The New World Of Mortgage Servicing Loss Mitigation
Posted By thestatedtruth.com on April 18, 2010
Welcome to the world of mortgage servicing loss mitigation…
We now have the situation in this country where after delinquent borrowers are offered a loan modification option which takes the interest rate down to 2% for 5 years, extends the mortgage term to 40 years and forebears (soon will forgive) some of the principal balance if necessary, many are telling the mortgage servicer… “come back to me when you have a better program.” And this is with these programs often reducing the borrower’s payments by 30% or more already.
These are people who in years past would have been foreclosed on and moved out of their house.
While there are legitimate business reasons to help delinquent borrowers who really need help, and are willing to work with the mortgage company, I think we have crossed over the line.
Our government is in the process of creating the ultimate long term moral hazard. Guess who is paying for all of this?
For Consumers, Time to Shop (Until the Mortgage Drops)
…we’ve got millions upon millions of consumers in the U.S. meeting their shelter needs for free, even if only temporarily; and what’s becoming of any extra disposable income, since no rent or mortgage need be paid? Is this money being saved? Of course not. We’re Americans — we don’t know how to save (and neither does our government, apparently).
Put simply: people are spending their mortgages.
Consider the following individual as a case study — an actual ‘HAMPlicant’ at one of the nation’s larger servicing shops, as highlighted in a guest post at the Calculated Risk blog. They had an $1,880 monthly payment on their mortgage they’d defaulted on, yet their bank statements for the past 30 days included the following expenses:
- visits to the tanning salon
- visits to the nail spa
- some kind of gourmet produce market
- various liquor stores
- A DirecTV bill that involved some serious premium programming or pay-per-view events
- Over $1,700 in retail purchases, including: Best Buy, Baby Gap, Brookstone, Old Navy, Bed, Bath & Beyond, Home Depot, Macy’s, Pac Sun, Urban Behavior, Sears, Staples, and Footlocker
Here’s one household that’s clearly doing their part to ensure that consumer spending stays strong. Any sane person should be asking themselves: How many more people like this are out there among the 7.4 million delinquent loans we now have? And how many more ’spenders’ are there among the 5 million or so currently underwater homeowners — many of whom may at some point decide to default on their mortgage, too, but dutifully continue spending at Best Buy and eating at the Cheesecake Factory?
The article above pretty much confirms that much of the economic news we have recently seen on positive retail sales is probably nothing but a mirage as a leading economic indicator…
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