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Should You (Just) Walk On Your Mortgage, DallasDirt Version: Take It While It’s Hot

Mr. Allison beat me to posting something I was debating recently with my son-in-law: how lenders and banks, as usual, are profiting off the Obama administration’s $75 billion dollar “Making Homes Affordable” program. My son-in-law is an attorney who told me weeks ago (think I posted) that mortgage companies are making big bucks off the loan modification programs and sucking more money out of people they know will never be able to afford the homes they are in. As Jake explained it to me, the programs are not really modifications, but tacking the (inevitable) payments on the back-end of the mortgage.

In other words, extending the agony for perhaps another administration to deal with? Jake feels the program is a sublime failure on the part of the Obama administration.

So today we hear that Obama’s mortgage relief program plans to pressure banks to help borrowers long term. The borrowers will have to supply more information — what the beejesus were they supplying in the first place? I had lunch with a sub-prime lender a few weeks ago — he’s now a realtor – -and after saying shame on you, asked how he could have accepted a loan document that looked suspicious. Like the school teacher who said she earned $150k per year. Well, he said, you have to understand, there are so many ways folks could get back at you for, say, discrimination. Or — (and I think this is the reality) — if you didn’t make the loan, the next guy would.

Take it while it’s hot. Isn’t that the way our system works?

But the real estate world must be laughing at this nugget:

“…after the homeowner fails to graduate from the trial period, the servicer is still going to put the homeowner in foreclosure, kick the homeowner out and sell the house. However, because of the collapse of the housing market, the sale of the house is unlikely to cover the outstanding debt, resulting in a deficiency judgment.”

Which benefits — guess who? All lenders make out like bandits when they foreclose on a home if the home is a deed of trust. They toss out the mortgage holder for non-payment —  Texas is actually a pretty quick foreclosure state,  get a default you post it and give 21 days notice — buy back the home on the courthouse steps, turn around and sell it.

Then this  eureka:

“Some 650,000 homeowners are currently in this preliminary phase, but only a small fraction have received permanent assistance. About 375,000 people should receive long-term relief by year end, said Treasury officials in their first estimate of how many permanent modifications would be made this year. The administration is set to release its first report on the conversions in coming weeks.”

375,000 by year-end? We have 30 days, several of which are holidays, the administration is dumping more hoops and paperwork on these guys and — “servicers must explain to Treasury how they will communicate the decision to borrowers.”

And who is paying for this yet (another) perk for financial institutions? You and me.

No wonder some lawyers are advising people to walk on their mortgages, both homeowners and investors who put zero down.