Not paying your mortgage? Don’t worry, banks making money off you anyhow.

Image ID 1290133, money4 by svilen001Clients always ask me, “WHY are banks so SLOW in agreeing to short sales??”

There’s a ton of reasons; almost none of them make sense. But for about 2-3 years I’ve been adding this opinion to my list of reasons banks are slow to OK short sales.

Mind you, this is my opinion. I have nothing to back up this idea other than a rudimentary understanding of Accounting 101:

  • accounts receivable = assets

  • accounts payable = liabilities

I believe that one of the many reasons banks are so slow to approve short sales is that while they stall, they can book the mortgage payments as an accounts receivable item, whether the homeowner is actually making the payments or not. The second the bank OKs a short sale, they have to book a giant loss. Again, only my opinion, but it passes the common sense test with everybody I’ve mentioned it to.

Now, a story at Forbes magazine backs me up, sort of. (hat tip to Mish’s Global Economic Analysis blog for the story link)

Robert Lenzner at Forbes writes US Banks Reporting Phantom Income on $1.4 Trillion Delinquent Mortgages
[Due to loose accounting rules, banks are] allowed to accrue interest on non-performing mortgages” until the actual foreclosure takes place, which on average takes about 16 months.

All the phantom interest that is not actually collected is booked as income until the actual act of foreclosure. As a result, many bank financial statements actually look much better than they actually are. At foreclosure all the phantom income comes off the books of the banks.

This means that Bank of America, Citigroup, JP Morgan and Wells Fargo, among hundreds of other smaller institutions, can report interest due them, but not paid, on an estimated $1.4 trillion of face value mortgages on the 7 million homes that are in the process of being foreclosed.

Ultimately, these banks face a potential loss of $1 trillion on nonperforming loans, suggests Madeleine Schnapp, director of macro-economic research at Trim-Tabs, an economic consulting firm 24.5% owned by Goldman Sachs.

Astounding! The extent to which our entire financial system is built on castles in the air is staggering. Banks make money because they say they do. Our dollar bills have value because we all agree they do.

I’m gonna go sit down now. My head hurts.

The housing crisis and the blame game

There’s enough blame to spread around the world 3 or 4 times when it comes to discussing “who caused the housing crisis?”

  • Maybe we should blame lenders who made mortgages without checking to see if buyers could make the payments.

  • Maybe we should blame home buyers who “should have known better” and realized housing prices were overinflated.

  • Maybe we should blame Realtors who were just greedy and pushed up housing prices so they could make bigger commissions.

  • Maybe we should blame appraisers who overstated home values in their reports.

  • Maybe we should blame Fannie Mae, Freddie Mac and the Community Reinvestment Act like the political conservatives claim.

  • Maybe the political liberals have it right: we should blame the big banks who took advantage of innocent home buyers.

In this long litany of blame, I've noticed lately that nobody blames home sellers who reaped record profits during 2005 and 2006. If the buyers, lenders, Realtors and appraisers “should have known better” and realized housing prices were vastly overinflated… shouldn’t the sellers have known better too?

If some buyers over-bought and some lenders knowingly made bad mortgages, isn't it possible that some home sellers knew their house was worth less than they sold it for? And why does nobody ever talk about that?

To put it bluntly: do Americans think it’s OK to knowingly profit at someone else’s expense? It appears our collective answer as a country -  at least in this case -  is yes.

I’m not saying this is The Truth, and I’m not saying home sellers caused the housing crisis all by themselves. It’s just something I’m thinking about lately. What do you think?

for more thoughtful stuff, see Chris' opinion piece from 2.5 years ago(!) where he lays out a convincing case that the housing debacle is all the banks' fault.

Wells Fargo allows 1 shortsale extension

Wells Fargo is no longer granting more than one extension for homeowners to complete a short sale.
"We do allow for one foreclosure postponement provided we have a short sale in hand that has been approved, the buyer has proof of funds of financing approved, and the short sale can close within 30 days of the scheduled foreclosure sale."

If your home mortgage is owned by Wells Fargo and you’re thinking about a short sale, this means you should not waste any time in listing your house for sale. Once the bank issues the Notice of Trustee’s Sale, you’ve got 90 days plus 1 extension to get it sold, or go to auction. Or if you’ve got a shortsale in progress but you’re not going to close the sale before the scheduled auction date, you’ll only get 1 extension.

Talk to your Realtor, your CPA/accountant, or your attorney!

story source: October 4, 2010 daily mortgage email newsletter produced by Rob Chrisman; view online at


Image ID 1152432 by Stock Exchange user macaruba (image credit, StockExchange user macaruba)

We’ve all learned a new word recently: robo-signing.

The Big 5 Banks* are holding off on foreclosure proceedings in lots of US states because the employees in charge of signing off on the foreclosure documents have admitted to robo-signing up to 8,000 documents per month without reading each.

Robo-signing and the moratorium on foreclosures, so far as I can tell, doesn’t apply in Arizona. Foreclosures continue in Arizona at their usual pace. Why?

All the states so far affected by the robo-signing scandal are judicial foreclosure states. Arizona is not. In a judicial foreclosure state, the lender must file a lawsuit in court against the homeowner to begin the foreclosure proceedings. Those filing documents are the docs that were robo-signed.

In Arizona, homeowners don’t sign a Mortgage so there is no need for the lender to file a lawsuit to begin a foreclosure proceeding. Arizona homeowners sign a similar but slightly different document called a Deed of Trust. It’s the same idea as a Mortgage, just with an extra party inserted into the process. It’s a threesome: there’s a borrower (homeowner), a lender and a Trustee. The Deed of Trust system works just like a mortgage except in the cases of foreclosure.

The Deed of Trust that Arizona homeowners sign allows the lender to skip filing a foreclosure lawsuit if the homeowner gets behind in their mortgage. The lender simply mails or delivers to the homeowner a document called a Notice of Trustee’s Sale (a “NOTS” or “NoTS”, i.e. a foreclosure). Usually the lenders issue a NOTS after 3-4 missed mortgage payments.

The NOTS is the only notice of their intent to foreclose that Arizona lenders are legally required to provide. It states that the homeowner has 90 days in which to bring the mortgage payments 100% current – including any fees, fines or legal costs – or the Trustee will sell the home at foreclosure auction. On Day 91, the home is auctioned off, unless the homeowner contacted the lender and made other, mutually agreeable arrangements.

Trustees are often attorneys and sometimes the auction takes place in their offices rather than “on the courthouse steps” as in some other states. At least in Arizona, lenders are frequently unable to sell the home to anyone at the foreclosure auction. In that case the lender takes the house “back” and usually lists it for sale in the MLS through a Realtor as an REO property.

We at The Phoenix Agents track REO listings to help us visualize the overall health of the local real estate market. Want to see our stats? Click on over, to <here>.

The Big 5 Banks are: Bank of America, GMAC, JPMorgan Chase, Citi and Wells Fargo. The Big 5 is just what I call them; it’s not a real thing. That I know of.

Does Fannnie or Freddie own your mortgage?

Image ID 1238452 by StockExchange user imMrChris (image courtesy of StockExchange user ImMrChris)

Does Fannie Mae or Freddie Mac own your home mortgage loan? Why should you care?

If your mortgage loan is owned by Fannie Mae or Freddie Mac, you may be eligible for a loan refinance program under the federal government’s Making Home Affordable (HAMP) program.  Only loans owned or guaranteed by Fannie Mae or Freddie Mac are eligible.

To find out if your loan is owned by one of The Two F’s, use this handy-dandy government website. Or you can call your loan servicer using the 800 number on your monthly statement or coupon payment book.

Visit yesterday’s post for links to the HAMP program website. Or, click read all our mortgage articles.

Do you have a 2nd mortgage with JP Morgan Chase?

Just the day before yesterday, JP Morgan Chase announced it would participate in the second-lien program of the federal government's Home Affordable Modification Program (HAMP). This second-lien program is widely known as "2MP".

Under 2MP, homeowners may see the interest rate on their second lien reduced to as low as 1% for five years. The program also provides a financial incentive to borrowers, servicers and investors if the modification is successful.

What does this means to you?

If you have a second mortgage and it's with JP Morgan Chase, you can approach them about modifying your second mortgage to make it more affordable and stay in your home, instead of becoming just one more foreclosure statistic. I believe homeowners must first apply for assistance with their first mortgage, through the federal government's HAMP program.

Suggestions for next steps

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