruptcy court, where all assets and liabilities are in play, the true economic value of every asset should be at issue. That cramdowns aren't now allowed for residential real estate is incorrect and inconsistent.

I suspect cramdowns would very rarely be relevant. Very few debtors have the ability to meet a repayment plan of any sort, which is the only instance where a cramdown would matter such that the debtor got to keep their house. Even a cramdown of value by 50% only makes a 100% secured loan now a loan that is 50% unsecured. The unsecured part is written off in a discharge, the rest is subject to foreclosure if the debtor doesn't pay. I doubt few would be saved.

I am with the rest of the commenters that the best thing to do is mostly nothing, just like we did on the way up--let the prices fall like they rose--and then the market will clear more quickly. Government interventions intended to prevent crashing prices will only delay, not deny, the ultimate pain.
DonKei | Homepage | 06.02.08 - 12:18 pm | #

Anonymous writes:
Bankruptcy Lawyer -

You're assuming that the cramdown option will somehow act as a surrogate for the "gamesmanship" that can drive up the cost of foreclosures.

I'm not on board with that assumption. My experience is that the BK, for most borrowers, is simply another quiver in the arsenal of that gamesmanship.

(And, for the record, this attorney isn't pushing for a cramdown - although I'm ambivalent about the ultimate effects of any rule allowing it. While I think the practical effect of allowing cramdowns would be about a 1.2 on the Richter scale, my point is simply that a cramdown isn't going to be the silver bullet folks are making it out to be. And, personally, I think the hard working families that rented for all these years are just as worthy an owner of a home in distress as the tapped out owner who simply bit off more than they could chew. Of course, I also sit opposite the aisle from Bankruptcy Lawyer most days.)
Anonymous | 06.02.08 - 11:59 pm | #