Citigroup Puts the Kibosh on Foreclosures
Some 500,000 homeowners with mortgages from Citigroup have a little more emotional insurance today. The fourth largest bank plans to modify $20 billion in mortgages to keep people from having to flee their homes; already they’ve helped prevent about 370,000 people from being foreclosed upon, reports Bloomberg; that’s $35 billion in mortgages. The news comes…
Some 500,000 homeowners with mortgages from Citigroup have a little more emotional insurance today. The fourth largest bank plans to modify $20 billion in mortgages to keep people from having to flee their homes; already they’ve helped prevent about 370,000 people from being foreclosed upon, reports Bloomberg; that’s $35 billion in mortgages. The news comes amid reports that October foreclosures dropped dramatically, and for the second month in a row, to February’s numbers, perhaps thanks to government and corporate shifts in policy and attitude. “Congress has been urging financial-services companies to work with borrowers after foreclosures rose to the highest on record in the third quarter,” they write. “JPMorgan Chase & Co. said Oct. 31 it will stop foreclosure on some loans as it works to make payments easier on $110 billion of problem mortgages, while Bank of America Corp. said it has modified 226,000 loans this year, including those from Countrywide Financial Corp.”
Citi Will Halt Some Foreclosures, Rework Mortgages [Bloomberg]
Citigroup Puts Moratorium on Foreclosures [AP]
Photo by JS300.
I was not duped, we are able to pay, and there was no “willful recklessness”. Could we have been more persistent about getting exact potential future payments – yes.
But the idea that anyone who didn’t realize exactly what was going to happen to their loan payment was a complete idiot is also not appropriately recognizing that the brokers and banks were not transparent at the very least and in some (well documented instances) downright fraudulent.
lechacal – There was just as much press about how great the products were. I did research at the time and on balance the press was positive. Moreover, many people who got these mortgages were first time homebuyers and did not have a sense that the rates were “too good to be true”. In fact, 5 years ago (in spring of 2004) the rates were actually HIGHER than they had been over the prior 2 years (2001-2003) so, again, even if you were doing research you may not have seen that the rates were “too good to be true”.
Hindsight is always 20-20 and I believe we should have a little more sympathy for regular people who made some regretable but understandable decisions in the circumstances.
While I feel for you pmmtenement, I find it odd that you did not ask and make sure you understood the reset after five years. They are always pegged to some rate, plus an additional spread, usually with an overall cap of how high it can go over the life of the loan, and sometimes a cap on the increase year to year. This is usually stated on the front page of the loan documents you sign which describes the initial rate and the reset formula. Not complicated at all unless you just were never given you documents in the first place. You sound intelligent, so I’m not sure how you could be duped into this.
pmmtenement: not to harsh on you in a difficult time, but why didn’t you ask about how your ARM would adjust before signing?
Personally, I can’t imagine making a decision like closing on a purchase in NYC without understanding at least the basics of the deal.
And no, I don’t have an MBA or JD.
This sounds precisely like the kind of willfully reckless behavior that lead to the current crisis.
pmmtenement, I accept that disclosure on these products has been inadequate. But I have little sympathy for those who didn’t suspect that the too-good-to-be-true rate was in fact too good to be true. There was a lot of press during the boom about these toxic products and how much payments were going to jump for people signing on to them. It would have taken about two minutes on Google for any of these people to get a basic sense of the trouble they were getting themselves into.
FatLenny, I didn’t say that mortgage restructuring constitutes socialism. I merely pointed out that, like socialism, it starts with a good idea that ends up hurting everyone.
Mopar’s California friend is not necessarily an irresponsible idiot.
I have a 5/1 ARM on a property that is about to reset. I recently pulled out all my loan documentation to see if there was any info about where it would go to. And I could find NOTHING helpful in the official loan documents. No “estimated future payments at index levels of XX” or anything as clear as that. All I found was an email note from my mortgage broker stating that it would “likely go up by about $500” a month.
So then I called the customer support line and asked them to tell me. And the customer support rep could only tell me what the current payment was and what index the interest rate was pegged to (1 yr LIBOR). But she could not explain how to use that index to do the math myself to figure out what my mortgage payments might be next year. I had to be “escalated” two times to get to someone who could even explain how the bank will determine the mortgage payments after I reset.
Lo and behold when I did the math following the methodology which will be used on the index’s current rate, it turns out if my mortage was reseting now it would go up by $1300 (virtually doubling) and the principle repayment alone makes up more $500 of that.
Needless to say, my mortgage broker was somewhat misleading and the bank didn’t do anything to insure that I understood what my future payments would be. We were not subprime and this is not a “fly by night” broker or bank. Luckily, I have the wherewithall to get and understand the information and we can afford the future payments.
But I have a LOT of sympathy for others out there who might not be so fortunate — there was a lot of less than transparent dealing on the part of mortgage brokers and banks that contributed to people carrying debts they can’t afford. You shouldn’t need an MBA or a JD to figure out what your mortgage payments will be.
Looks like the government is putting out its plan to restructure loans:
http://news.yahoo.com/s/ap/20081111/ap_on_bi_ge/meltdown_mortgages
News conference at 2:00.
lechacal, have you been reading the Sarah Palin blog again? Socialism, come on. I know we’ve had our disagreements but I thought you were a little smarter than that.
There’s no way that secured debt will somehow become unsecured debt. Foreclosures will always exist. As you rightly point out, loan modifications are good business when the foreclosure rate is so high. Rates may indeed increase as a result of this mess, because the Investment Banks’ risk models have proven to be bogus, and rates are a reflection of risk. But the big change will apply to lending standards, as it should be. The risk modeling on sub-prime is what really contributed to this disaster. Banks will demand higher standards for lending, as they always should have, but they will foreclose when need be. It just won’t be as often once you lend to a reasonable borrower, at a reasonable rate, via a resonable mortgage product.
Where to begin?
First off, it’s ridiculous to compare people who are behind on their mortgage payments to people who stop paying their rent. Apples & oranges – typical nonsense [from a bitter renter?].
Secondly, returning the focus to Brownstone Brooklyn, it’s unlikely anyone around here who bought any time during the ‘peak’ [2006-2008] now owes more than their property is worth. Yes, some people [myself included] could lose a few thousand dollars if we had to sell today. But because my downpayment came from the huge profits I made selling another co-op 2 years ago, that would be just a paper loss to me – not something that’s life-or-death.
So while it’s naive to expect the market not to sag, it’s essential to keep the following in-mind:
-Prime Brooklyn is not dominated by spec buyers/flippers like the worst-hit regions of FL, CA, NV, etc.
-Co-op requirements excluded the most flagrant subprime borrowers [people with ARMs that would double within 2 years, etc]
-Many of the choices PS, CG, BH brownstone purchases were made with massive cash downpayments – or all-cash deals.
But what’s most important is that the foreclosure crisis lowers all boats: consumer spending is the engine that drives the economy & it’s directly tied to housing values. You may wag a finger at all those ‘irresponsible’ borrowers, but anyone who thinks that letting the housing market crater will suddenly give them the chance to buy is flirting with disaster. A collapsed market will likely cause skyrocketing interest rates [see the secured/unsecured loan comment from lechacal] which may well price-out all of you fence-sitters. And that’s even assuming you could qualify for a loan due to tighter credit standards [which always favor existing home owners].
Personally, I think you can game the real estate market by finding specific undervalued properties or neighborhoods poised for growth. But timing the credit market is like timing the stock market: get out your dart board & hope for the best!