This one is from "Wells Fargo Madness" who writes:
What a timely and spot-on post....Thanks "Wells Fargo Madness". Good luck on your job hunt! You did the smart thing and the moral thing as well, which is to protect your family instead of the piranhas at Wells Fargo. When a significant percentage of those Option ARM holders Wells Fargo start to walk (and I believe they will), Wells is going to be in deep trouble.
I can personally attest to the truth of the situation described in your latest missive:
"Given these economic incentives for the lender, a seriously underwater homeowner with good credit and solid mortgage payment history who responsibly calls his lender to work out a loan modification is likely to be told by his lender that it will not discuss a loan modification until the homeowner is 30 days or more delinquent on his mortgage payment.
The lender is making a bet (and a good one) that the homeowner values his credit score too much to miss a payment and will just give up the idea of a loan modification.
However, if the homeowner does what the lender suggests, misses a payment, and calls back to discuss a loan modification in 30 days, the homeowner is likely to be told to call back when he is 90 days delinquent. In the meantime, the lender will send the borrower a series of strongly-worded notices reminding him of his moral obligation to pay and threatening legal action, including foreclosure and a deficiency judgment, if the homeowner does not bring his mortgage payments current. The lender is again making a bet (and again a good one) that the homeowner will be shamed or frightened into paying their mortgage. If the homeowner calls the lender�s bluff and calls back when he is 90 days delinquent, there is a good possibility that he will be told that his credit score is now so low that he does not qualify for a loan modification."
I bought a house back in 2004, having moved halfway across the country for a new job. It was a house I could comfortably afford - I made a little over $70,000 as a senior manager for a newspaper, and my mortgage was a little under $900 a month (including taxes and insurance), fixed at 5.25% for 30 years with Wells Fargo. In spite of the pressure put on me by a broker when I was buying, I avoided the no money down variable option because I wanted to do what I thought was the responsible thing to lock in my payments at a decent rate I knew I could afford and avoid the reset lotto.
In April of 2008, I was notified that the job I had moved across the country for was set to be eliminated, along with the entire staff of my department. The company I worked for was highly levered in an environment where revenues were shrinking, and 'consolidations' were being made across the company. The day I found out that I was going to be out of work, I called Wells Fargo to see if it would be possible to make some alternate payment arrangements until I found work, and was told precisely what the article you reference noted - that they couldn't even discuss the matter with me until I was 30 days in arrears. I was mortified, knowing that being 30 days in arrears would leave me with the dreaded 'mortgage late' on what had been a pristine 800 credit score. I had been prudent and saved a fair sum of money, so I decided to try and keep the plates spinning while I looked for work.
I applied myself to the job hunt, but with nearly 50 positions eliminate from my company and a few hundred at other domestic newspapers who shared my area of specialty, it was a tough task finding work.
Then in August, Gannett, the biggest newspaper company in the world, announced that they would be laying off 1000 workers, and my sources inside Gannett told me that they were going the 'consolidation' route, meaning that in the course of 3 months nearly a third of the total positions in my field had gone *poof*. My prospects for finding work in the industry where I had experience had just gone from tough to Quixotic.
I again called Wells Fargo to see if there was anything they could help me with that didn't involve damaging my credit - I still had a sizable amount of savings to negotiate with - but the answer was the same: 30 days late or no discussion. I decided I'd have to take them up on the offer.
When 30 days had elapsed, I contacted them once again, only to now be told that they couldn't work out any arrangements until I had found work. I was angry, as one might imagine. I decided that they had received the last payment they were going to receive from me. Fourteen months later, I have kept the vow.
I'm not proud of walking away from my 'responsibility', but in light of the situation - nearly 18 months without finding work - it seems that it was the best thing that could have happened. If I had kept paying all along, I'd have depleted a good deal of my savings, and I'd still be facing losing the unemployment benefits that are keeping the other bills paid. As it stands, I've still got that nest egg to see my family through the rough days that lie ahead.
I've been to the housing counselors the state has set up, and the best they were able to do for me was that I could pay off the back payments, penalties and interest, and resume making payments.
My house is set to be sold at auction next week, and due to the rules in the state, the minimum price will be well in excess of what I suppose the market price would be. I expect that the bank will be the buyer by default.
If my experience is representative, walking away might be the best option.
From Wells Fargo's perspective, this was an avoidable situation. I called them when I found out about my joblessness, and I did everything I could to avoid a default. All I wanted was some recognition that I was willing to work with them if they would work with me - maybe only paying interest until I was able to find something.
However, once I felt double-crossed, having been told to let it go into arrears so that they could work with me, and then to be told they still couldn't work with me, I did what I thought was prudent. I decided to see how long I could live rent free. As of today, it's been almost 14 months.
Assuming that the house sells next week and I get an order to vacate the next, I'll be here through the end of January (it takes a minimum of 60 days to affect an eviction here). More likely, I won't get the order to vacate until the bank sells my house as part of a package foreclosure deal for about 20 cents on the dollar. I might get to live here rent-free for a good spell longer. I could have, and probably would have, paid them nearly 50% of the house's value as a cash settlement 14 months ago if they'd been willing to have a conversation.
I've come to the realization that I'm not going to find work in the field to which I'm accustomed and I'm back in school to get another degree. I started in August after the Gannett news came out, as much to avoid a long gap in my resume without an explanation as anything else. I've been doing programming and database work since I minored in computer sciences 15 years ago, but I figured I'd legitimize my skills with a degree - since I have the down time. I've got 8 classes to go and a 4.0 GPA. The big question is: will I find work when I get done this spring?
"Wells Fargo Madness"
Misguided Morality
In a comment on this blog to the original post, Ron writes:
Walking away because you can't make the payments is understandable. Walking away even though you can make the payments tells something about your character and morals.Ron and others are entitled to believe what they want.
It does not matter if everyone else in the world is doing it. Justifying something just because others are doing it does not make it right. A person of morals and character knows this and will never be convinced otherwise.
That is what I was taught as a youth by those I respect. No amount of criticism will change my beliefs.
However, the sad reality is that "misguided morality" perpetuates the problem. The quicker homes fall and the quicker bad debts are written off and the quicker that we kill one-sided morality the better off we will all be.
If there is any morality at all in these situations it consists of two things:
1) Doing the best to take care of one's family
2) Lenders preying on misguided morality
Those waking away are not only doing the smart thing for themselves, they are also helping the economy over the long haul. The Fed criticized Japan for years for not writing off bad debts and making the banks Zombies.
The US has not only Zombified banks, but Zombified consumers, all for the sake of misguided morality that does not stand up to scrutiny if one would simply read and understand Government and Lender Policies of Fear and Shame Help Keep Homeowners Debt Slaves.
Consult An Attorney
If you are considering walking away, please Consult An Attorney Before Walking Away.
Thoughts on Foreclosure Hearings and Deficiency Notes
To tie up some more loose ends, Larry Nusbaum at the Millionaire Now Blog wrote:
I am a RAC (Resolution Assistance Contractor) for the FDIC and wanted to add to what attorney Dan McKillop, J.D stated in the "Consult An Attorney" advice:
- Since Florida is a Judicial Foreclosure state I would attend the Foreclosure Hearing and demand that the foreclosing lender "produce the note", because the may not have it. Also, take the appraisal to the judge.
- The decision to pursue a deficiency is going to be based on the financial picture of the (former) borrowers. In many cases I instruct our attorneys not to bother and simply write it off if the guy has no money.
- However, in many cases, the Deficiency Balance (note) will be sold for cents on the dollar. So, in that case it makes sense for the borrower to make an offer to pay off the now greatly reduced note. But, in that scenario do not settle the deficiency! Buy the note for the agreed upon price so that no 1099 is issued.
- 1099? Yes, if you do a short-sale or foreclosure AND the bank/lender writes off the deficiency you get a 1099.
- Lastly, a judgment, can always be included in a Chapter 7 federal bankruptcy
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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