We've received more than a few irate emails from HW readers in the past day over the FDIC's announced loan modification plan, which we first reported on yesterday
. As more details emerge -- like the fact that the FDIC will be offering 3 percent mortgages
to some troubled borrowers -- the outrage among many is palpable. We have our own thoughts on the proposal, but thought we'd use this post to share a few emailed comments from readers.
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, or comment away on this BuzzPost.
I just can't believe this. How many borrowers in California lied on their stated-income loan and are now getting free money courtesy of the FDIC? I don't know what to say -- commit a felony, and have the government bail you out. I'm speechless. I almost [want to default on my mortgage] in protest.
No second lien holder is going to take this plan lying down, no matter what the FDIC says. Unless there is something we don't know, this plan won't matter.
What kind of country is this where a borrower takes out a loan and then sees it recast into more favorable terms because they can't afford the original agreement? Mortgages aren't a food stamp program, and I'm outraged that the FDIC is putting taxpayer dollars at risk with this sort of ridiculous plan. If you thought home price declines were bad so far, just wait until your lying neighbor has his loan written down $50K less than your own; nobody will be able to justify their selling price, especially those that played by the rules. Bair's an idiot.
'No control of investors'
This is being blown out of proportion. It's a marketing ploy by the FDIC, nothing more. The FDIC has no control of investors. No equity or mezzanine investor will agree to modification like this that [will] kill the waterfall for them, and if the government wants to the force the issue they'll run into a buzzsaw of litigation. And so many of the loans on IndyMac's books are securitized....
'The all-time dumbest proposal I have seen'
The all time dumbest proposal I have seen is the idea to write down IMB loans to 'affordablity" levels. That is just nuts.
Problem #1. OK, say a property is worth $400,000 and it is secured by a $500,000 first. Let's also say that the borrower lied on his loan app and was making $50,000 a year when he got the loan, but is making $35,000. Ignoring what income you use to qualify for 'affordability", let's assume the FDIC uses the $35,000 figure. So, the guy qualifies for a loan of say $100,000. So, if I am reading ths correct, the taxpayer's "eat" the difference between the fair market value of $400,000 and the "affordablity" number of $100,000. And, of course, what is to prevent him from selling the house. After all, he now has $300,000 in tax free equity courtesy of the tax payers. So, he sells it and takes a three month trip to Europe.
Problem #2. As IMB was a federal bank, is the FDIC considering looking at the loan apps for loan fraud prior to making these gifts of tax payer funds. What a country! A guy commits a felony of loan fraud and not only does he get the loan, he gets $300,000 tax free money!!
Problem #3. How is affordablity to be determined? Two years tax returns? (Rear view mirror) Or present pay stubs (if so, how many)? Assuming the present income is what will be used (and under affordability that would seem to make the most sense), what is a self employed person's affordabiltiy? How about an unemployed person? And, why just now? Why not in six months if IMB has not been sold? As affordability is very much a moving target, what happens if the affordability changes in the process? Or, shortly afterwards?
And the person who thought of this is heading the FDIC? Appointed by a Republican? God have mercy on us all.
'Not a big deal'
If the FDIC follows its stated plan, which is to maximize loan value or recovery value, a good chunk of these mods won't go through anyway, despite the press given to it. The FDIC will find out what every other servicer already knows: for one thing, the majority of borrowers will simply ignore the offer. For another, those that do step up will give credible proof that they cannot afford their homes unless the FDIC were to undercut home value by 40 or 50 percent from current levels. And the FDIC didn't say it was going to modify blindly here, so this is not a big deal.
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