Modifications: Interest reduction, Principal reduction, Payment reduction, and Term increase

In the financial world we don’t measure just the amount of principal. For example if I increased your mortgage principal by $100,000 and gave you 100 years to pay without interest it would be nearly equivalent to zero principal too (especially factoring in inflation). A reduction in the interest rate has an effect on the overall amount of money due from the borrower if (and this is an important if) the borrower is given 40 years to pay AND they intend to live in the house for that period of time. To the borrower the reduction in interest rate and the extension of the period in which it is due lowers the monthly payment which is all that he or she normally cares about.

Nonetheless you are generally correct. And THAT is because the average time anyone lives in a house is 5-7 years, during which an interest reduction would not equate to much of a principal reduction even with inflation factored in. Unsophisticated borrowers get caught in exactly that trap when they do a modification where the monthly payments decline. But when they want to refinance or sell the home they find themselves in a new bind — having to come to the table with cash to sell their home because the mortgage is upside down.

So the question that must be answered is what are the intentions of the homeowner. The only heuristic guide (rule of thumb) that seems to hold true is that if the house has been in the family for generations, it is indeed likely that they will continue to own the property. In that event calculations of interest and inflation, present value etc. make a big difference. But for most people, the only thing that cures their position of being upside down (ignoring the fact that they probably don’t owe the full amount demanded anyway) is by a direct principal reduction.

THAT is the reason why I push so hard on getting credit for receipt of insurance and other loss sharing arrangements, including FDIC, servicer advances etc. Get credit for those and you have a principal CORRECTION (i.e., you get to the truth) instead of a principal REDUCTION, which presumes the old balance was actually due. It isn’t due and it is probable that there is nothing due on the debt, in addition to the fact that it is not secured by the property because the mortgage and note do NOT describe any actual transaction that took place between the parties to the note and the mortgage.

24 Responses

  1. All, I need some assistance and advice. We received a Notice of Foreclosure a few months back. I have still been corresponding with Wells Fargo telling them they have no standing. After several QWR’s and letters to OCC and CFPB, WF responded with more documents than they did in the past. This time they included 2 Allonge Notes which I had never seen before. Keep in mind that they did not respond with the documents even to OCC and CFPB. Then it clicked I went on to the Baltimore More Public Records and there it is a Deed of Trust had been posted there on the 11th of this month. I have not been able to view it yet, but I can imagine what it is. I need some help on which way I should go with this. I need to know what I need to do in order to prove that the documents are Fraudulent. I am sure they are. Any assistance would be greatly appreciated. James 443-677-2799, Thanks

  2. Gene- I think that what John Gault is saying, as per his prior posts regarding the g fees, is that the consumer is unaware that he is paying a fee which is disguised by means of a slightly higher interest rate. There is no mention of the g fees. I think that’s it. The US mortgage market via MBS sales to sovereign wealth funds, pension funds, investors, towns in Norway, didn’t bring down the global economy by being upfront about fees, risk, defective mortgages and so forth. The g fee is just another page from the same book. I read that a FNMA has over 11,000 pages of guidelines for “lenders” to follow. That would be hilarious if it was nt so pathetic- what’s next, a 500 page manual on how to tie your shoes? And if that isn’t bad enough, FNMA has hired an outfit called “Public Defender” to remove information from the Internet, or bury it if it can’t be removed. You know, so as to help struggling borrowers. Nice use of taxpayer funds.

  3. John Gault,

    You don’t like the fees, then don’t take the loan. It is that simple.

    The fees that you do not like allow the GSEs to fund riskier loans. That way, when loans default, there is money to absorb the losses. Without those fees, everyone would pay much higher interest rates, and the quality of the borrower who could get loans would preclude 50% out of the market. (No, I am not a GSE supporter. They should be run out of town.)

    Also, the loan mods that occur on GSEs that everyone wants comes with a price. 50% of the reduction in payment is paid by the GSEs, meaning ultimately the taxpayer,to the Investor/Bond Holder so that losses are half of what is thought. The taxpayer eats it.

    Quit being so self centric and look at things from a 360 perspective. it helps to understand what is really happening.

  4. KC,

    Half a story doesn’t create a whole story. Half a changing story creates only a discombobulated story.

    What’s the story line? So far, yours is all over the place. Keep a timeline if you want to get somewhere. Not for us: we have our own story. For you if you ever want to tell it and… more importantly, be listened to.

  5. @Mike – good catch in the Peng case. I’m half expecting to see the same arguments presented in my appeal in the 1st Appellate Dist. I find it reprehensible that an any Appellate judge would side for a party the court holds no jurisdiction over, especially at the demurrer stage where the facts were presented that an alternative chain of beneficiary interest exists (Freddie Mac) who, BTW, only accepts wholly-insured loans. In other words, the court has no jurisdiction to hear a party who cannot show damages – as in the case of an insurance payoff paid for by the increased loan cost to the borrowers. I wonder how a full panel would render this decision.

    FWIW, I pointed to my DOT language showing I presented a clear title to the trustee at the loan inception and agreed to defend that clear title, including bringing a suit, if need be. AFAIK plain language on the contract trumps ‘case law’ and statutes if not specifically contradicted.

    Then again, IANAL – I use plain language and speak the truth to the best of my ability.

  6. (Imo) the fnma g-fee charged to the borrower, first of all, is not interest though it’s shown to the borrower in the p & i payment (at closing and from then on). It’s a separate charge to be paid every month to a party who was a third party at the time the loan was made. The g-fee
    deal requires the servicer to remit the g-fee every month to fnma. Where is the accounting? It’s no different, disclosure wise – also imo – than if one were being charged for private mtg insurance (PMI, GMAC, MGIC). The only thing not different is the charge to the borrower – he’s charged for the g-fee just like he’s charged for pmi.* What’s different is how it works. FNMA’s g-fee is a guarantee, not insurance. PMI, MGIC, et al don’t guarantee or make payments if the borrower doesn’t, for instance. The banksters may claim THEY’RE the ones paying the g-fee to fnma (out of their interest), but since it’s charged to the borrower to pay, I don’t see it that way. It isn’t overhead and it isn’t profit to the lenders.

    *holy smokes! If one got a “fnma” loan over 80% ltv, he got a double whammy. He had to pay disclosed pmi to a pmi provider like MGIC AND he had the g-fee built into his rate for gnma, also a third party, to guarantee the certs! Ftr, in case anyone doesn’t know and cares, PMI had to file bk. I don’t recall if it were an 11 or 7. But one can’t have too much sympathy for PMI (I think), because it had to have made decisions which led to higher claims, long and short.

  7. They were a little more generous with me on my loan (ha) …..
    they offered to modify my loan of $236,000 at a blazing low 2%.

    Temping… or Not?

  8. I ask myself is this is the amount in the “Security Insturment”,
    (the note and mortgage together)? $255,624

    Because the Instruments says, The Instrument(note&Mortgage) together with the note (149,000).

    The one thing I do know is the original owner sale price 76,000 plus their HELOC 30,000 plus hubbys note 149,000 = 255,000

    Is that coincidence?

  9. JG, Check on the probate, title examiner and title ins policy (Chicago Title, My Choice)

    The recorders office shows my husband via a faulty trustee deed.
    The purchase agreement was from both he and myself ……

    I contacted BAC in 2010 and spoke with their ” legal dept” who handles their title issues. Because that sure in tarnations wasn’t the only issue…
    After their failure to respond in an appropriate manner, I called in our attorney.

    Funnies … on Oct 14th 2011 my hubby got an offer to refi his mortgage with the original lender…

    The problem is they proclaim the original amount financed was $255,624 and they could reduce our payments to $944.84 a month.

    Considering the original amount financed was $149,000 and the payments were $919.00 a month ……..

    I’d say … H”LL NO!!

  10. MIKE…Rubin gives California citizens on point law…THANKS for the post

  11. from that article I linked:
    “Yves Smith points out (in an update) another possible difference between AIG and the monolines — AIG’s business in swaps allowing European banks to reduce their capital requirements,
    which meant that big European banks had a lot of exposure to AIG.”

    I’ll tell you, quote unquote, AIG must be darn important to the U.S. The fact that aig had to be bailed out says to me that it over-committed
    relative to its ability to honor those commitments. No, I’m no expert but even I know insurers are limited in their commitments. there’s a remote (my opinion) possibility that aig’s commitments were lawful, let’s say by ratio of assets (capital) to liabilities (for the insurance). Like they could commit 300% of their capital. (3 to 1 and I made that up – it’s probably much higher); there’s a remote possibility the sheer volume of that missing 2 to 1 in capital could’ve killed them (AND AIG also agreed to post collateral under certain conditions?!), but my money’s on over-commitment accomodated by lack of regulatory oversight, fwiw at this point. AIG, which put software in certain people’s offices so they could “write their own” coverage, agree to be good in exchange for not being prosecuted for any ‘over-commitments’? I think I read they were in 130 countries. Wow. Bet they all got to keep their production bonuses, too. What’s going to stop this from recurring? The only thing I can think of would’ve been prosecutions where warranted.

  12. KC, did you ever get around to talking to a probate attorney? It’s never been clear exactly what happened in your case, but I’m hard pressed as a lay person to think the law would’ve even found any kind of
    equitable loan to a person with no interest in a property. From the
    scratches (sorry) we get, it doesn’t seem you even had an equitable interest to which an equitable anything could possibly attach. There are some finite answers to your situation. Please stop killing yourself and go get some solid answers from a probate attorney or from your friendly local (non-club-member) title examiner. Take lunch. If you have to, go to your friendly local home-loan making credit union and see who they use for title that’s not in the “club”. One last thing – who’s name is on title at the recorder’s? Do you still have a copy of your purchase agreement?

  13. well, hell. my computer just ate my work. again. short version:
    Issuers took coverage on defaults so that their securities would
    reflect the ratings of the company providing the coverage = get a higher rating (plus they told tale tales). Who was the party with the insurance? The issuer? looks like! The cert holders? The trust?

    fnma, which works differently than fha and va*, guaranteed its certs (but paid it to the trust). I wondered why gnma guaranteed its certs, but I think we know now: sales tool and the money, the g-fee. One hand at fnma didn’t know what the other was doing. Had to be. While guaranteeing millions and millions of certs (and being compelled to continue payment til repurchase), the other guys at fnma in charge of production abandoned quality control in favor of unearned, bogus production bonuses based on volume.
    Since fnma charged the g-fee to the borrower (in the rate offered by the lender who knew the loan was going to fnma) for its guarantee, the
    ‘self-insuring loan’ (sub-prime, jumbo, ridiculous ltv) has new meaning, to me, anyway. The BORROWER paid for that insurance. I guess I knew that but stopped there. Well, should it have been disclosed as I say fnma’s g-fee should’ve been? And what about deficiency judgments (where allowed by law) when the borrower has himself paid for loss coverage? Someone’s loss (if any!) is covered by insurance the borrower paid for but those guys still come after deficiency judgments?! (fnma would be entitled to a deficiency judgment if there were a deficiency realized by fnma after its repurchase and sale, but only if it repurchased).
    * I don’t know how whatever insurance is built into self-insuring loans is paid out – is it like PMI and not like fnma’s guarantee? Probably, meaning it only covers a bottom line loss after sale (to a certain percentage – I’d guess and I’d guess around 10 – 20%). But maybe not…could be 100% for all I know.

    There is damn well a money trail somewhere on insured or guaranteed loans.
    Take a fnma loan: the g-fee is built into the rate. It’s like .15 to .25 (I forget). EVERY month, there is a transmission of those funds to fnma by the servicer. And yet, not one accounting of a loan reflects
    those payment to fnma that I’m aware of. On loans specifically called ‘self-insuring’ loans (in the industry)? There’s a money trail there, also. Has to be.

  14. Thanks Christine, .. I’m just tired of beating my head into the wall trying to do the right thing .. even after we got snookered, not just as homeowners, but as investors and taxpayers who have worked and payed our dues … just to find out we’ve been robbed.

    I know what the fall out will be …. its tough to swallow.

    If I have to suffer the consequences of anothers actions .. I need to understand how they did it.

    I’ve always been of a Simple Mind, with my own experiences and use of Uninsured Conventional Mortgages.

  15. When I see “CDO”, I admit I generally think collateralized debt obligation, but in that article, it means Credit Default Obligation.

  16. “….The difference between the monolines and AIG, Adams posits, was Goldman Sachs.

    Apparently while all the other banks were paying monoline insurers to insure their CDOs, Goldman wasn’t, because the monolines refused to agree to collateral posting requirements (clauses saying that if the risk increased and the insurer was downgraded, it would have to give collateral to the party buying the insurance). Instead, Goldman bought its insurance in the form of credit default swaps from AIG, which was willing to agree to collateral posting requirements, as we all now know. This is one way in which Goldman was smarter than its competitors. Another way, which we also all know, is that at some point in 2007 Goldman began shorting the market for mortgage-backed securities — which would given extra incentive to make sure that they were fully insured.

    Until, suddenly in September 2008, it turned out that maybe Goldman wasn’t that much smarter than everyone else, when it seemed like AIG might not be able to post the collateral it owed. And so:

    “I hate to get sucked into the vampire squid line of thinking about Goldman, but the only explanation i can think of for why AIG got rescued and the monolines did not is because Goldman had significant exposure to AIG and did not have exposure to the monolines.”

    http://baselinescenario.com/2009/11/25/aig-goldman-monoline-insurers/

  17. Oh, excuse – she said read the dissents – that’s good, too.

  18. Christine is imo absolutely right about the value of reading losing cases.
    Doing so is probably the best road map for what not to do, pitfalls to avoid, likely arguments to expect, and so on.

  19. I know,KC.

    We all had to learn the hard way. Time to wise up though and start prioritizing. Running all over the place, grabbing every theory and mixing apples with oranges is the best recipe for a loss.

  20. Mike,

    I have long told people to read the dissents in cases lost on appeal if only because reading the arguments favorable to the homeowners is the best teaching they will get on how to formulate and present them.

    People still don’t. Hence the lack of results.

  21. Christine, I understand were the reverse mortgages come in…
    but the Heloc was a learning experience for me, as it was a Heloc that was paid off in full by the sellers estate, but apparently the LOC remained open.

  22. Off topic, but a MUST READ:

    See this fresh CA Appellate UNpublished Opinion:

    http://www.courts.ca.gov/opinions/nonpub/B245436.PDF

    Appellants lost on appeal, but Judge Rubin writes another well reasoned dissent.

  23. “The only heuristic guide (rule of thumb) that seems to hold true is that if the house has been in the family for generations, it is indeed likely that they will continue to own the property. In that event calculations of interest and inflation, present value etc. make a big difference.”

    Except for those who got conned into reverse mortgage or Heloc. Quite a few decades or even century-old estates have been ruined that way. Accident? Fluke? Nope! Just a last ditch effort from the Feds to pay their debt by seizing the land and selling it to foreign investors.

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