Housing Hell…for the Lenders

Web Blog Calculated Risk has been breaking great stories on the housing market for quite some time.   My favorites posts are the ingenious ways that savvy deadbeat borrowers are putting the screws to the lenders. Disregarding the poor schmo who naively bought a bigger house then he/she should have, there are great anecdotes about the lender getting the short-end.

A) Jingle Mail is just one hurdle for any mortgage lender. The technical name is Ruthless Foreclosure; it’s when a homeowner with large negative equity simple mails their house key to the lender and walks away. A neat wrinkle involves a borrower who first buys a second house, on the new cheap, prior to destroying their credit score for a few years by walking away.

B) Taxes and mowing the lawn. What does a lender do with a foreclosed property’s taxes? Imagine you loaned someone $600,000 only to foreclose on a property now worth $500,000 with another $5000 taxes due. Needless to say you, as the lender, can’t afford to wait for the market to rebound…paying all the property taxes and mowing the lawn while you hold on.

C) And now we hear of this from Florida via The Big Picture: Foreclosure-Proof Homeowners.  In brief, the court system is so backed up in Dade and Broward counties that deadbeat “owners” of $2 million plus homes are living rent/mortgage free; some for as long as two years. Not only is the court system backed up 8-10 months but the mortgage servicing merry-go-round of the last few years has made it even worse for lenders.  Missing paper, mortgage bundling, and great homeowner attorneys makes these cases ripe for long proceedings.    Of course, this only favors the well healed deadbeat. Keep in mind that most state laws prevent a lender from getting any more then the original collateral.

No wonder some cities are buying the foreclosed properties themselves…and razing them.

I can’t end this post without a story of a true victim.   I heard this sad story from the man’s mother:

He had been renting his home for over five years in 2007 when his landlord told him he was selling the property.   He gave my friend’s son and her two grandaughters two options: move him and his two daughters out in 30 days or buy the house.   Sadly, he chose the latter with both a standard mortgage and the so called “piggy-back” at the height of the market.  Of course the landlord new it was overpriced, that’s why he was selling.   Now, like countless other, this hard working father has negative equity and can’t refinance his ARM like his broker promised at the outset of the purchase.

Luckily, or unluckily, he is in a union and can get all the OT he wants and now needs to keep up with his new scalp rate.   I urged his mother to tell him about the HOPE-NOW program last week when I heard his story.

Well he had already called the number a month ago only to be told that he can afford to pay so no help for him. It seems the hope and help only apply if your already drowning in debt not when you fall off are pushed off the boat and can still tread water.

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