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velecico
5311 Posts |
 Posted - 12/30/2007 : 11:48:07 AM
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| Corona Steve calm down , you are reading into things to much , the 2 homes are across the street , not me or my company , I have posted a reply on the other blog site where this is being discussed , on Monday we will contact the Camden FHA field office to present the scenario as the new mortgage would be eligible for FHA financing , lets try to keep the moral police at bay and stick with the facts as they have been presented , furthermore I promise to keep everyone up to date with the negotiations on the proposed purchase of the home acress the street along with the response of some of my local AEs. |
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MisterVA
8643 Posts |
Posted - 12/30/2007 : 11:59:55 AM
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quote:
Originally posted by mtgheaven
Its too bad that there are too many people giving the higher then though attitude of ethics and what is considered outright fraud. If you do not have an answer to the question don't answer it. Velecico had a question and it was based on his/her current loan...change the channel if it is beyond your ethical standards.
Would you consider the robot's actions in Lost In Space in the same vein? [When it exclaims "Warning, Dr Smith! Warning, Dr. Smith!"] People may not like the advice they receive, but do not dismiss it as 'Holier than Thou'. In this day and age, situational ethics in the mortgage business is not where you want to be. There is lots of good advice given here, so I am not going to change the channel. |
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velecico
5311 Posts |
Posted - 12/30/2007 : 12:09:48 PM
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| On the REO the disposition of the present property would be RETAINED , its not a rental and he does not want to retain it if he could sell it , but the facts are that at closing , unless a miracle happens and a buyer comes along , he will retain it at the time of closing , fact he has offered CW the deed in lieu of foreclosure but they will not acceppt it , so technically it is being RETAINED , I carried the entire PITI into the ratios and got a DU Accept , the property has been listed for sale at 800K , no showings no offers , CW will not even consider a shortsale since he is current now , so letting it go into foreclosure will open up a shorsale possibility , I dont see how the borrower is scamming anyone or committing fraud if the new lender knows whats going on and they elect to do the loan anyway , hey , I would not be surprised if BOTH deals can be done with CW with CW knowing exactly whats going on from the beginning , in fact I plan on calling the AE on Monday and ask her opinion |
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sheriephillips
427 Posts |
Posted - 12/30/2007 : 12:15:48 PM
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quote:
Originally posted by MisterVA
quote:
Originally posted by sheriephillips
Interesting to see how many broker's are saying to walk away from the loan. It's refreshing, but I doubt many brokers would if they have a chance to make money. In fact, this is the kind of deal a certain type of broker would really score with and charge a boatload of money for his services. Most brokers I know would think, if you're defrauding the lender, then I want a piece of the pie too. I had deals where borrowers were paying upwards of $25K in broker upfront fee's - and you think, why on earth would a borrower pay this kind of money for a loan? Then found out the broker was kicking back some of the money after closing or the deal was so stinky, it was his "pimp" fee to get the deal done. One borrower was promised a kickback on a loan after it funded and later went into default. He said he couldn't afford the payments. Later we found out, the broker made a deal to kick back a lot of money after closing to off-set the borrowers payment with the promise to refi the borrower again in 6 months (yeah, like that was going to happen!!). The funny part was, the borrower kept the emailed correspondence from the broker with the broker's promise of a kickback and when the broker did write the borrower a check after closing, the check bounced!! So the borrower had the bounced check as well!! Needless to say, who got stuck holding the bag? The lender - the house promptly went into default, the borrower moved out and that was the end of it. I don't know if our legal department pressed charges, but they had plenty of amunition against the broker.
How do you know that? Pretty broad brush you are using.
I didn't say all brokers, but you'd have to admit, you know that many brokers would take advantage of the situation. Listen, when it comes to money, people will do things they otherwise wouldn't. That's human nature. Ask Martha Stewart, she was given some tidbit of insider trading info, made a phone call, sold her stock - and she ended up in jail. Did she need the lousy $200K she made? Not really, but she got info and acted upon it because she thought she could get away with it and make a quick buck before anyone else could. It's easy to say, I'd do this and that... when you're not in the same situation. I'm sitting here thinking, are homes in my area down so much that I can do the same thing??? How many people return a wallet filled with money knowing no one saw them pick it up? If the ATM gave you an extra $20 stuck to the $20 you took out, do you turn around and walk into the bank to return it? If a check you wrote to your neighborhood cleaners that was never cashed, do you follow up to see why the funds were never taken out of your account? If you ordered a 20" TV and a 50" TV was delivered to your house my mistake, do you keep the TV or return it? See, there are so many times when faced with doing the "right" thing, people often don't. They may say they will, but hidden cameras show that if someone can 'get away" with something, they will try.
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lucky1s
3986 Posts |
Posted - 12/30/2007 : 12:16:37 PM
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I think Todd nailed where the fraud part would come in.
Truth be told the Schedule of Real Estate should say "Pending Foreclosure".
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velecico
5311 Posts |
Posted - 12/30/2007 : 12:20:26 PM
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No such thing as pending foreclosure , stick to the facts stop making stuff up as you go |
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EsMoix
45 Posts |
Posted - 12/30/2007 : 12:38:30 PM
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FHA has strayed far from its original mandate of serving low-income, first-time home buyers. Increasingly, FHA does not serve low income minority homebuyers. The FHA has aggressively moved into more upscale housing markets....[Cato institute 1995]
Here we go, using FHA as a middle-class entitlement program, this time to bail out a borrower who wants to rescind his 2005 purchase.
Tell me again, why did we push so hard to increase FHA loan limits?
I'm not unsympathetic to borrowers who are in over their heads. My own parents had their home foreclosed upon in the late 80's (Denver - oil bust.) But as Tanta at Calculated Risk is surmising, this borrower appears not to be in a world of hurt. If he can afford to carry the PITI on both properties without rental income on the 1st, I assume he can afford the Option ARM when it resets. If he sat tight, held the property the average length of time a homeowner's holds a mortgage (7-years), the value would trend back up. Instead, his neighbors rather than having one comp at a distressed sale, will now have two.
We lend because we can...
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MisterVA
8643 Posts |
Posted - 12/30/2007 : 12:38:59 PM
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quote:
Originally posted by sheriephillips
quote:
Originally posted by MisterVA
quote:
Originally posted by sheriephillips
Interesting to see how many broker's are saying to walk away from the loan. It's refreshing, but I doubt many brokers would if they have a chance to make money. In fact, this is the kind of deal a certain type of broker would really score with and charge a boatload of money for his services. Most brokers I know would think, if you're defrauding the lender, then I want a piece of the pie too. I had deals where borrowers were paying upwards of $25K in broker upfront fee's - and you think, why on earth would a borrower pay this kind of money for a loan? Then found out the broker was kicking back some of the money after closing or the deal was so stinky, it was his "pimp" fee to get the deal done. One borrower was promised a kickback on a loan after it funded and later went into default. He said he couldn't afford the payments. Later we found out, the broker made a deal to kick back a lot of money after closing to off-set the borrowers payment with the promise to refi the borrower again in 6 months (yeah, like that was going to happen!!). The funny part was, the borrower kept the emailed correspondence from the broker with the broker's promise of a kickback and when the broker did write the borrower a check after closing, the check bounced!! So the borrower had the bounced check as well!! Needless to say, who got stuck holding the bag? The lender - the house promptly went into default, the borrower moved out and that was the end of it. I don't know if our legal department pressed charges, but they had plenty of amunition against the broker.
How do you know that? Pretty broad brush you are using.
I didn't say all brokers, but you'd have to admit, you know that many brokers would take advantage of the situation. Listen, when it comes to money, people will do things they otherwise wouldn't. That's human nature. Ask Martha Stewart, she was given some tidbit of insider trading info, made a phone call, sold her stock - and she ended up in jail. Did she need the lousy $200K she made? Not really, but she got info and acted upon it because she thought she could get away with it and make a quick buck before anyone else could. It's easy to say, I'd do this and that... when you're not in the same situation. I'm sitting here thinking, are homes in my area down so much that I can do the same thing??? How many people return a wallet filled with money knowing no one saw them pick it up? If the ATM gave you an extra $20 stuck to the $20 you took out, do you turn around and walk into the bank to return it? If a check you wrote to your neighborhood cleaners that was never cashed, do you follow up to see why the funds were never taken out of your account? If you ordered a 20" TV and a 50" TV was delivered to your house my mistake, do you keep the TV or return it? See, there are so many times when faced with doing the "right" thing, people often don't. They may say they will, but hidden cameras show that if someone can 'get away" with something, they will try.
I did not say that you said 'all'. Just highlighted YOUR words. Do you think Barney Frank et al are taking the right approach? Do you think the media is on the right track concerning mortgage brokers? I would say that there are quite a few rogues who deserve all that is being meted out. But there are many more that are honest hard working individuals who are trying to do right by their clients. Enforcement of existing laws would have accomplished what was needed. But that would have taken money and manpower and would not have been as glorious for our lawmakers. I just disagree with you on the magnitude of the problem within our industry. |
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mgraham224
1008 Posts |
Posted - 12/30/2007 : 2:00:23 PM
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Yeah, yeah, yeah. I agree with all of the ethical and legal questions raised here.
But what about a situation where the borrower calls his current lender and says "I can't afford to pay you any more, and I plan to buy a cheaper house right now and try to sell the one with your lien, is that OK with you, or would I be in trouble if I can't sell it and it forecloses?"
What are they going to say? Nothing!
Then say he calls the new lender on the proposed new house and says: "I have this other house that I can't afford any more and that is why I am buying the new one. I'm going to try to sell my old house, but it might short sale or foreclose. Do you still want the loan?"
That, my friends, is the only answer we should be concerned with. If the new lender says, "sure, bring it on over," then this debate is over. If they say, "no, that's fraudulent," then the issue is equally solved.
Either way, if the "intent" to foreclose is disclosed to a mortgage broker, NO ONE should be taking on that deal UNLESS they have it in writing from both lenders that it was disclosed and accepted up front, which I doubt it would be.
At any rate, the bottom line is this: fully disclose dispositions of all current properties. Keep in mind here that "foreclosure" to one person might be "gonna try to sell it, but probably can't" to another person.
If the broker says, "I can't do the loan for you if you are intentionally going to foreclose on your current residence, but I can if you are going to try to sell it," I think this is the ethical gray area to be debated. Of course, no one should touch it if he says "intentional foreclosure."
Whatever the case, if the proposed future lender knows he has REO and knows the intended disposition, how could there be a problem? The only problems that can possible arise come from dishonesty and non-disclosure. If the loan is executed compliantly and previous and future lenders are consulted, go for it. If the there's no way to get it done given those terms, I would walk away. |
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toddblue
4343 Posts |
Posted - 12/30/2007 : 2:13:50 PM
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quote:
Originally posted by velecico
On the REO the disposition of the present property would be RETAINED , its not a rental and he does not want to retain it if he could sell it , but the facts are that at closing , unless a miracle happens and a buyer comes along , he will retain it at the time of closing , fact he has offered CW the deed in lieu of foreclosure but they will not acceppt it , so technically it is being RETAINED , I carried the entire PITI into the ratios and got a DU Accept , the property has been listed for sale at 800K , no showings no offers , CW will not even consider a shortsale since he is current now , so letting it go into foreclosure will open up a shorsale possibility , I dont see how the borrower is scamming anyone or committing fraud if the new lender knows whats going on and they elect to do the loan anyway , hey , I would not be surprised if BOTH deals can be done with CW with CW knowing exactly whats going on from the beginning , in fact I plan on calling the AE on Monday and ask her opinion
You are dancing on technicalities and not disclosing all known possible adverse issues to the lender. You are helping a lender get get screwed. I don't care how anyone tries to justify this as ethical, correct, or moral!
The individual bought the house fully knowing waht the payments would be based on his 100% financing. He should live with his decision!
You are helping a borrower for whom I would have no respect for. And in doing so you are sinking to their level. He is not only hurting the lender by planning to walk away from the home, everyone else in the area will suffer from one more foreclosure in the area.
I have read your posts in the past and have respectd your opinions. With this decision, you have the choice of taking the high road, or sinking into a SCAM! Don't go there.
You are only helping an irresponsible borrower game the system. In the end it hurts us all! |
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slants
4982 Posts |
Posted - 12/30/2007 : 2:20:20 PM
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quote:
Originally posted by Mandyvilla
quote:
Originally posted by slants
quote:
Originally posted by lucky1s
I understand there is some legislation in the works that will forgive that forgiven debt if the property was his PR at the time.
Cancellation of Debt 1099 will be forgiven if he has owned and lived in the house for > 2 years and it is a "qualified" residence (legislation is still pending). I can't see any lender approving a purchase for lower value right across the street from the current residence as an OO. It'll invariably be countered as a NOO.
It's a done deal on the taxes unless I am mixing this up w/ something else.
"Today, President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007, which will help Americans avoid foreclosure by protecting families from higher taxes when they refinance their home mortgages. This Act will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. Under current law, if the value of your house declines, and your bank or lender forgives a portion of your mortgage, the tax code treats the amount forgiven as income that can be taxed.
* This Act will increase the incentive for borrowers and lenders to work together to refinance loans and allow American families to secure lower mortgage payments without facing higher taxes."
Can be found at the White House Press Room online:
http://www.whitehouse.gov/news/releases/2007/12/20071220-6.html
Now, this only deals w/ short sales....I haven't heard about foreclosures getting the same treatment.
Thanks for the update Mandyvilla. Haven't followed its progress that it was finalized last week. Legislation applies to qualified primary residence where homeowner has resided for a minimum aggregate total of 2 years out of the previous 5 years prior to default. Only "Acquisition Indebtedness" (purchase money) will be forgiven, no cashout or helocs unless used for home improvement.
As far as qualifying for FHA or conventional financing as primary residence, while the property may be intended for owner occupancy, it will probably be next to impossible to make that case to an underwriter so long as the current residence right across the street hasn't been disposed of. We have all seen submissions similar to this being countered to NOO even when the borrower truly intends to move into the property. With ever tightening guidelines and more critical and skeptical underwriting scrutiny, lenders will err on the side of caution of the strong possibility that the buyer is attempting to obtain higher LTV and more favorable loan terms on an investment property. Without being able to document why a person would move into a lower valued property in close proximity for reasons such as downsizing for retirement, etc., it has the appearance that the homeowner is trying to pick up a 2nd property at a discount from a distressed neighbor because it makes good investment sense. Pretty hard to convince an underwriter that it is not just a below market sweetheart investment and that they will actually pick up and move across the street. |
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Henry_Sun
1448 Posts |
Posted - 12/30/2007 : 3:04:07 PM
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quote:
Originally posted by velecico
I got an agreement of sale today from a realtor looking for a prequal on a shortsale , the buyer lives next door , he has a current mortgage for $800,000 on a home he purchase in 2005 with no money down , the home he has under contact is right across the street from his present home , the offer is for $500,000 and it looks like the bank will accept it
The borrower plans to buy it as a primary , once he moves in , they will stop making payments on the $800,000 loan that they have with CW
He qualifies full doc and has a 770 FICO , he figues letting his credit tank is not a big deal when he is lowering his mortgage debt by $300,000 .
I told him the new bank may deny the deal based on occupancy , tried to convince him to go NOO but he does not want the higher rate .
What do you think ? anyone had this scenario yet , I sure it will be happening more and more especially in CA and FL
*******************
I haven't read through this entire thread. but here are my responses to your post:
First, if you are concerned about fraud, then the surest way to protect yourself is to disclose what you know. If the lender for the proposed loan knows that the borrower is willing to walk away from the Countrywide loan once the new loan closes and is still willing to finance the property, then you should not feel that you've done anything immoral, illegal, or unethical. I would not sugarcoat the situation by saying "he's going to try to sell it but doubts that he will be successful" because any underwriter with an IQ in 2 or more digits will know that selling an $800,000 home when the home across the street is selling for $500,000 is going to be hard.
Second, I consider it highly unlikely that the new lender will allow this loan to close as an owner occ property. There is no good reason to close this loan as owner occ, even knowing the situation of the current home.
Third, your borrower should be aware of the possibility of (1) having to pay income tax on the so-called phantom income (the difference between what the house is worth and what the house was sold for, if the current home was purchased with 100$ financing0 and, (2) of having the current lender come after him with a deficiency judgment if the home is not located in a purchase money state. He should definitely consult a real estate and/or tax attorney on both questions.
For example, CA is a purchase money state. As such, the lender is not allowed to go after the borrower for any loss incurred in a short sale as long as the purchase money loan was not been refinanced and no additional liens have been secured by the property after it was purchased. But the IRS will consider the (for example) $300,000 loss to the lender to be income to the borrower, so if they are in a 33% tax bracket they will be responsible for a $100,000 income tax bill.
I'm not a lawyer and I don't play one on TV, but I believe this is how it works. Make sure your borrower checks with an attorney to make sure.
Henry_Sun |
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toddblue
4343 Posts |
Posted - 12/30/2007 : 3:22:13 PM
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If this is a full doc deal, the borrower will have to demonstrate income able to cover the mortgages on both houses (Unless there is a bogus rental agreement in place).
If this is the case, your borrower can reasonably aford the mortgage on his current property.
Your borrower made a legally binding contract on his first home and should live up to it. He has no right to screw the original lender for his own benefit. What kind of weasel is he?
This transaction is hurting the lender, the neighborhood and the industry as a whole. The only ones that may come out better in the end is the borrower that is screwing the lender by going back on his word and you for taking money for helping such an unsavory transaction to occur.
If I sound HOTT on this point, it's probably because I am.
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sheriephillips
427 Posts |
Posted - 12/30/2007 : 3:24:06 PM
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Henry Sun, I like your post and it makes perfect sense.
mgraham224, I think this is exactly how the deal should be done, be upfront with everyone, let the bank decide if they want to lend under these circumstances.
Very good replys. |
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Scrooge McDuck
15108 Posts |
Posted - 12/30/2007 : 3:39:05 PM
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| henry sun knows this stuff and i believe has the right opinion. |
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homebroker@sbcgl
7370 Posts |
Posted - 12/30/2007 : 3:41:01 PM
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Great point, it is almost better of the borrower said nothing and just asked for a loan.
quote:
Originally posted by velecico
So you disclose to the new lender that the borrowers will default on his first mortgage loan , borrower gets turned down and sues you and the new mortgage company based on what you said , borrower claims he had no intention to default , was presenting a " what if scenario " so now borrower goes to another lender , says he will rent present home and move into less expensive home , see , its not as easy as you think , I even spoke to a few wholesale reps , nothing on the 1003 ask for someones " future " intentions , do you intend to walk away from your child support , your car payment ? does the new lender ask if maybe you plan to leave your present job to start a new company ? you can intend something one day and change your mind the next ,the facts are that he has a current loan and current credit history and sufficent income and assetts , everything is out on the table , so even if the borrower wrote a letter , said " here is my situation , I have this loan , will not be able to afford it when it resets , if I cant rent it or start making more money in the next 9-12 months it will go into foreclosure " , how do you know the new lender turn him down , a lending decession is based on your present economic situation and past payment history not something that may happen in the future
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slants
4982 Posts |
Posted - 12/30/2007 : 4:08:31 PM
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quote:
Originally posted by Henry_Sun
[brThird, your borrower should be aware of the possibility of (1) having to pay income tax on the so-called phantom income (the difference between what the house is worth and what the house was sold for, if the current home was purchased with 100$ financing0 and, (2) of having the current lender come after him with a deficiency judgment if the home is not located in a purchase money state. He should definitely consult a real estate and/or tax attorney on both questions.
For example, CA is a purchase money state. As such, the lender is not allowed to go after the borrower for any loss incurred in a short sale as long as the purchase money loan was not been refinanced and no additional liens have been secured by the property after it was purchased. But the IRS will consider the (for example) $300,000 loss to the lender to be income to the borrower, so if they are in a 33% tax bracket they will be responsible for a $100,000 income tax bill.
I'm not a lawyer and I don't play one on TV, but I believe this is how it works. Make sure your borrower checks with an attorney to make sure.
Henry_Sun
If the homeowner has not cashed out since his initial purchase and has resided in the property as his primary residence for > 2 years, presumably it will be covered under the Mortgage Forgiveness Debt Relief Act of 2007 and the IRS will not tax the deficiency as ordinary income. However, the lender may still be able to excercise its recourse via a deficiency judgment for the difference between amount they ultimately recover from the sale of the property vs. the total debt owed including legal fees. Ultimately he may not be able to just reduce his debt by $300,000 without paying a price for it. |
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benjamin
6966 Posts |
Posted - 12/30/2007 : 4:25:49 PM
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Mandy?
Bank of America?
I understand that you have eliminated wholesale in order to benefit your stockholders on the retail side. You have retail officers promoting fraud on an International web site.
Is this the direction of your company? Blame brokers, but place loans that are possibly unethical? |
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velecico
5311 Posts |
Posted - 12/30/2007 : 4:58:38 PM
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all those who have commented on the tax consequences of a short sale or foreclosure , do you do this with your borrowers without being a CPA or accountant ? I am surprised how many " tax experts " we have , I was told back in 1981 when I started in the business , if someone ask a tax related question the answer should be I AM NOT AN ACCOUNTANT , YOU SHOULD CONSULT WITH YOUR ACCOUNTANT THE IMPLICATIONS OF WHAT YOU ARE PROPOSING TO DO , giving tax advise as a mortgage broker , loan officer , or whatever is behind your title is quite irresponsible when you are would not be considered by an independent third party to be an authority or expert on that matter
Unless you are TECHNO , of course |
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lucky1s
3986 Posts |
Posted - 12/30/2007 : 5:03:06 PM
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| When in doubt, disclose. |
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slants
4982 Posts |
Posted - 12/30/2007 : 5:20:37 PM
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quote:
Originally posted by velecico
all those who have commented on the tax consequences of a short sale or foreclosure , do you do this with your borrowers without being a CPA or accountant ? I am surprised how many " tax experts " we have , I was told back in 1981 when I started in the business , if someone ask a tax related question the answer should be I AM NOT AN ACCOUNTANT , YOU SHOULD CONSULT WITH YOUR ACCOUNTANT THE IMPLICATIONS OF WHAT YOU ARE PROPOSING TO DO , giving tax advise as a mortgage broker , loan officer , or whatever is behind your title is quite irresponsible when you are would not be considered by an independent third party to be an authority or expert on that matter
Unless you are TECHNO , of course
No, we are commenting in a public forum regarding the "possible" consequences of a shortsale or a foreclosure. No one has indicated that a mortgage broker is to be considered "an authority or expert on that matter" and that borrowers are advised not to "CONSULT WITH YOUR ACCOUNTANT THE IMPLICATIONS OF WHAT YOU ARE PROPOSING TO DO". Where do you infer from these statements that we "do this with our borrowers without being a CPA or accountant"? |
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benjamin
6966 Posts |
Posted - 12/30/2007 : 5:57:33 PM
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| The lender that does this loan as an owner occ loan is comitting fraud. |
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Henry_Sun
1448 Posts |
Posted - 12/30/2007 : 6:15:00 PM
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??? How could what I wrote possibly be construed in this way??
"Third, your borrower should be aware of the possibility of (1) having to pay income tax on the so-called phantom income (the difference between what the house is worth and what the house was sold for, if the current home was purchased with 100$ financing0 and, (2) of having the current lender come after him with a deficiency judgment if the home is not located in a purchase money state. He should definitely consult a real estate and/or tax attorney on both questions."
Henry_Sun
*********
quote:
Originally posted by velecico
all those who have commented on the tax consequences of a short sale or foreclosure , do you do this with your borrowers without being a CPA or accountant ? I am surprised how many " tax experts " we have , I was told back in 1981 when I started in the business , if someone ask a tax related question the answer should be I AM NOT AN ACCOUNTANT , YOU SHOULD CONSULT WITH YOUR ACCOUNTANT THE IMPLICATIONS OF WHAT YOU ARE PROPOSING TO DO , giving tax advise as a mortgage broker , loan officer , or whatever is behind your title is quite irresponsible when you are would not be considered by an independent third party to be an authority or expert on that matter
Unless you are TECHNO , of course
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Henry_Sun
1448 Posts |
Posted - 12/30/2007 : 6:16:29 PM
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If the homeowner has not cashed out since his initial purchase and has resided in the property as his primary residence for > 2 years, presumably it will be covered under the Mortgage Forgiveness Debt Relief Act of 2007 and the IRS will not tax the deficiency as ordinary income.
********
Has this been enacted as law yet? I know it was discussed but may have missed the announcement that it is being implemented for the tax year 2007.
Henry_Sun |
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lucky1s
3986 Posts |
Posted - 12/30/2007 : 6:20:27 PM
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There are alot of things that have been "discussed" by the figures that be but have not been enacted into law.
So who knows. |
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slants
4982 Posts |
Posted - 12/30/2007 : 6:21:45 PM
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quote:
Originally posted by Henry_Sun
If the homeowner has not cashed out since his initial purchase and has resided in the property as his primary residence for > 2 years, presumably it will be covered under the Mortgage Forgiveness Debt Relief Act of 2007 and the IRS will not tax the deficiency as ordinary income.
********
Has this been enacted as law yet? I know it was discussed but may have missed the announcement that it is being implemented for the tax year 2007.
Henry_Sun
I was surprised to see Mandyvilla's post that Bush signed it into law already as of December 20th:
quote:
Originally posted by Mandyvilla
It's a done deal on the taxes unless I am mixing this up w/ something else.
"Today, President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007, which will help Americans avoid foreclosure by protecting families from higher taxes when they refinance their home mortgages. This Act will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. Under current law, if the value of your house declines, and your bank or lender forgives a portion of your mortgage, the tax code treats the amount forgiven as income that can be taxed.
* This Act will increase the incentive for borrowers and lenders to work together to refinance loans and allow American families to secure lower mortgage payments without facing higher taxes."
Can be found at the White House Press Room online:
http://www.whitehouse.gov/news/releases/2007/12/20071220-6.html
Now, this only deals w/ short sales....I haven't heard about foreclosures getting the same treatment.
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peter
6465 Posts |
Posted - 12/30/2007 : 6:29:50 PM
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From what I just read, it will benefit the short refi's only
and on the owner-occupied home. If the house is foreclosed upon
and the lender suffered losses, the debt forgiveness does not
apply. And this makes sense, as why should the government
reward those who walked away from their homes with a tax-free
debt forgiveness.
Peter |
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slants
4982 Posts |
Posted - 12/30/2007 : 6:48:06 PM
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quote:
Originally posted by peter
From what I just read, it will benefit the short refi's only
and on the owner-occupied home. If the house is foreclosed upon
and the lender suffered losses, the debt forgiveness does not
apply. And this makes sense, as why should the government
reward those who walked away from their homes with a tax-free
debt forgiveness.
Peter
Not quite sure how to interpret the language. I'm surprised more hasn't been written to clarify the application of the legislation. Click on Full Text to see the final version of the bill: http://www.govtrack.us/congress/bill.xpd?bill=h110-3648
It seems to me that any 1099 incurred from a mortgage associated to a qualified primary residence as the result of the loss of property value will be forgiven up through 2010, presumably even if the foreclosed collateral has lost value and is no longer sufficient to cover the debt it secures. Anyone know the actual implications of this bill? |
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mgraham224
1008 Posts |
Posted - 12/30/2007 : 7:01:42 PM
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I believe there are limitations on the eligibility of the 1099 write off.
I'm very sorry for not reading through the bill again before I post, but I seem to remember that it was only for primary residences, and only purchase money, and only if you've lived in it for over 2 years, but I could be confusing those facts with other proposed or existing legislation.
As to "sugar-coating" by saying he's going to "try to sell" the property, there is no implication that a "sale" equals a "sale without a deficiency." Of course the deficiency is an inevitability, but that doesn't mean the borrower can't attempt a short sale. In fact, that would be in everyone's best interest anyway.
Sugar coating it would be to say, I'm going to sell it and make money. I agree with you Henry_Sun, just didn't want anyone to think I supported distorting the facts to look more appealing. I just assumed an attempted sale under market value would be taken for granted to mean a short sale.
Sounds like we're all on the same page as far as disclose and ye shall be saved. |
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peter
6465 Posts |
Posted - 12/30/2007 : 7:06:10 PM
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It would be good to obtain an IRS bulletin or advisory
on this bill as to the tax treatment, but I don't know if
there is any issued by the IRS as yet.
Peter |
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toddblue
4343 Posts |
Posted - 12/30/2007 : 7:06:51 PM
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Why so much interest in the tax implications. If Brokers had protected lenders from bad deals from the get-go, many of the problems we are facing today would be lessened.
Why help the borrewer from a situation that hurts the original lender, which in turns hurts the market?
He bought a house, he signed the contract, he should live up to the deal unless he is truly financially unable to. He should not leave the original lender holding the bag just because the grass is greener across the street.
Why shouldn't he live up to his original obligation? Just because the market turned sour doesn't mean he should screw the lender that helped him in the first place?
Keep the first home and buy the second as a N/O/O hedge investment if he really wants to be on the up-and-up.
I personally would not help someone in a situation that in the end would hurt innocent parties (In this case the original lender and any neighborthat would suffer further from another forclosure bringing down values further.)
Show some character! Do the right thing. This entire deal stinks. You are complicit in advising a borrower to foreclose.
You can either be part of the solution, or the problem. It's not your job to get someone out of their bad purchase decision at a cost to others! |
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benjamin
6966 Posts |
Posted - 12/30/2007 : 7:13:55 PM
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Sorry about earlier posts. I cannot predict future, other than Patriots going undefeated and winning another Superbowl.
As for the lender receiving a package which states that borrower is moving into a property that better fits his/her current circumstance,and as long as borrower can be approved with or without rent schedule on vacated house, then there should be no malfaesence on behalf of borrower. Whats happens thereafter, who can say.
Regarding broker, how can you predict the future? If client comes to closing with a lease or rent agreement, whats the problem?
If the client flat out says "screw my current lender, I have no intention of repaying", that is another issue. |
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MortgageGurl
669 Posts |
Posted - 12/30/2007 : 7:59:48 PM
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quote:
Originally posted by velecico
On the REO the disposition of the present property would be RETAINED , its not a rental and he does not want to retain it if he could sell it , but the facts are that at closing , unless a miracle happens and a buyer comes along , he will retain it at the time of closing , fact he has offered CW the deed in lieu of foreclosure but they will not acceppt it , so technically it is being RETAINED , I carried the entire PITI into the ratios and got a DU Accept , the property has been listed for sale at 800K , no showings no offers , CW will not even consider a shortsale since he is current now , so letting it go into foreclosure will open up a shorsale possibility , I dont see how the borrower is scamming anyone or committing fraud if the new lender knows whats going on and they elect to do the loan anyway , hey , I would not be surprised if BOTH deals can be done with CW with CW knowing exactly whats going on from the beginning , in fact I plan on calling the AE on Monday and ask her opinion
Nick,
Have you spoken to CW your self regarding doing a short sale? I have done one where the client was not behind on his payments. They are so bogged down they may not do it at this time but if you haven't spoken to them your self, it might be worth the call.
Good Luck! |
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Henry_Sun
1448 Posts |
Posted - 12/30/2007 : 8:06:03 PM
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Why help the borrewer from a situation that hurts the original lender, which in turns hurts the market?
He bought a house, he signed the contract, he should live up to the deal unless he is truly financially unable to. He should not leave the original lender holding the bag just because the grass is greener across the street.
********
Let's look at a less emotionally extreme situation:
I go into contract to purchase a home with a non-contingency offer, and put down $2000 as my earnest money deposit. I agree to buy the home as, but decide to pay for my own home inspection anyway. The home inspection indicates a possible problem with the foundation that will cost me $20,000 to fix.
So I balance the cost of $20,000 to fix my problem with the cost of losing my $2000 earnest money deposit by cancelling escrow.
Would any of us criticize the buyer for not living up the his contractual obligation to purchase the home? Of course we wouldn't.
Contracts exist to spell out the consequences of failing to live up to agreed-upon terms. In this case, the owner of the $800,000 home is apparently willing to accept the consequences of walking away from his home. He isn't trying to defraud the old lender by saying he lost his job, or his wife has cancer, or anything like that. He simply sees an investment that has lost 37.5% of its value and he doesn't want to throw away good money after bad.
Personally, I can't blame him. As long as he is not contesting the consequences of his act by claiming he was put into the home under false pretences, then I see nothing legally wrong or morally culpable by purchasing a less expensive home and walking away from the more expensive home.
Henry_Sun |
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Mandyvilla
6395 Posts |
Posted - 12/30/2007 : 8:16:29 PM
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quote:
Originally posted by benjamin
Mandy?
Bank of America?
I understand that you have eliminated wholesale in order to benefit your stockholders on the retail side. You have retail officers promoting fraud on an International web site.
Is this the direction of your company? Blame brokers, but place loans that are possibly unethical?
[3]Wat chu talkin''bout Ben?
Seriously, I missed something (nothing new)....can you point me to the site?[/size=3] |
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Mandyvilla
6395 Posts |
Posted - 12/30/2007 : 8:33:24 PM
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This is one of the better dilemmas we have seen here in a while. I agree with Toddblue that the situation stinks - but others are also correct when they say you cannot prosecute for saying you will do something in the future (I think that excludes terrorism now - saying you will do that in the future is a crime).
But just for the sake of argument, let's take this a step further. Let's say Nick's customer really does rent the 800K home and qualifies without a problem and buys the house across the street. Two months into the lease, he loses his job. Now he decides to keep the rent (to pay the mortgage on the new home) and no longer pay the 800K mortgage.
What laws have been broken?
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sheriephillips
427 Posts |
Posted - 12/30/2007 : 8:36:55 PM
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Unless his current loan is a purchase money loan and was not refi'd, I think he'll still be on the hook for a 1099 at the end of the year. As someone pointed out, that would be maybe as much as $100k in taxes he'll owe to the IRS. The IRS won't allow him to pay the $100K debt over a 30yr term like he can on a mortgage, nor will his interest be tax deductable. So paying that debt could be a problem. On top of that, the borrower will have a foreclosure on his record. It seems like a hefty price to pay to save $300K - he may as well remain in his house (or rent it out) and wait for the market to return. If he likes the house and he can afford the payments, he should just stay. If he can't afford the payments, he needs to get a modification from his current lender and obligate to the debt. He was willing to pay the mortgage thinking the house would appreciate, funny how things turn around when it depreciates. Is there a clause that states you only pay your mortgage if the property appreciates? I don't think so.
When I invested money in the stock market prior to the NASDAQ crash in 2000, there was no bailout offered to me for the loss I suffered. After the crash, people could buy stock in the same exact companies I owned for 50% less. So what, that's the nature of investing. But with stocks, I'm 100% invested with my own money, I'm solely responsible for the financial loss. In the case of real estate, you have a lender on the hook for all of the money owed. Seems we're all willing to bail when the deep pocket is a bank and not our own. |
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sheriephillips
427 Posts |
Posted - 12/30/2007 : 8:38:57 PM
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quote:
Originally posted by Mandyvilla
This is one of the better dilemmas we have seen here in a while. I agree with Toddblue that the situation stinks - but others are also correct when they say you cannot prosecute for saying you will do something in the future (I think that excludes terrorism now - saying you will do that in the future is a crime).
But just for the sake of argument, let's take this a step further. Let's say Nick's customer really does rent the 800K home and qualifies without a problem and buys the house across the street. Two months into the lease, he loses his job. Now he decides to keep the rent (to pay the mortgage on the new home) and no longer pay the 800K mortgage.
What laws have been broken?
No laws broken because the borrower's intentions were good. He lost his job and that's why he can't keep paying his mortgage, that's totally understandable. |
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Mandyvilla
6395 Posts |
Posted - 12/30/2007 : 8:47:04 PM
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quote:
Originally posted by sheriephillips
Unless his current loan is a purchase money loan and was not refi'd, I think he'll still be on the hook for a 1099 at the end of the year. As someone pointed out, that would be maybe as much as $100k in taxes he'll owe to the IRS. The IRS won't allow him to pay the $100K debt over a 30yr term like he can on a mortgage, nor will his interest be tax deductable. So paying that debt could be a problem. On top of that, the borrower will have a foreclosure on his record. It seems like a hefty price to pay to save $300K - he may as well remain in his house (or rent it out) and wait for the market to return. If he likes the house and he can afford the payments, he should just stay. If he can't afford the payments, he needs to get a modification from his current lender and obligate to the debt. He was willing to pay the mortgage thinking the house would appreciate, funny how things turn around when it depreciates. Is there a clause that states you only pay your mortgage if the property appreciates? I don't think so.
When I invested money in the stock market prior to the NASDAQ crash in 2000, there was no bailout offered to me for the loss I suffered. After the crash, people could buy stock in the same exact companies I owned for 50% less. So what, that's the nature of investing. But with stocks, I'm 100% invested with my own money, I'm solely responsible for the financial loss. In the case of real estate, you have a lender on the hook for all of the money owed. Seems we're all willing to bail when the deep pocket is a bank and not our own.
Again, what LAW has been broken? Congress amends the tax code up until the 11th hour, and for all we know, he has enough in losses to offset any 1099........we still don't even know if MI is going to be deductible after Jan 1. The OP never mentioned taxes....it's only been introduced as a consideration. I am beginning to believe it is not a tax question, nor a legal question, but appears to be a morality question.
This is a tough one. |
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toddblue
4343 Posts |
Posted - 12/30/2007 : 9:00:29 PM
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quote:
Originally posted by velecico
I got an agreement of sale today from a realtor looking for a prequal on a shortsale , the buyer lives next door , he has a current mortgage for $800,000 on a home he purchase in 2005 with no money down , the home he has under contact is right across the street from his present home , the offer is for $500,000 and it looks like the bank will accept it
The borrower plans to buy it as a primary , once he moves in , they will stop making payments on the $800,000 loan that they have with CW
He qualifies full doc and has a 770 FICO , he figues letting his credit tank is not a big deal when he is lowering his mortgage debt by $300,000 .
The borrower has stated his intenions to foreclose! And you are a knowing party to the dirty deed.
He's a deadbeat waiting in the wings, playing the system at the advantage of other peoples money. The only winners are the broker receiving the comission and the borrower.
Neither the borrower, otr the broker are showing honor and integrity!
If you can get away with this with FULL DISCLOSURE TO ALL PARTIES, I will bite my tobgue and apologize. But I've been around the block enough to know when something stinks.
In the immortal word of Nancy Reagan, "JUST SAY NO!"
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toddblue
4343 Posts |
Posted - 12/30/2007 : 9:15:57 PM
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quote:
Originally posted by Mandyvilla
This is one of the better dilemmas we have seen here in a while. I agree with Toddblue that the situation stinks - but others are also correct when they say you cannot prosecute for saying you will do something in the future (I think that excludes terrorism now - saying you will do that in the future is a crime).
But just for the sake of argument, let's take this a step further. Let's say Nick's customer really does rent the 800K home and qualifies without a problem and buys the house across the street. Two months into the lease, he loses his job. Now he decides to keep the rent (to pay the mortgage on the new home) and no longer pay the 800K mortgage.
What laws have been broken?
Mandy,
Collusion, or conspiracy occurs at the time of the conversation and, or planning to do something either civillly, or criminally wrong. The crime never has to be commmited to be prosecuted.
The broker has a resposnibility to report any 'uknown adverse material facts that may afect a credit decision' to the lender. Wilfully withholding these facts in a concertive effort can result in administrative, civil, criminal and in some cases RICO violations.
For those who don't hae a clue where to turn for affordable legal advice, please contact me immediately. I have bona fide attorneys that will help clarify these , or any other mortgage business issues available in all 50 states for next to nothing in cost.
todd@ruidosomortgage.com
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slants
4982 Posts |
Posted - 12/30/2007 : 10:00:50 PM
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quote:
Originally posted by sheriephillips
Unless his current loan is a purchase money loan and was not refi'd, I think he'll still be on the hook for a 1099 at the end of the year. As someone pointed out, that would be maybe as much as $100k in taxes he'll owe to the IRS. The IRS won't allow him to pay the $100K debt over a 30yr term like he can on a mortgage, nor will his interest be tax deductable. So paying that debt could be a problem.
"Acquisition Indebtedness" (within the meaning of section 163(h)(3) means any indebtedness which is incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer. Can't say for sure, but I believe any increase in loan amount from a cashout refi will not be forgiven (unless documented as used towards home improvement), but loan amount up to what was borrowed to acquire the property ($800,000) would be considered Acquisition Indebtedness even if the homeowner had refinanced and would be forgiven under the new legislation. |
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NNMS
992 Posts |
Posted - 12/30/2007 : 10:20:54 PM
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quote:
The borrower has stated his intenions to foreclose! And you are a knowing party to the dirty deed.
I think in many ways this is the biggest problem here... the borrower has admitted to this.
Other than that, I agree with Henry_Sun, you can't blame a guy for feeling like WHY keep paying on an $800K house when you know the values all around you have dropped to $500K?
quote:
Plus, the other thing I know is this guy can get CW to reduce his loan amount, that is the route I would have to take...
I'm not so sure about this. Different situation, but we have a house that has been listed for almost 3 years now, it was our primary residence, we have called CW several times, they will NOT modify the loan. Not a primary anymore so I know that is different. But still, there are 7 EMPTY foreclosed homes in this neighborhood of less than 100 homes, several are quite a bit larger, currently listed for $50-75K LESS than what we owe on the home we have listed. CW won't budge. They did tell us we could try to short sell it. That was it. From that standpoint, it IS hard to keep making payments on something that is only going to cost you MORE money KWIM? |
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velecico
5311 Posts |
Posted - 12/30/2007 : 10:43:21 PM
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Toddblue , you are so passionate on this issue , the bottom line , no laws have been broken , many lenders will loose money and many lenders at the same time have made billions , dont know how long you have been in this business but whats happening now is nothing new and I can guarantee you that in 2 years we will be back to doing the same crappy loans we swear we will never do again , the whole market is fueled by Wall st greed |
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cjnohl@federated
559 Posts |
Posted - 12/30/2007 : 10:59:50 PM
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| If he'd spring for a performance bond on the new loan I would be okay with it. |
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toddblue
4343 Posts |
Posted - 12/31/2007 : 12:41:54 AM
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Nick,
I got into the business in'94. If it smelled bad and hurt any member of a transaction, I passed on the deal.
If it doesn't benefit all parties to a transaction, it's not a square deal.
It's your conscience. Go for what you know. If you don't know much, don't go for much.
I've said my peace. The rest is up to you. The law may not catch you, but the pearly gates will.
Free will, your choice. But if you didn't have the queston of right and wrong in the back of your mind, you wouldn't have posted.
I believe you had the answer in advance. You were only looking for others to support your poor judgement.
God gave us free will as test of our moral character. How will you score?
The final answer lies in your character, greed, and willingness to twist the reg's. How far are you willing and twist to bend to make something wrong right?
PLEASE CHOSE THE HIGH ROAD. It may not pay, but it will not hurt you. |
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WaMuAE
33 Posts |
Posted - 12/31/2007 : 09:25:10 AM
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Go ahead and do the deal. You obviously made up good reasons to justify this loan: those big bad banks that made billions of dollars. Screw them.
Go ahead and do it. But do not b*tch when lenders tighten guidelines on people who currently own homes, (when more borrowers' use this scam to screw the banks). They (the banks)could not lend to people who currently own homes and want to retain their current home, have 2 years history of being a property manager, 70 ltv for new purchase, show deposit of first and last months rent in the borrower's bank account. etc. Don't think it will happen? We were doing 1 day off MLS last month until we found out people were refi'ng, then selling their house, or worse yet-taking the cashout then walking from the property. Now, guideline is 6 months off MLS. So the poor sap who was really going to stay in his house can't do this refi.
Greedy banks? How about greedy borrowers. This guy can't wait to sell his house and then buy a house (like a normal person). Kind of like the first time homebuyer that lied to get the McMansion so they could be like their friends. They did this instead of buying a starter home, sit on it for 2 years, sell it, plow the gains in a new and better house.
This will be the slogan for lenders in '08:
"Real loans for real people that show real income and will really live in the property." |
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TransNet
565 Posts |
Posted - 01/03/2008 : 09:18:26 AM
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quote:
Originally posted by velecico
nothing on the 1003 ask for someones " future " intentions
Stating your intentions on the 1003 has to do with representing what your future actions will be. The phrase "future intentions" is either redundant or is asking what you intend to intend which is nonsense. It is not true that there are no questions on the 1003 that ask for someone's intentions. Here's one example of a very important question on the 1003 that asks for someone's intentions:
"VIII Declarations" . . . .
"L. Do you intend to occupy the property as your primary residence?"
Now if a borrower says yes and then doesn't move in did they lie? Did they commit fraud? That depends on the circumstances. As a criminal offense it would be up to a prosecutor to prove beyond a reasonable doubt that the borrower lied on the application about their intentions and that the lender would not have made the loan under the terms given if they knew that the borrower was not going to occupy the property. The fact that the borrower did not move into the property AND live there is evidence that they did not intend to occupy it.
But what if the day after closing the borrower's wife died unexpectedly and she was the major breadwinner of the family and the borrower clearly couldn't afford the house on his own so he rented it to be able to make the payments? A good argument could be made that the borrower did intend to occupy the property. Contrast that with a borrower whose defense and only evidence is, "I changed my mind."
How does this relate to your question? Material facts regarding a borrower's intentions that are withheld from a lender in an effort to entice a lender to make a loan that they otherwise wouldn't is the very definition of fraud. If after closing the borrower defaulted on their current loan obligation and it could be shown that you knew of the borrower's intention to default on their current obligation and this information was withheld from the lender in order to get them to make a loan that they wouldn't have made had they known the borrower's intention, then you could be at risk for being prosecuted for fraud.
Now you may ask how could they prove it. Simple. You are the insider. You are who the FBI is zeroing in on right now. They talk to the borrower and ask them if they discussed their intention to default with you. Then they get the borrower to "roll over" on you. Today a prudent mortgage broker makes sure that full disclosure is made to the lender if there is ANY question that the borrower's current or past circumstances or the borrower's intentions might have an influence on whether the lender makes a loan or not; and that disclosure is documented in the broker's file in case there is ever a question of "what did you know and when did you know it" ever comes up.
So if you disclose to the proposed lender that the borrower discussed with you that they might default on their current obligation and they want to make the loan, that is their right. It would be prudent to have something from that lender showing that this fact was disclosed to them so that it won't come back to bite you. As long as you are not encouraging the buyer to default you have no legal obligation to the current lender since you are not and were not a party to that transaction and it is a possible tort action not a criminal offense to default on a loan obligation. The only thing I can think of is if you encouraged the borrower to default on the obligation, then you could be at risk for tortuous interference with a contract.
That the borrower could successfully sue you due to them not meeting a lender's underwriting guidelines when you disclosed material facts (they discussed with you the possibility that they will default on their current loan) is laughable. If being criminally prosecuted as above in this case is remote, it is infinitely more realistic than being successfully sued for presenting facts to a lender and them declining a loan. What is very realistic, as Mr. VA pointed out, is if the borrower defaults on the current obligation and it makes the loan unsalable in the secondary market, the lender might ask you to buyback the loan or at the least take you off their approved broker list and report the incident to MARI. |
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Henry_Sun
1448 Posts |
Posted - 01/03/2008 : 12:56:51 PM
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I'm normally the biggest "holier than thou" on this post, but this post is just wrong.
The borrower purchased a home for $800,000. The home across the street is selling for $500,000, indicating something in the area of a 37.5% drop in value. Is it really likely that he CAN sell the home and even break even?
Highly unlikely, unless he threw away $300,000 of down payment from previous homes.
How long would it take him to get back to even on his home, assuming that the market has hit bottom and will start re-appreciating at 6% per annum? That's an increase in value of around $30K, which means that something like 8-9 years from now he may be back to even.
The borrower is deciding to cut his losses. I can't fault that decision. He is willing to accept the consequences of having an overencumbered home. So be it. He isn't trying to inflate the value of his home with a shady appraisal, he isn't trying to flip it for a million dollar profit, he is just going to walk away from a bad investment.
I find that this intention is not legally culpable (I assume he is breaking no laws) and in terms of contract law, that's all that matters.
Let the existing lender execute all of its contractual legal options, including the right to foreclose and adversely affect his credit. That's all a lender can do.
People break contracts all the time, and as long as the prescribed penalties are paid, no one considers it illegal, immoral, or unethical.
Nor do I in this situation. truth be told, I'd probably do the same thing.
Henry_Sun
quote:
Originally posted by WaMuAE
Go ahead and do the deal. You obviously made up good reasons to justify this loan: those big bad banks that made billions of dollars. Screw them.
Go ahead and do it. But do not b*tch when lenders tighten guidelines on people who currently own homes, (when more borrowers' use this scam to screw the banks). They (the banks)could not lend to people who currently own homes and want to retain their current home, have 2 years history of being a property manager, 70 ltv for new purchase, show deposit of first and last months rent in the borrower's bank account. etc. Don't think it will happen? We were doing 1 day off MLS last month until we found out people were refi'ng, then selling their house, or worse yet-taking the cashout then walking from the property. Now, guideline is 6 months off MLS. So the poor sap who was really going to stay in his house can't do this refi.
Greedy banks? How about greedy borrowers. This guy can't wait to sell his house and then buy a house (like a normal person). Kind of like the first time homebuyer that lied to get the McMansion so they could be like their friends. They did this instead of buying a starter home, sit on it for 2 years, sell it, plow the gains in a new and better house.
This will be the slogan for lenders in '08:
"Real loans for real people that show real income and will really live in the property."
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RDwyer
3308 Posts |
Posted - 01/03/2008 : 1:33:34 PM
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quote:
Originally posted by Henry_Sun
I'm normally the biggest "holier than thou" on this post, but this post is just wrong.
The borrower purchased a home for $800,000. The home across the street is selling for $500,000, indicating something in the area of a 37.5% drop in value. Is it really likely that he CAN sell the home and even break even?
Highly unlikely, unless he threw away $300,000 of down payment from previous homes.
How long would it take him to get back to even on his home, assuming that the market has hit bottom and will start re-appreciating at 6% per annum? That's an increase in value of around $30K, which means that something like 8-9 years from now he may be back to even.
The borrower is deciding to cut his losses. I can't fault that decision. He is willing to accept the consequences of having an overencumbered home. So be it. He isn't trying to inflate the value of his home with a shady appraisal, he isn't trying to flip it for a million dollar profit, he is just going to walk away from a bad investment.
I find that this intention is not legally culpable (I assume he is breaking no laws) and in terms of contract law, that's all that matters.
Let the existing lender execute all of its contractual legal options, including the right to foreclose and adversely affect his credit. That's all a lender can do.
People break contracts all the time, and as long as the prescribed penalties are paid, no one considers it illegal, immoral, or unethical.
Nor do I in this situation. truth be told, I'd probably do the same thing.
Henry_Sun
quote:
Originally posted by WaMuAE
Go ahead and do the deal. You obviously made up good reasons to justify this loan: those big bad banks that made billions of dollars. Screw them.
Go ahead and do it. But do not b*tch when lenders tighten guidelines on people who currently own homes, (when more borrowers' use this scam to screw the banks). They (the banks)could not lend to people who currently own homes and want to retain their current home, have 2 years history of being a property manager, 70 ltv for new purchase, show deposit of first and last months rent in the borrower's bank account. etc. Don't think it will happen? We were doing 1 day off MLS last month until we found out people were refi'ng, then selling their house, or worse yet-taking the cashout then walking from the property. Now, guideline is 6 months off MLS. So the poor sap who was really going to stay in his house can't do this refi.
Greedy banks? How about greedy borrowers. This guy can't wait to sell his house and then buy a house (like a normal person). Kind of like the first time homebuyer that lied to get the McMansion so they could be like their friends. They did this instead of buying a starter home, sit on it for 2 years, sell it, plow the gains in a new and better house.
This will be the slogan for lenders in '08:
"Real loans for real people that show real income and will really live in the property."
Somehow, (and, as usual) Henry makes sense here. A lender takes a risk when lending and this is one of the possible outcomes. Contracts get broken. If the borrower is willing to accept the consequences and the new lender (with full disclosure) is willing to do the new loan, it is what it is. If I were the lender, I wouldn't make that loan, but that's up to the lender. |
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