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“We Don’t Know Who to Pay, and We Don’t Know How Much…”
By Sherman Ragland | September 12, 2007
At a recent meeting I was speaking at someone asked the question, “What does it matter to people who are paying on their loans if their lender goes down? We have our money, so we are safe, aren’t we?” As I said then, this is just wishful thinking on their part. When a lender goes down, it impacts everyone.
Case in point, Federally backed purchasers of home loans are now warning that due to the numerous bankruptcies of mortgage originators (companies who compete head to head with COUNTRYWIDE MORTGAGE) are wreaking additional havoc because the newly bankrupt companies are refusing to turn over the loan files for their performing loans. The reason? They hope to sell off the performing loan servicing rights to the highest bidder as a part of their bankruptcy liquidation. Using the funds from the sale of these good assets to pay off creditors.
However, it also now appears that many of these bankrupt companies are refusing to pay the property taxes for the loans they service, as required under the loan agreements.
So, in other words, a borrower who IS Paying on their loan to a newly bankrupt lender may later this year (or in early 2008) find out that their home is going to be sold at a Property Tax Auction becuase their lender has not paid the property taxes that are suppose to be withheld in escrow.
Several Federally backed agencies like Ginnie Mae (Underwrites FHA loans), Fannie Mae and Freddie Mac have begun seizing (or at least attempting to sieze) the loan files from these mortgage originators who sold loans using thier money. Under the terms of the agreements, these companies originate the loans, then sell them to Ginnie, Fannie and Freddie, but retain the loan servicing rights and collect fees to service the mortgages. The problem is once a company declares BANKRUPTCY, they technically still maintain the rights to service the mortgages. However, many, such as newly bankrupt American Home Mortgage, are refusing to turn over the files.
[Following is from the Wall Street Journal]
“In an interview last week, Ginnie Mae’s senior vice president, Theodore B. Foster, said Ginnie Mae had seized from American Home some of the insurance and tax payments collected from homeowners. “What’s occurred is that we have the money, but AHM hasn’t been able to or willing to pay the taxes and insurance, and they have the loan records,” Mr. Foster said. “Therefore, we don’t know who to pay, and we don’t know how much.”
The writing is on the wall – look for a Massive Federal Government Bailout to be a central part of any Presidential Candidate’s platform as this coming Winter brings about an accelerating number of foreclosures, mortgage servicing problems and of course, massive layoffs in the home building, mortgage lending and home builder supplier industries. Since Homebuilding is also considered by Economist to be a “multiplier” industry, look for massive layoffs in other sectors of the economy around Christmas time, and before the New Year.
In otherwords, look for this mortgage meltdown mess to drag the entire US Economy into RECESSION.
A RECESSION that did not need to happen.
Unfortunately, the Federal Bailout needed right now will come TOO LATE to help HUNDREDS OF THOUSANDS of homeowners dealing with these issues right now. The Presidential Administration that created the mess, will not be the one responsible for cleaning it up.
The Bush Administration has put its head in the sand on this one. It created the problem with its “HOME OWNERSHIP FOR EVERYONE” philosophy. The lenders got in line and DRANK THE KOOL-AID and offered the general public what the Bush Administration said was needed: “Loan Programs That Would Alow EVERY American a chance to own a home (Even if they were a POOR Credit Risk). The problems we are facing now were to be expected.
Bush had a plan to get everyone a loan, but NO PLAN to deal with what happens when they DEFAULT. And Now Bush, Jr. refuses to step up to the plate to clean up the mess he created while the inevitable FALL OUT is occurring – in REAL TIME.
Becuase the Bush Administration is not moving fast enough, or bold enough to clean up their mess, thousands of home owners ARE GOING TO WIND UP LOSING THEIR HOMES. Way more than is necessary to “…Teach the Speculators a Lesson!”
As investors, the time is right to learn the words: “Short Sale, Foreclosure and REO”. All of these things will now replace the “Homeownership for EVERYONE” parade that went through this country over the past seven years…
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Tags: american home mortgage, bankruptcy, bankrupt companies, bush jr, collect fees, countrywide mortgage, fannie mae, freddie mac, george bush, ginnie mae, kool aid, loan agreements, mortgages, mortgage originators, property taxes, recession, sherman ragland, sieze, tax auction
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