'Reduced motivation to retain possession'

Just a quickie: I was reading through the Fed's Senior Loan Officer Opinion Survey -- you know, light reading -- and found this little nugget at the very end (the subcategory is Special Questions on Loss-Mitigation Strategies on Residential Mortgage Loans):  "Respondents anticipate difficulties in contacting borrowers, and they are concerned with borrowers’ reduced motivation to retain possession of their properties."

In other words, banks are telling the Fed they are worried that some borrowers will walk away and mail in the keys. In plain English, we call this "jingle mail," or "just walking away," but in this cycle, we have much more impressive-sounding terms, including "voluntary foreclosure," and now, "reduced motivation to retain possession." I think we can shorten that to "REMO-REPO."

Joking aside, this is serious stuff. The "jingle mail" story is not just anecdote -- it is a growing worry for banks and lenders. By the way, Reuters' take on the Fed survey: "Banks in the United States tightened their lending standards and terms for businesses and consumers alike amid a deteriorating economic outlook, a Federal Reserve survey showed on Monday."

Comments? Thoughts? E-mail story tips to peter.viles@latimes.com

Comments

[Joseph...The Real Estate Guy]

These "Brilliant Lenders" who ran along with "Wall Street" on the "Sub-prime" mess are now creating another mess by asking for "Larger-than-usual" downpayments....

If you don't have 10% for a downpayment, don't even think of buying a house!

Fannie Mae and Freddie Mac are pushing the California Housing Market into oblivion!

Prices won't be going back to the 1990's level any time soon. But they are making it difficult for the market to function in a more normal manner. Lots of people depend on real estate transactions.

Most people own very little on their homes, or they own them free and clear. They don't need to sell. Only those who bought at the Peak area in trouble.

[steveRB]

Joseph -
So what is your point? First you say that the lenders made a mess. Then you say the current mess is going to be worse because now they require a 10% deposit? Isn't the first mess due to the fact that they didn't require the buyer to have some skin in the game?

[Enlightenment]

>>Lots of people depend on real estate transactions.

Whether they knew it or not, those people helped create the mess, so now they have to pay the piper like everyone else. If during the boom, you spent money like a drunken sailor, then don't whine about being irresponsible.

[Upside Down in SD]

Minus $130,000 and sinking. Putting skin in this game isn't wise for at least another year or two, in fact I wouldn't even use bottle caps.

I think I'm suffering from a mild case of "Reduced motivation to retain possession" That sounds much more moral than Jingle Mail or Just Walk Away. Please send the Fed my regards.

[Peter]

We all know what is going to happen. House prices will continue falling for a little while and then they will reinflate and the next bubble will begin.

People who have the means and willingness to buy and hold for a long time will of course make a killing.

[Campbeln]

Joseph - you have no idea what "normal" is in mortgages, do you? 10% down is only half way to normal! 20% down was "normal" for a "normal" loan only until recently (read: this mess).

Do some reading dude. No matter which way you slice it, Cali (and the US)

Cn

[joeinlosangeles]

I think the point is he really like the era when aberant lending practices pushed up housing prices, and now he's upset that era's over.

--Joseph -
So what is your point? First you say that the lenders made a mess. Then you say the current mess is going to be worse because now they require a 10% deposit? Isn't the first mess due to the fact that they didn't require the buyer to have some skin in the game?--

[jb]

Joseph,
The only statement you make that I agree with is that many people own their house free and clear.

You seem to think that the huge bubble with median housing prices at 8-10X median income is not a problem. The scam is over, no one is buying your nonsense anymore. Housing is just beginning to crash (4-5X max is reasonable), Banks will fail (unless our gov rescues them) and you had better find another transaction to depend on.... this one is gone

[gringoenmiami]

Joseph, above, needs to do some study. Home equity is at a low point. Many own nothing and have paid only interest. Many others have home equity loans greater than the value of the house.

[RLLD]

Restoration of more traditional lending guidlines should be heralded as a return to those fundemental principles that allowed for a healthy real estate market.

Coming with money down should not be frowned upon, but simply part of the normal market operation. The 10% level is a natural result of the market reflex action in response to the mass defaults. A return to 5% is eventual and preferrable.

The lesson here is rather simple... Banks, do not lend money to people on loans they cannot afford...buyers, do not sign on to accept loans you cannot afford....sellers, keep jacking prices sky high at your own eventual peril.....

This is not complex here at all people, this is a mass fraud being squeezed out of the economic system, and it cannot transpire with out some pain...

[Rich]

Returning to high down payments just brings us back to the days when less of the population was able to afford to own a home, because the amounts of cash required up front were too high. The low down-payment options from VA and FHA have allowed an expansion of home ownership over the years, and the default rates are low because the prices of the homes being financed are in a safe proportion to income. I've just completed a purchase with a 3% down FHA in the Northeast, where we're not having any problems of availability with low-down-payment options. Claiming that requiring big down payments will bring everyone back to righteousness is one of those misguided articles of faith along the lines of claiming that long prison terms for petty crime will reduce petty crime. If you focus on the wrong problem, you choose the wrong solution...

[amir]

Are all loan in California 'no recourse'?

If that's true, people's reduced motivation will spread like wildfire. The rate of foreclosure will skyrocket to fantastic numbers and prices will fall further and harder than we can imagine.

For those of us who saved and have cash on hand it will be a once in a lifetime opportunity not only to own a house, but to own income producing real estate.

Just wait a few years and greed will reign again.

[Mike S]

20% down is reasonable ...even in LA.

Oh, and with 20% down the median LA house WOULD BE CONFORMING AT THE EXISTING CAP!!! Gee, maybe we shouldn't be so quick to enable banks to transfer their soon-to-be non-performing jumbo loans to the Feds.

Look at the disconnect btwn postings touting the bailouts and postings that prices will drop another 25%. Save folks from themselves simply extends the pain for the over-extended AND the responsible.

The quicker we can get back to sane lending standards the better. Economics is about transaction efficiency, the quicker we can get the blood letting over the quicker citizens can get back to productive activities that add value to society.

Mike S.

[Jeremy (jemarqu)]

If we ever truly go back to traditional loan standards home sales in US will really plummet.

We live in a country that on average has $10,000 in unsecured debt. How can expect the average American family that can't get out of their 10k in credit card debt to save $40k for the average American home.

We can all stand on our soap boxes and brag about our savings habits but Americans that save are not the norm. Our government doesn't even encourage saving. With low interest rates and government stimulus plans our government encourages debt and spending.

[mbob]

Peter

"Long time?" Anyone who bought stock in the ' 30's had the immense privilege of recouping their original capital somewhere in the early '60's. They actually made money by the late '60's, then went back underwater in the '70's and finally in the '80's got to see some worthwhile appreciation.
Can't happen with housing because......?"
Again, take a look at various cities where seemingly sound purchases now are wildlife shelters.
"Long time" might mean your grandchildren's lifetime, if you can ante up enough to get into a relatively well-guarded community near the Pacific. Then, just hope that the global warming estimates are propaganda and that rising high tide lines don't turn Santa Monica into a version of Atlantis.

[kat]

I'm starting to think this Viles guy is a deadbeat himself. He seems to think the whole walk-away phenom is so damned cute. He also said he moved recently and is renting. Hmmmmmmm.

That would explain a lot about this board.

And Mr. Viles, before you give yourself a nose bleed from laughing so hard, remember, the rest of us in this country are paying our mortages. Even though the foreclosure rate has tripled, it's still less than a few percent among legitimate home owners (as opposed to sub prime borrowers who had no business being home owners in the first place).

[Keith]

"Most people own very little on their homes, or they own them free and clear."

Not even close - 2005 Data for LA County

Homes with Mortgages - 1,014,000 units

Homes without mortgages - 274,000 units

[Keith]

2008 = 2006 2/28 reset year, won't know where the bottom is until we get through this year. Anybody trying to say different is full of it.

[BCD]

The root of all the problems with the current sub-prime mess is obvious -- giving these exotic mortgages to people who should never have gotten them because there was no way they could ever hope to pay them back once the rates reset. Hopefully (although I doubt it) in the future mortage lenders will require that mortgage applicants reliably demonstrate that they can repay a mortgage and not just depend on the rising value of their homes (which may or may not happen) to bail them out by refinancing to a fixed rate loan.

[Keith - LetItSink.blogspot.com/]

You all seem to have missed Joseph's full name - Joseph...The Real Estate Guy. "Real Estate Guys" like mortgage brokers and real estate agents need to be schizophrenic. They need to be able to tell the seller that the market is a disaster, and they need to lower their price, and at the same time tell the buyer that Now Is A Great Time To Buy. His disastrously bad logic is an occupational necessity.

[jake kellirs]

There is a basic disconnect from home loans and the property. Their are all kinds of incentives to buy a house ... they all disappear and are punishing if you need to move because of a death of a spouse, a relocation, or a loss of job. Unless you are putting down, say 50%, you can't create a transaction that allows you to move to a different house (or in the case of a divorce) two homes with your existing mortgage.

this is a set up for the newly poor, people who must transfar, and pits people against the short term swings in the market. homeownership has been set up for a two adult family where no one loses their job, dies, or gets divorce. Those that don't do not need subsidies.

We need mortgages that can be transferred ... or we will see this happen time and time again.

[Tombstone Realty]

Hmmmmmmmmmmmmmm Kat is suggesting our fearless leader is some sort of deadbeat, because he is a renter.

Guess that means because I rent, I'm a deadbeat too.

I feel great shame.

Dammit, now *I've* got a nosebleed from laughing so hard!

[Scott]

The days of profiting on real estate are OVER! The Golden Goose has flown.

But it's O.K.

Your dollar is worthless. But it's O.K.
Jobs are flying over seas. But it's O.K.
Our Gov't and citizens are all in debt up to their eyeballs. But it's O.K.
The Fed is blowing up another bubble to burst (it's not going to be real estate). But it's O.K.
Food and energy prices are going through the roof. But it's O.K.

The only house that's selling now is the house of cards, and your buying it. But it's O.K.

Just repeat to yourself: we are the worlds leading ecomony and it will be O.K.

[Cal]

Ironically, ''Reduced motivation to retain possession' by borrowers to retain possession of their properties is directly correlated with the lenders 'Reduced motivation to retain possession' of the loans on their books.

So it all evens out ;)

If lenders have to portfolio loans they make much fewer bad loans. Funny how that works.

[kat]

Tombstone,

That's not what I said at all. I said the guy "moved recently" and is NOW renting.

Meaning, maybe the guy has gone from owning back to renting which, if that's the case, is a strong indicator that he's a walk-away.

Going backwards from owner to renter is never a good move and usually means something's up. I did not say renters were deadbeats.

[NoCal Trojan]

>And Mr. Viles, before you give yourself a nose bleed from laughing so hard, remember, the rest of us in this country are paying our mortages. Even though the foreclosure rate has tripled, it's still less than a few percent among legitimate home owners (as opposed to sub prime borrowers who had no business being home owners in the first place).<

Hey Kat, there's lots of us in Calif. (I'd venture to say most) who are paying our mortgages too.

[Joseph...The Real Estate Guy]

I have been in the Business for more than 17 years. I have sold hundreds of properties. I have always treated my clients the way I would have liked to be treated myself.
With respect and dignity. Doing was best for them, and along the way, making a decent living.

In think No-Money-Down Purchase Home Loans(Sub-prime) were a big mistake!
They were okay for Refinancing people with a lot of equity and poor credit, with no income. But not for purchasing.

Lending to people with bad credit and no-money-down could only be dreamed-up by the greedy at "Wall Street".

These loans were being pushed hard by some Lenders in the 1990's. But they didn't become that popular until the Media starting making a big deal about real estate prices going wild....People started to see $$$$$$$$$$$$ all over the place.

Another factor in California was the huge amount of people getting into the business(Real Estate) and being gullible. As far as I can tell, most new agents fell into the trap. They were making those loans left and right.

I did not recruit people for 4 years because I knew what was coming. Even though it's worse than what I thought.

If you know what you are doing, real estate is still by far the best investment you can ever make. '

Coming soon:
www.asktherealestateguy.com

God bless you all!

[Roger Moore]

"We live in a country that on average has $10,000 in unsecured debt. How can expect the average American family that can't get out of their 10k in credit card debt to save $40k for the average American home." --Jeremy (jemarqu)

Maybe those Americans haven't saved because they have no motivation. There simply isn't much reason for people to save. They can buy just about anything they want with no money down, and any time they have temporary financial problems they can borrow to pay for necessities. Of course they never save; they've never had to. If you went to that same family and told them they'd never be able to buy a house without $40,000 in the bank, you'd be amazed at how easy saving turned out to be.

[perks]

Um...hey Kat...Read back a few weeks and you'll see that Peter has gone from renting an apartment to renting a house.

Geez, you're right! What a horrible deadbeat he must be if he couldn't even TRY to qualify for a home loan in the recent RE bubble! Scoff, scoff! :)

[Cal]

Joseph...The Real Estate Guy: "In think No-Money-Down Purchase Home Loans(Sub-prime) were a big mistake!
They were okay for Refinancing people with a lot of equity and poor credit, with no income. But not for purchasing."

No offense, That has to be one of the stupidest things I've read all week, you're lucky it is only Wednesday.

Giving loans based on collateral value and not evaluating the ability to repay (your refinance scenario) is just a foreclosure waiting to happen as well as abuse tool for the mortgage brokers. Many of these sad sack foreclosure stories you read aren't purchases, they are refinance.

Either a person taking a loan has the capacity to repay or they dont. The collateral value is a backstop to the loan in case something goes wrong with the buyers ability to repay.

The fundamentals of lendings were called the 5 C's of lending Character, Capacity, Credit, Capital and Collateral.

Then the local banks were replaced by big banks and loans based on ones good character were removed from the mainstay so people now talk of the 4 C's of lending Capacity, Credit, Capital and Collateral.

Well Capital to close the loan wasn't needed because they'd just roll the costs into the loan and have 100%+ financing. So now we get the 3 C's of lending Capacity, Credit and Collateral.

With stated income and the like made it so lenders didnt have to worry about someones capacity to repay so now we just have the 2 C's of lending.. Credit and Collateral.

It should be obvious why that is all a bad idea and that the 4 C's of lending (Capacity, Credit, Capital and Collateral) were called fundamentals for a reason.

[TwoTired]

The point of walking away is that paying on a $700,000 house that is now work $500,000 or less, pretty much makes you insolvent. AKA - bankrupt. Whether you put a down payment on the home (which you may have just lost) or not, or if you have an ARM or other type of loan. The prices of these houses are -OUTRAGEOUS- to say the least, and I see that the problem was greed, and that these houses should not have had 700-800% increases in values over a 1.5 year span. The prices of these houses need to return to what they were before this boom. Meaning, that a 59K house needs to not be 300-400K, but return to where it was "reasonable". Buying a home should return to "basics" which is 2.5 to 2.8 X your income. There is where reality is.

[Tuma]

want to walk away? get help here

http://www.youwalkaway.com/qualify.php

[Rebecca]

>Are all loan in California 'no recourse'?

Amir - in California, *original purchase* loans are non-recourse. *Refinance* loans are recourseable. (That's why the purpose - purchase or refi - is listed on the 1003 form.)

The reasoning is that the original purchase loan was applied entirely to the sale price - lenders won't make purchase loans for more than the purchase amount plus closing costs. (And now, not even that much.) But it was possible for refi loans to be cash out, meaning that the loan proceeds were used for purposes other than the purchase of the property. The money went toward other assets, the reasoning goes, therefore there is recourse to those assets.

Before y'all jump down my throat, some refi loans were indeed for non-reckless purposes. We've heard from people on this blog who used the proceeds to start a business, pay medical expenses, and a thousand other reasonable uses for cash borrowed against an asset. Of course, we've also heard from and about people who bought luxury cars and took extravagant vacations.

P.S. I'm not a lawyer - just an accountant who spent four years in the mortgage industry as an assistant controller and is happy to be off that sinking ship.

[kat]

Um. . . Perks (wow, that was cute, you don't mind if I use it do you) I didn't know that.

All I know is the guy is very sympathetic to deadbeats and I was wondering why. He even promotes websites and publications that assist walk aways.

It made me wonder. Maybe Viles figures that deadbeats walking away will bring the market down even further which means maybe he can be a homeowner courtesy of the deadbeats. Who knows.

[Mark in SF]

"Going backwards from owner to renter is never a good move and usually means something's up. I did not say renters were deadbeats."

I don't get what is so great about owning a home in this insane bubble mentality. I live in San Francisco and pay $1600 a month for a 2BR flat. 3 houses down, there's a 2BR condo (OK, so it's got a bit more square footage and 200K worth of improvements). They paid $1.25 Million last summer. Just the taxes are $1300 a month at 1.25%! Almost as much as my rent! Owner of my house has had in family for 40+ years and pays almost nothing in taxes. If that is not insane I don't know what is.

Oh, and then there is the mortgage. Interest only would be like $6K a month at 6%.

Let's see..... $1600.... or $7300 a month for almost the same square footage.....yeah, I guess being and owner is better?!?!?!

Oh but I guess housing prices are climbing so they're building equity?? yeah right. I've got a 10% down payment, and good credit, but I'll wait 10 years for this insanity to sort itself out, thank you very much.

[Dawson]

Would like some feedback. I'm not a deadbeat, but here's my situation. Bought first home in CA for $520K in 2006 with no DP...35 yr fixed loan @ 5.75, first 5 years Interest Only...Home now valued at $350K and dropping...Will not begin to pay principal for 3 more years..."Silent 2nd" which bank added on is $15K and compounds daily (7% interest) and is now at $17K and growing...Have super prime credit and no problem paying mortage. What would you do? I haven't made any decision but am considering and researching all options. I like my house and don't want to leave, but I can get qualified to buy the same home for 60% of what mine is currently valued at, then walk away from current home. If my wife or I lose our jobs as a result of recession then what - be forced into foreclosure instead of proactively taking action. Why pay interest only on a depreciating asset?

[Laker]

Posted by: Dawson: "Why pay interest only on a depreciating asset?"
Dawson, You said it yourself, why would you pay interest only on a depreciating asset. You also mentioned that you could buy similar house for 60% of your current debt mortgage...
I also invested huge time learning this problem and i think you should stop paying your mortgage since you are puttin money down the drain. You can live rent free for at least 6-10 months. I estimate that you pay about $2500-2800 per month, so you could save about $30,000 to use...as you next home down payment. If i were you, i would do just that. Then either buy similar house for a lot less or best if you can go and rent for a year or so. In 2009, you could probably get even better deal. Also you credit will be better. Since you said that you have a very good credit today, you should keep it so by paying all your bills except the mortgage. So eventually, you will have everything perfect on you report with one foreclosure. In two years you would be prime with no issues. If you think about it, you could probably get same house with same payment or less but...this payment will be fully amortized so that it would include principal too. Best thing is that at that time, your house will not be dropping any more (or at least not that much that it will in 2008) so that the asset will start to appreciate...
Do the best walk a way option, by stopping paying the mortgages, and save the money (pay it to yourself, instead of the bank)