Why the Fed and Treasury Can’t Renegotiate Securitized Subprime Loans      

Brent and Whitney bought a condo in Corona, California in 2005 for which they paid $275,000. They put down the $25,000 they borrowed from their parents and signed up for a $250,000 mortgage. It was an adjustable rate loan which reset in 2008. I don’t have to explain the rest. They bought at the top of the market, home prices cratered, the condo is now worth $160,000, and they are way upside down. Whitney lost her job at a mortgage brokerage and they haven’t paid the mortgage for the last two months. They were paying about $1,650 a month (PITI) and have been told the new payment will be about $1,800 a month.

Whitney calls the company where she sends the check every month and is told they only collect cash and that she would have to discuss it with the service company H.Q. in L.A. She calls the service company. A week later they call back and tell her there’s nothing they can do about it because the loan owned by several entities in a complex arrangement and that they have no authority to renegotiate. Whitney swears at the snitty phone rep and decides to move out. Rents down the street for a similar condo that was foreclosed and resold are only about $1,100 a month. Since she and Brent live in California, they have no personal liability on the loan. They move out and send the keys to the service company.

A major part of President Obama’s plan to revive the economy is to renegotiate mortgages and make them less costly for homeowners. Also he wants to protect homeowners from foreclosures. According to the Wall Street Journal mortgage service companies are being hit by a Tsunami of foreclosures. This is the case despite the fact that Freddie and Fannie have declared a moratorium on foreclosures for their loans. … Continue reading Why We Shouldn’t Help Brent and Whitney