"Hope Now" program to curb delinquency/foreclosures fraught with problems

The Hope Now program currently being proposed in the other Washington is designed to assist current homeowners with Adjustable Rate Mortgages (ARM’s) in which their ARM’s may adjust upward causing financial hardship. An issue of immense concern is how do you sift through the thousands of homeowners and qualify those who’s mortgages are about to recast to some ugly interest rate? Further, how do all the stakeholders and investors of these mortgages see this playing out—that’s the part Attorneys will have to fight about (what say you Attorneys?).

If the Government players in this program, including one of the lead Conductor’s in this orchestra, Treasury Secretary Paulson, have their way, the investors of these loans will have to be a good sport and play along, never mind losing copious amounts of money, nor the other legal implications.

‘The modification of existing contracts, without the full and willing agreement of all parties to these contracts, risks significant erosion of 200 years of contract law,’ said Joshua Rosner, managing director at an independent research firm in New York.

52 thoughts on “"Hope Now" program to curb delinquency/foreclosures fraught with problems

  1. I would have saved my last to comments on the St Jo thread for this more appropriate one, if I’d known!

    Feel free to move them.

  2. It sounds to me like those teaser rate loans just need to be regulated a little better. While I think that they can be used as a tool, you don’t use a screwdriver to hammer in a nail. All too often I hear of the bad advice that my clients have recieved from their LO. My favorite is the “Do you have any money in the bank? You need to have a cushion!” Then they are talked into a NEGAM loan to “Save” money. Thus they pay the LO commission once and then once again when they refinance a year or so later. It is a breach of ethics, there needs to be a standard and a system of reporting that is very visible and transparent.

  3. Jonathan, Consumers need to take steps to become more educated about the largest financial transaction they’ll make in their lifetimes. Many pick a LO as if they’re selecting a pair of shoes…if that…they are too casual. They’re chasing the lowest rate and often times wind up getting the worst advice and program they could have, as you referenced in your comment.

  4. Rhonda, your absolutely right. This issue is that not everyone has the wisdom to aviod being ripped off. Often the commisions are hidden, and since the LO has an “Office” and a Title. People all too often trust “Professionals” like they are doctors and they aren’t. It is the same with real estate agents as well, though I don’t think as much so, we already look slimy to some. What consumers need is a little Skepticism and that is generated by Bad Press. The refinance industry is getting that right now, but maybe the finger still isn’t pointed in the right direction. I am just saying that when a trusted advisor gives bad advice then there ought to be a way for the consumer to notify the next victim. Some way of challenging the “respecability” of that LO. The BBB just isn’t what it used to be.

  5. Jonathan, I guess my point is that consumers should obtain wisdom before they plunk their life savings and get a giant debt they’ll call home. If consumers work more with LOs who have been referred to them by people they trust and respect, they’ll probably fair better than by rate and costs.

    If the LO works for a mortgage broker in WA state, the consumer can contact DFI if they have a complaint that is not being resolved. I’m not sure what a consumer can do if their LO works for a mortgage company that’s backed by a bank.

  6. Con law wasn’t my favorite course (by far) and I don’t remember reading any cases at all on the Contract Clause. But if you believe this source, the government may actually have the power to do something here–which is a surprise to me:


    I’ve often said government programs to help first time buyers really should be called second time buyer programs, because it’s the people moving up that benefit (the starter homes get inflated by the programs). And I’ve questioned whether you’re really doing anyone a favor getting them into a home they couldn’t otherwise afford. When I hear what’s happening in the sub-prime area, I really wonder what’s going to happen to those who took advantage of the government programs. Not all the same conditions are present, but there’s still a lot of risk for those people.

  7. Rhonda, I can’t imagine the manpower needed to verify Form 4506 (in light of your comment of those who OVER -stated income). Unless of course the current 1040 that is used for underwriting makes it obvious. At that point, I suppose the “naughty, naughty for fibbing” comment is made?

    I’ll be curious to see how this plays out. Maybe I can get my ARM fixed for another 5 years— and I won’t even have to refinance! (just kidding of course). The real question is how many others are going to “game” the system in their favor. It will happen.

  8. It’s my understanding that when a loan goes into default, the 4506 is used to verify if the income was overstated (ie fraud on the 1003). The lender is looking for who is to blame for a non-performing mortgage.

    If the 4506 was dated, the lender has other resources for verifying the information provided on the application is accurate with the truth.

    We will see consumers say that their LO told them to state double their income so they could buy a house that cost twice as much that they could afford. Where did common sense go? Why would a consumer buy a house that has a mortgage payment as much as their monthly income?

    I was just talking with my husband this morning about the Account Execs. for the supbrime companies that would advise LOs to over-state. It always made me very uneasy and therefore, I couldn’t do it. There are times I feel good that I’m not more financially successfully for all the loans I could have done and decided not to.

    There is going to be a lot of squealing coming from the borrowers who overstated and said they didn’t understand or didn’t realize they were lying about their income on all the documents they signed at application and at closing.

    LOs will be squawking at the AEs from these companies who told them to do the loans this way… and the lenders who created these products crying that they have the loans back.

    Nope…these loans (stated beyond their actual income) should not be bailed out. This is a brutal correction to what should have been.

    I’m working on a post about 4506 right now because of a gentleman who emailed me this morning. He’s getting ready for his signing appointment (not my client) and the LO just told him he’ll have to sign a 4506, but not to worry…it’s just for the file….

    Tim, how common is it that you, as the closer, get to spring a 4506 on a borrower without them having a clue of what their signing? (silly question, I’m sure most all LOs explain this document and provide it in advance…right???)

  9. “Why would a consumer buy a house that has a mortgage payment as much as their monthly income?”

    Because real estate always goes up, so you can always refinance out of the loan later.

  10. Rhonda,

    How common do I explain the 4506? Um, many times. And here’s the kicker: probably half of them in the doc set have no end date stipulated. They should. So most consumers probably leave it blank and they shouldn’t. In addtion, the 4506 (if read) on the first page states something to the effect of “if a third party provider asks you to fill out the form, DO NOT SIGN THIS WITHOUT ‘THESE DATES’ S FILLED IN. So you may want to talk about that in your post. Maybe you should scan one to explain to the readership.

    Gotta go..

  11. The more insidious question is why are they doing it? Things are worse then anyone knows. Credit contraction continues…… Atlas Shrugs comes to mind.The march to socialism continues

  12. Foreclosure is not a problem; it is the solution. It is the only way to clear the markets and avoid moral hazard.

    This plan will wash out just like the Super SIV. I raise my glass to more foreclosures!

    “Someday a real rain will come and wash all this scum off the streets.”

  13. I think one thing the doom and gloomers don’t realize when they point to resets of rates and predict rising foreclosures, is what people will do to stay in their homes. Back when I was practicing law it was amazing to me the sacrifices some people would make to stay in their home. I’d suspect the rate resets will end up hurting the credit card companies more than the mortgage companies, because between the two people will stop paying credit cards first. Also, they can file bankruptcy and get rid of the credit card debt (typically) and then continue to pay their mortgages.

  14. Kary, I’ve heard stats on CNBC that many of the troubled home owners are paying credit cards before their mortgage because they’re wanting to have funds to rent and live after they lose their house.

    christiangustafson-foreclosures impact far more than the borrower who could not make their payments. Foreclosed homes impact neighborhoods and communities as well. Unless the borrower committed fraud, I feel very badly for them facing foreclosure and I would not rejoice in it.

  15. Rhonda wrote: “Kary, I’ve heard stats on CNBC that many of the troubled home owners are paying credit cards before their mortgage because they’re wanting to have funds to rent and live after they lose their house.”

    Well, I don’t doubt that you heard that on CNBC (listen to it long enough and you’ll hear everything). But it doesn’t make much sense. In Washington to be foreclosed out you’ll have not made mortgage payments for at least 6 months. If you need to rely on credit cards to rent at that point in time, your situation is beyond the average level of most people.

    But I will say people do all sorts of strange things, especially before they consult an attorney. I once saw a case where the person had $40,000 in the bank and $70,000 of credit card debt.

  16. Kary, most consumers are not contacting their mortgage company to try to avoid foreclosure when there’s a possiblity of them avoiding foreclosure (or at least buying time) by dealing with the loss mitagation departments. Consumers under this much stress are not thinking clearly.

  17. Rhonda, I’d agree with that fully. I’ve seen people not open their mail for months. Very frequently they try to contact a bankruptcy attorney only the day before the foreclosure (which was bad before the new bankruptcy code, but possibly the kiss of death now).

    BTW, some of these people are intelligent and even successful people, who for one reason or another get into trouble. Stress really does affect people greatly!

  18. Kary,

    I think the difference is that newer homeowners don’t have a skin in the game, so to speak. People who had 100% financing, or close to it, think its better to just walk away, especially after the value of the house went down. They owe more than the house is worth so they feel its in their best interest to just walk away from it. Whereas credit cards are needed to sustain their standard of living, at least for a little while. Everything is upside down.

    At least thats how I see it, who knows what is actually going through their heads.

  19. Shane,

    I’d disagree with that. In my 20 or so years of practicing bankruptcy law I found many (if not most) people in financial trouble think of it as their home, and have home ownership as a major goal–something they don’t want to give up. That’s what I was referring to when I said they make amazing sacrifices.

    It’s perhaps not entirely rational, but they don’t really think equity when they think of a home (or even a car). They think they own it, and they don’t want to give it up.

  20. If someone owes more than what their home is currently valued from doing 100% ltv…I’m sure it’s easier to walk away than if one had equity in the home. Apples and oranges.

    Someone with no equity who is walking away is going to need their credit cards to live off of. It’s sad.

  21. Rhonda that is exactly my point. Kary comments that in his 20 years of experience people people will defend their home before all else. They had equity back then, now they don’t, with all the exotic financing, so they are much more likely to walk away. Which is what that quote is confirming.

    This bubble led to a lot of odd behavior on the way up, don’t be surprised when it leads to odd behavior on the way down.

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