Diary

While we're on the subject of bail-outs...

Jon Corzine had an idea or two about the “housing crisis”. He’d like to do a couple of things. And because he’s a Democrat and has no clue about The Law of Unintended Consequences, he – and the Democrat controlled legislature – don’t understand that they will likely kill the housing market in NJ.

From a mortgage industry blog, thetruthaboutmortgage.com, we’ve got a couple of tidbits. But first some background on foreclosure.

The process of foreclosure, is fairly consistent across the US. It deals with defaults on loans secured by real estate and is governed by contract (the mortgage and deed of trust), by state law and regulations and by federal law and regulations. There are some states that have slightly different time frames than I’m going to lay out, but they aren’t dramatically different and the process is consistent in every jurisdiction.

When a borrower takes out a mortgage, it is a loan secured by real estate. The terms and conditions are specifically outline in the loan documents and the deed of trust. If the borrower misses a payment the borrower is technically in default of the terms of the loan. After the borrower misses four consecutive payments the lender issues a “Notice of Default”. Until the NoD is issued the borrower can make a “payment arrangement with the lender and effectively make partial payments against the amount in arrears. Once the NoD is issued the default must be wholly cured, in other words no partial payments. Along with the NoD, the borrower is informed of a scheduled date of the “Trustee Sale” of the property. That sale date is typically three months from the date of the NoD. Up until the actual sale of the property at auction, the default may be cured with certified funds for the arrears plus legal fees.

There are two other ways to stop a Trustee Sale, bankruptcy (Ch 11 or 7) and a formal request for a loan modification agreement. A BK requires certified funds for one mortgage payment in escrow with the BK Trustee to stop the sale. There is no review by the lender of the borrower’s current situation and the terms of the loan do not – under current BK law – change. If the borrower misses a payment to the Court the lender can proceed immediately with the sale upon approval of the Court (which is quickly forthcoming).

A loan modification agreement is essentially a rewrite (sort of a refinance) of the borrower’s current mortgage. It is typically handled by an attorney who negotiates on behalf of the client with the lender. The borrower provides financial information and essentially requests a modification of their current loan terms. The result can be a lower interest rate, reduced principle or both but the bottom line is a lower, affordable payment that keeps the borrower in their home and leaves the lender with a performing asset. NOTE: the borrower will have to qualify for the modification and will have to prove income in order to get a modification approved. The current value of the home is not an issue with a modification.

OK, with all that behind us, to summarize: in order to lose your home to a foreclosure you will be at least seven months in arrears on your mortgage payments. If you can make the payments on an outgoing basis but can’t cure the default you can file a bankruptcy with one month’s payment. If you can prove your income you may be able to qualify for a modification. If you don’t have the ability to make the current payment or can’t prove your income (a situation that vast numbers of self employed people find themselves in) you will lose your home.

So what does Gov. Corzine want to do?

New Jersey Governor Jon Corzine today called for a three-to-six month foreclosure moratorium to give borrowers more time to modify their existing mortgages.

While speaking at a housing conference hosted by the Office of Thrift Supervision in Washington, Corzine also pleaded that TARP funds “absolutely” be used for loan
modifications.

His sentiment supports a recent plan put forth by FDIC head Sheila Bair, calling for $24.4 billion of the $700 billion bailout fund to be used to guarantee new loan modifications.

However, a forthcoming report from the Office of the Comptroller of the Currency is expected to reveal that most of the loan workouts previously completed fell back into default within six months.

Preliminary details show more than half of the loans modified in the first quarter of the year have already re-defaulted, according to OCC head John Dugan, raising serious questions regarding the efficacy of workouts.

OK folks, set me straight on this. I’m just a country boy, I’m not from the big city like Corzine. So ‘splain to me how, if I’ve already had seven months to cure my mortgage problem another six is going to help? And, if I can’t prove enough income to qualify for a loan modification today, just how is another six months going to make a difference?

And, oh yeah, since about half of the approved and completed modification agreements are already in default again just why would I want the feds to be using my tax money to guarantee those agreements? Except maybe to get them to loosen their underwriting standards so more NJ voters can qualify for a modification?

Let me be clear about this. Governor Corzine and Commissioner Bair don’t know their ass from a hole in the ground. In a third world country they’d be shot for this foolishness. And much more of this crap and the US will BE a third world country.