Mike M.

Great and very solid information, all. Very on point as to mortgage warehousing, and selling on secondary market...

30 year fixed at that rate? Don't let that go unless you really have to, Pong.

As for another tidbit (disclosure: I am not an attorney, so please consult a professional), but from what I know, if this is your original loan (i.e. purchase money), and say worst case, you had to walk away from it, being your 1st on a residential owner occupied in California, the lender/note holder could not come back at you with a deficiency judgement if they foreclose on the property (i.e. they have no further recourse against you). If you were to refi, that changes things, as the loan is no longer original purchase money. Alot of folks try to get out of their initial ARM or neg am by re-fi'ing, only to delay the inevitable (those who still can't afford after negotiations, that is), and now they have another can of worms. At that point, along with getting issued a 1099 (credit charge-off/forgiveness = taxable income to the IRS), some either file bankruptcy, worst case, or find another way to prove that they are insolvent. I can go on a bit about this as well (PM me if you want further "heresay"), but it appears you already have sound advice from the previous posters.

CP

Folks,

Thanks for the sound advice. I called the FDIC and sure as you folks said:
(1) Loan cannot be called.
(2) Loan will be sold as a part of a portfolio. They cannot/will not sell just one loan.
(3) She thought there was a typo on my interest rate. I closed the loan in February 2006, $1MM ($400k cash out) at 4.875%, 30 years fixed. The prevailing rate back then for a $1MM cash-out loan was about 6%. I guess I just lucked out.

I guess I'm really lucky with mortgages. I still have a $1MM HELOC at prime - 1.125%. The prime will drop another 1/2% (could drop a whole 1% if Fed rate goes to 0) in the next 2 months. I'm living right despite the crummy economic times.

Well folks. Thanks for the education and have a wonderful Thanksgiving.

CP

Rinty

A 30 year term; wow!

FGL28

Pong,

All the advice given is right on. But remember this, you signed a contract to make payments and they cannot force you to refi unless you screw up. From my experience with the FDIC some of them are real sharp but most of them are kinda clueless. Why should you refi at a higher rate? you shouldn't. Just ignore the letter but when the note is sold stay on the new lender so you will not have to pay extra interest.

scott watkins

Living right on borrowed money??? Please...

CP

Scott,

The borrowing was only to spread the risk of being wiped out financially by a major earthquake. The loan to value for the first mortgage was less than 35%. We did not spend the money. Could have paid off the loans easily at any time.

In fact, no CC loans, car loans, children tuition loans of any sort. We are very conservative people.

'Living right' refers to the favorable interest rates we lucked into, not the conspicuous consumption that could have happened with these loans.

Just clearing things up, and upping post count.

CP

mooty

i did secularization for a while. you wont be able to buy your loan discounted. if you are paying on time, it's a good loan, they want you in the portfolio.

if you aren't paying, they want you in the portfolio so that when the buyer of the asset backed security haggles on price, the originator/UW can stuff in the bad loans.... simplistically it's like bait and switch.

originators rarely will ever sell single mortgages even if it's non accural. it has to be really really really late. in that case you can do shortsale.

OR, you can defualt for a while. then i come by to pretend to buy you out after we both negotiate with the bank for shortsale. once i buy it out, you then buy the house off from me. but that's part fraud and also ruins your credit.

oh and if the UW had any brain, they would chk your assets. if you have them but defaults your mortgage (even though they cannot come after other assets) they know you are "playing" them and they will "play" you too.

mooty

mostly correct, but USUALLY even refi's are non recourse loan. it would be really really stupid to have sign a recourse loan on homes or commercial properties.

kdurg

Mooty....please elaborate, what is secularization ? I've not ever heard of this term in the mortage arena. Typo for Securitization ???

Mike M.

Point well taken, Mooty. To further add to previous post (sorry if getting really off tangent, and again, please correct me if I'm wrong) one may worry if defaulting on one property, would it affect one's other residence(s)? This should not happen in residential, but may happen in the realm of commercial, or a scenario that involved cross-collateralization. Nonetheless, as you stated, the 1st loan should not have any recourse, but if original loan, owner occupied, I believe it's more cut and dry. For a 2nd loan or hard money, if not from the same lender, this proves more complex in that they may deny the short sale and/or delay process, even after the 1st lender has approved a modification or action. The 2nd lender may also come back with a deficiency judgement, regardless of what the 1st lender has chosen to do. On the flip side, if the 1st and 2nd were done with the same lender initially (i.e. both used to purchase home), then the lender typically has one action, which would most likely go back to power of sale clause or modification/forgiveness for both loans.

Also, state laws vary, and I assume we're talking about CA.

mooty

hahaha, LOTFLMAO.

SORRY, it's securitization.

my stomach still hurts from all that laugh.

mooty

great post, but we are both veering off topic. however, if someone can see a hole in my logic, he may be able to make a LOT of money.... and pls do share the profit with me.

Right on. Residential is simpler and rarely would lender or borrow do cross collateralization, as most ppl owns just one home with nothing to cross collateralize.

Commercial lenders usually will ask for cross collateralization, or they SHOULD try to ask for it as even ppl with large pocket often choose to default on purpose. A commercial property is driven by income vs expense. There’s no emotion involved. If I am not breaking even and no prospect of future appreciation, I will walk. And of course, most comm. properties are held by single asset entities or some rather complicated holding structure in which no one knows who owns what! That often makes cross collateralizing difficult, thereby involving a large team of RE lawyers. Sometimes, I would just request the biggest owner of the holding entity to personal guarantee the loan. And some ppl will do it. I wouldn’t.

You are right in that we can consider CC (cross collateralization) as a “recourse” for the lenders. Though what I was thinking as “recourse” was lender coming after ALL of your assets, real estate, securities, cash etc until they are paid up in full.

Certainly short sale with just single lender is easier to negotiate.

“…even after the 1st lender has approved a modification or action. The 2nd lender may also come back with a deficiency judgment, regardless of what the 1st lender has chosen to do. “

Indeed, if I were then 2nd, and you try shortsales with 1st, I will for sure file deficiency judgment. It’s a long shot for the 2nd, but hey, filling fee isn’t that $$$

But if there are two lenders on the mortgage, I would approach the 2nd lender first to do the short sale. They know well, that if it’s foreclosed, they will get exactly ZERO dollars back. Because as the senior loan forecloses, the senior note holder will only foreclose it just to cover its own losses. Why risk higher price trying to cover the 2nd lender? So I would offer 2nd lender penny on the dollar as they are toast anyways. So there, I am already getting some free equity. Depending on how upside down the property is, you may or may not need to negotiate short sale with the first lender anymore. If you aren’t so upside down, just pay off the 1st, sell the prop and pocket the discounted equity on the 2nd. If the prop is really upside down then you will need to negotiate with 1st to also short them in order for you to make any more. This works great on paper. I ran many scenarios…. I thought I found a pot of gold. But I am not the type of person who goes knock on doors of ppl who are about to lose their home asking for their cooperation to get shortsales allowance with 2nd and then deal with 1st. I know ppl who does this full time. It’s NOT easy money!

NOTE: to short sale, you have to be NOT the owner of the property in trouble. If an owner comes to me (lender) and suggest a shortsale, I would think you are trying to pull a fast one on me. I mean, we can all just goto our lenders and tell them, guess what, I can’t afford my house anymore. Why don’t you sell it to me at 50%...

Mike M.

OK OK, I know I know.....veering way off topic here (so sorry for the threadjack, Pong, but this discussion peaked my interest, and Mooty and others bring some great points to the table).

I believe someone mentioned in an earlier post about a way to possibly get around this, but I do not condone it (and neither did the previous poster).

Nonetheless, in light of that last statement, the Fed is stepping in with the "HOPE" Housing and Economic Recovery Act of 2008, which just rolled out last month. The details are stated, but somewhat fuzzy still as to how the lenders should react to it. From what it appears, the FHA will insure lenders who voluntarily reduce loans for distressed homeowners, possibly to 90% LTV of current market price at a fixed rate. I believe the caveat would be equity share with the FHA (50%?) if the home is sold at a later date under this program. This program is posted on some lenders' websites already, including Countrywide.

http://portal.hud.gov/portal/page?_p..._schema=PORTAL

http://banking.senate.gov/public/_fi...ActSummary.pdf

mooty

haha, yes, i know HOPE. and i believe there are some restriction, one of which may be equity share with gov't.

but to qualify for HOPE, most likely the mortgage has not been securitized and sold off to oblivion. and the borrower must be in DISTRESS, which means more than 90 days in default. yeah, i looked into it, but i think i would have ruined my credit before i have "HOPED"....

just no easy money for me to make ;-=)

IamSMC

I love this thread