Foreclosures: Some Communication Resumes; Workout Prospects Still Look Bad
Okay, some almost-good news this Monday Morning: The complete (or near-complete) shutdown of mortgage workout negotiations that hit us (at least in Michigan) last Monday morning, following the Fannie/Freddie debacle over the previous weekend, appears to at least not be a shutout any more. Several clients, and one lawyer who does workouts, tell me that they’re at least being talked to again; though nobody’s made any concrete progress so far.
I’m happy about that, but the same people who are happy with me are also urging major caution about thinking the worst is over. One attorney with 30 years’ experience in finance told me that he’s “genuinely scared”. And even without the influence of last week, whatever it turns out to be, I can see where they’re right — you need to “walk on water” to get a refinance now anyway, and guess how many people in financial trouble — due to lost jobs (half a mil thanks to the “big three” alone!), illness (don’t worry, your health insurance will…oh, wait, nevermind), or the generally crappy economy — have the kind of credit and resources they need to refinance in order to save their home? Even the supar-speshall Michigan “Save The Dream” program won’t help you if your credit score is under 640! (If you don’t believe me, call them — they often won’t tell you what their requirements are, but they’ll send you to a MSHDA counselor, whose job it is to deliver the bad news. I’ve yelled at them over the credit-score requirement personally, and they tell me that it’s because the state didn’t want to have to insure those loans, and the insurer they got wouldn’t do it if anybody’s score was under 640. The federal (FHA Plus) program will accept a slightly lower score, but their requirements for credit history are stricter.)
Mortgage modifications seem like the perfect answer, as even the Administration has said — banks who can save a family’s home by lowering their interest rates or monthly payments slightly, perhaps by extending the term of the loan or reducing the loan amount if it’s way over the value of the home — should be as much winners in the deal as borrowers who don’t end up homeless, since banks typically take a huge financial hit from foreclosures (even if they don’t own the mortgage anymore, they still have to maintain and sell a home in a crappy market). But I’ve now heard from several sources I consider reliable that, with Fannie and Freddie apparently going to be held up by the government, and offering a solid 80% to banks with loans in default, the motivation for banks to do workouts may be disappearing. They may not lose 20% on the deal they make you, but even if they don’t, who’s a more reliable payer — you or Fannie/Freddie? If you were a bank, would you take 90% probably, or 80% definitely, if you were making those decisions on a massive scale?
Anyway, I just wanted to give an update to say that the “Black Monday” shutout seems to have been some kind of reaction, rather than a policy change, and WHEW thank goodness for that; but in spite of that good news, things overall do NOT look good for homeowners from where I’m at.
And now, if you don’t mind, I’m going to try to stop talking about Doom-y Work Stuff here. I freaked out a bit last week…having to spend all day telling people they’re losing their homes will wear on you a bit…and I’m not apologizing for that, because I think the current situation around here is legitimately frightening. But aside from doing my job, there’s not much I can do about it, and I hate dwelling on the negative. So, before I close this topic, I’m going to make one more post — about helpful things I know for people facing foreclosure. At least I can be a little useful. But beyond that, there’s really nothing more I can say.
Yuck.
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