JP Morgan Chase, the Bank of “No”

Shahien Nasiripour of The Huffington Post, wrote a great article recently regarding the top brass at Chase arguing against loan modifications, citing the “sanctity of contracts.”

On the surface this may seem like a black and white issue, but it’s not. While it’s hard to argue against the “sanctity of their contracts,” being correct in this instance is almost irrelevant. Yes, all of your contracts can be enforced and you are not required to modify a single loan. Now what?

Perhaps Chase is under the impression that the majority of homeowners seeking assistance are just trying to get out of/modify their mortgages for the fun of it – to save a couple bucks - and once the request is denied, they’ll go back to happily paying their mortgage as they once did.

Not likely.

The reality is, most people will end up being foreclosed on. By not working with their customers, Chase will take back hundreds of thousands of homes – on top of the inventory they’re already stockpiling. Banks are not set up to manage properties, nor is it profitable for them to do so. If /when those homes finally are sold and off the books, it would be for far less than what was originally owed on them. As people start filing for bankruptcy – particularly chapter 7 – the ability for Chase to collect on the deficiency is gone. Now they’re stuck with whatever fraction of the original mortgage is left over, minus the costs to maintain the home, pay taxes and legal fees, etc., with no chance to recoup their losses.

Lowering the principle or approving a short sale will significantly curb those losses.

Take a home with a $200k mortgage. Chase refuses to work with their customer on a modification and forecloses. The home lists as an REO months later, for $120k. Now, all the homes on that street take a similar hit. After all, a home’s value is really only worth what someone is willing to pay for it. As more homeowners find themselves in similar positions (the delinquency rate is currently about 1 in 4), the values continue to decline.

Let’s not forget what all those abandoned/vacant homes will do to neighborhood values as well. Pay me a visit here in Detroit - I’d be happy to tour you through that reality.

For each home they take back and inevitably sell for less, they’re bringing the value down themselves, likely depreciating other investments of their own (as the 4th largest US residential mortgage lender, it’s a safe assumption they’ll have some other properties in the neighborhood). Instead of simply fixing the problem now with principle reductions, they’d rather just let the same thing happen via foreclosure, only over years and years and years.

Had they modified that same mortgage to $120k (or even $150k) from the start, they could have stopped the bleeding immediately and began the recovery. In a couple years, prices might not be up to where they were, but at least they’re no longer dropping.

And most important, principle reductions will keep money flowing in! Sure, it might be less of a flow than what Chase would like to see, but it’ll be considerably more than what “no” brings them – nothing…

Short Sale Buyers Are Out There, Eh.

For all the doom and gloom that’s surrounded the US real estate market over the past few years, there are some bright spots – and the source of that light is from outside our borders. From the Pacific Rim to Western Europe, foreign buyers have wanted to participate in the American real estate market for years but couldn’t afford it. Now, they’re getting their chance. And for many US sellers, they need not look across either pond for a viable buyer, but only towards our northern border.

An article out of the Toronto Star, discusses the influx of Canadian buyers who have always flocked to Sunbelt states like Arizona, Nevada or the snowbird haven of Florida, where rentals or hotels were far more realistic/cost effective options. For the time being, that’s no longer the case.

While the strong Canadian dollar might hurt their export business, it means a limited amount of math is necessary to figure out what that US property might really cost. In the past, a $250,000 US Florida condo might’ve meant almost $365,000 CAN. Not anymore. Now, that $45,000 US Florida short sale will cost you… $45,000 CAN. Big difference.

The article also points out that the stability of Canada’s banking system – more regulated than the US system – means financing is easier to access than the current US mortgage market, especially on investment properties/second homes.

So for those who think selling their home is a lost cause right now, give it a shot. The buyers are out there, if you’re looking in the right place… past our borders.

Class Action Lawsuit Against Bank of America*

From an interesting article out of the Seattle Post-Intelligencer, two Seattle-area homeowners have filed a class-action suit against Bank of America claiming the bank has failed to work with owners facing foreclosure.

It’s about time.

We see first hand every day, how difficult lenders make it – especially Bank of America – for someone to do a short sale. We rarely get involved in the loan modification process, but by all accounts, it’s even more difficult than a short sale. Whether the lenders want to admit it or not, both loss mitigation practices save lenders far more money than the alternative, foreclosure.

Still, lenders take their time, bumble through the process and more often than we’d like to see, screw the deal up.

Now, someone is going to do something about it. Bravo! We’ll be watching this one and will provide updates as they become available…

*Not to be outdone, it looks like Chase is being sued as well! In an article featured on The Huffington Post, a California couple was told to go delinquent (which unfortunately is very common), before the mass confusion/incompetence that is your typical loss mitigation department "accidentally" led to foreclosure. Remarkable...