I received an interesting email yesterday from Tim Harris, who runs a real estate coaching company along with his wife Julie. Tim said that I would find this interesting, and he was right. He wrote a post Wednesday entitled URGENT BREAKING NEWS: New ‘Secret’ Program, Homeowners Given New Mortgages Immediately After Foreclosure! Here's an excerpt:
[B]anks are now extending opportunities to REINSTATE mortgages loans…after a foreclosure…to the former homeowners!
You read that right….homeowner ‘loses’ their home to foreclosure. Legally, its no longer their home. Home is legally in the hands of the bank. In the past…after the homeowner loses the home in a foreclosure sale….they move out…afterall, its no longer their home..home becomes a REO listing.
Now, homeowners are being offered the opportunity to stay in their home…reinstate their mortgage reflecting the value as established at the foreclosure sale. New mortgage terms, market interest rates.
It seems that this new ’secret’ program is being tested in many major markets across the US. The former homeowner is now able to REINSTATE their mortgage…at the new value as established by the foreclosure sale. In other words, the negative equity is gone…the second mortgage is gone….back property taxes paid off…back HOA fees gone. Their new mortgage amount IS the amount the lender paid at the foreclosure sale!
I want you to think about that for a moment. This means that even AFTER a homeowner missed payments…loses the home to foreclosure…that they can now IMMEDIATELY secure another loan for the homes current market value. WOW!
Consider this, 25% of all homeowners with mortgages are upside down by at least 10%…..10% of all homeowners with mortgages are upside down by at least 25%. HREU Students know that this trend of underwater homeowners will increase before it levels off. There are 50,000,000 mortgages in the US….as of today…6,000,000 aren’t ‘performing’. In other words, homeowners aren’t paying their mortgages!
What happens when all of these millions of upside down homeowners discover that they can have their negative equity wiped out….secure a new mortgage…and keep their home…if they let it go into foreclosure?
I asked Tim if he could tell me any more particulars. He said:
There is a company called Titanium Inc., which works on behalf of the lenders to do what they call home retention. Basically, they hire agents to door knock the homeowners who are headed for default and offer them the opportunity to do a mod…and if that won't work…a short sale.
Titanium is a very well respected and truly honorable company. They treat everyone…agents…distressed homeowners will respect. They are not the bad guys.
This is happening across the nation. We have 1000's of students, and I started hearing about this 2 weeks ago. So, I picked up the phone and started calling HREU students and asking them if they have been asked to do reinstatements.Here is the process:
The agent gets an assignment from Titanium. The assignment is to go to the JUST foreclosed home and offer them a reinstatement of their loan using the NEW loan terms (Basically, a principal reduction. The new mortgage amount will be for whatever the property went for at auction). Any lingering debt from the previous loan…wiped clean…poof gone. Late HOAs, Taxes, Seconds, Liens…all gone. Homeowner DOES have trashed credit but, matters not. New mortgage, new loan amount.
So would this be a good deal, or not? It certainly sounds easier than a loan mod- no need to get investor approval or to work out a deal with other lien holders. It avoids evictions, keeps homeowners in their homes and keeps a property from being vacant. On the other hand, if this were to become widespread, WHO IN HECK WOULD BOTHER PAYING THEIR MORTGAGE?
I know the government doesn't worry about scaring private investors away from purchasing MBS- Fannie and Freddie will purchase anything that has mortgage written on it. Our mortgage industry has been nationalized. The losses for lenders however, would likely to be huge, should something like this become common. Why then would lenders consider doing something like this, if this is indeed going on? My guess would be because the losses would be nationalized as well.
Tim said that he could provide us with the names of agents that could verify that they have been seeing this being done by lenders. Where's our industry folks? Has anyone else heard of similar reports?
Usuall the bank is the winning bidder at auction. Most of the homes are too far upside down to garner legitimate bids.
Just another distortion of the “market”. I wonder, if prices continue to fall will this be repeatable?
Lenders/servicers appear to be quite resistant to any pre-foreclosure principal reduction. They also appear resistant to permanently modifying to the 2% for five years that is part of many of the four month trial periods. So, this seems even less likely to catch on, but who knows.
Stevec makes a good point. If we were talking market value, or close to market value, it might make sense for an AZ f'd borrower. But if the new loan is for a bid at the old loan's principal, what would be the point? You would extinguish the junior liens, but that happens anyway. Signing up to be underwater (by a little less) would be a bad idea.
I guess that the foreclosed person would not have to move. I know that moving to another place even in the same area is disruptive, but it is not as difficult as it is often portrayed. In advance of any local move, I recommend signing up for a Post Office Box and sending all of your mail there. It is generally more private, more secure in high mail theft areas like Metro PHX, and makes moving a non-issue in terms of correspondence. I have kept one for many years.
I don't buy it!
banks aren't holding any of their own paper, and contrary to what the cheerleader's blog says, fannie and freddie ain't buying this paper.