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Another Reason Why Defaults Will Explode This Year – IRS Form 4506
The government is flooded with loan modification requests at this
point. They have been working through this disaster at an ever increase
rate. They are now doing close to 100,000 per month. But the bad news
is the pipeline is full. There are at least 3 million homeowners who
need/want some form of adjustment on their mortgage cost.
The word is out on this one in every corner of the country. If you want
a break on your mortgage the first step is you have to stop paying for
at least three months. I know for a fact that this is correct. I have
seen it in a half dozen cases in just the last year. The banks/servicer
will tell this to you on the phone. “You don’t qualify for debt relief, you’re not 90 days late”. In my experience the person on the other end of the line hears this and says to their spouse, “Honey, I have good news! We’re going to get the break we need. All we have to do is stop paying the bills”.
We have created incentives for default. And they are powerful
incentives. Tens of thousands of dollars a year are at stake. Most
Americans will walk by a nickel lying on the ground. But they will
stoop for a quarter and if it is a bill they will move quick.
The deciders in D.C. are well aware of this reality. One logical
response is to accelerate the process of ReFi’s. Borrowers who start
skipping payments would get attention earlier in the process. The
length of time a borrower is in arrears would be shortened. This helps
the lenders, which in this case is the taxpayers. Borrowers who get 6+
months behind almost never survive. The property goes into foreclosure.
The hole is too big to patch after 7-8 months. While in some cases this
is an inevitable outcome, a significant number of the problems could be
cured if dealt with early. Foreclosure rates are killing us. It just
devalues the housing stock more and sustains the cycle of default.
So the good folks in D.C have come up with a number of methods to
accelerate the restructuring process. On balance I think they will
prove to be successful. But in this case we have to be careful on how
we define success. The new rules that will go into effect on June 1
will streamline the process. The guidelines have been established for
getting debt relief. I think it comes down to this.
I) Show me yours and your spouse's tax return. We add those numbers up
and multiply by 31%. That will be the targeted debt service for you.
II) If your income is equal to 31% or higher take a hike.
III) If your income is less than 31% you may apply. But if your income
is only 24% (example) then there is nothing we can do for you, Sorry.
The eligibility for a ReFi has been narrowed substantially by these steps. The introduction of the requirement to provide IRS form 4506
(permission to disclose IRS tax data) is going to accelerate the
process. How many people that are contemplating this are going to
comply with that request? As of June no application will be accepted
without it. No one wants to provide that information. This will cut the
ReFi line quit a bit just by itself.
From my experience we are going to get three reactions to the changes that are coming:
A) “ I called the bank and they said we had to give them
access to our IRS records. Screw that. I’ll show them. I am just going
to stop paying until they throw us out”
B) “We are just at the 31% level so we get no break. We are
under water by at least 100k. We are now paying 3k per month and there
is no upside anymore. We could rent the place next door that is just as
nice as this place for $1,500 a month. If we send the bank the keys and
sign the deed in lieu papers the most it will hurt our credit is for a
year. No big deal, our credit is shot anyway. Let’s take the extra
$1,500 a month and go on a cruise and get back to living. This home
ownership thing is not what it was cracked up to be.”
C) “The bank says we make too little to afford a reasonable
ReFi. They don’t care that I drive a cab on the side and make a few
extra bucks. They won’t knock down the principal to a level that we can
afford. So we are up against it. We are going to lose our home. We are
not paying a cent from now on. It will take them at least a year before
they throw us on the street. I loved this place but now I am mad.
Before we leave I am going to rip the copper out of the walls and steal
the refrig, washer and dryer and anything that can be moved. I’ll show
them whose boss.”
In my opinion the new streamlined process is going to be effective. It
will do exactly what it intended to do. It will have the exact opposite
effect of the “pretend and extend” policy. Many will argue that it is high time we did that. The sooner the better.
But there is a downside to this. The implication is that starting
sometime in July and continuing for some time thereafter there will be
a very big wave of new defaults, jingle mail, short sales, DIL
transactions and foreclosures. It means RE will suffer and prices will
likely have to fall. The timing for this could not be worse. At about
the same time this will be developing the life support we have been
getting from both fiscal and monetary policy will be in reverse.
Coupled with this, the government lenders are all tightening the terms
for new mortgage credit. Think of this as a stool. All the legs are
shot. It is not safe to stand on.
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It still boggles that the government of a "free" & capitalist economy would presume to pick winners & lowers on individual mortgages.
This will only end when the sheeple become as ruthless as the bankrupt financiers & start walking away in droves. It seems to me that only such a mass event will crystallize for ALL parties how it is financially & morally impossible for these ridiculous bailout /modification programs to work.
Anyone having problems with AURORA LOAN SERVICES?
You are not alone...
Here is a lady who has started a class action suit please get in touch with her. We are having all the same problems. http://www.auroraloanvictims.com/
Read the comments.scroll down.....they string you along as they take your payments:
http://www.afscanhelp.com/companies/mortgage-companies/aurora-loan-servi...
Good ideas to combat foreclosure...
Rocket dockets, changing from a judicial foreclosure state to a non judicial state, denying a defense and lying to the public, that is what our government and our judicial system and the banksters are doing
If you have been denied a modification you should report the bank or most likely the servicing compnay to the FTC’s Consumer Protection Agency as well as to your state’s Attorney General.
http://theforeclosuredetonator.word...
Good piece! Very fitting end comment! The legs are indeed shot out. Government is always the last one to capitulate. Watch the fiscal revisions for state and local governments in July...unemployment benefits winding down....housing taking another nose dive....yeppers we're in for a second dip!
I don't think you understand how this works. This is THE BANK.
They manipulate. You capitulate. If you force them to capitulate. They will force you with another type of manipultion. They won't ever give you a right thing to do. They'll burn down the entire country and then force their servants to rebuild it. But they absolutely never and I mean NEVER will allow you to be right or win unless it's part of a longer term manipulation program. The few people who get ahead are just part of the false advertising program. To make you believe theres a way to win. There isn't.
Here's a statue depicting the post apocalyptic homeowner burnt to a crisp by Wall Street. Its the most expensive piece of shit ever sold at auction today for $104.3 Mil. It reminds me of those Wall Street bonuses though. I look at what was done and say to myself "If I only knew you could screw something up that bad and make 100 million."
That's why I'm more of a Burning Man festival type.
http://finance.yahoo.com/banking-budgeting/article/108752/giacometti-scu...