Thursday, September 25, 2008

What the Bail Out Looks Like When It Saves Homeowners.

Is this the way it’s supposed to work? 60

The following fiction is a conversation between a foreclosing homeowner, Mr. Smith, and an agent from the newly created Federal Mortgage Correction Agency, FMC, Agent Brown.

“Mr. Smith, I’m from the Federal Mortgage Correction. I understand that you’re considering foreclosure for your home here. Maybe, if we review your situation, we can offer you an attractive alternative. Let’s see. The property in question is this house, 423 Elm Street, right?” FMC field agent Brown asked.

“That’s right. Ellen and I bought this place in August of 2005. I’m pretty sure that our adjustable rate mortgage can almost be considered a sub-prime at this point.” replied the homeowner, Mr. Smith.

“That’s actually not too important, Mr. Smith. The FMC is totally directed at the future. What we are trying to do is to help you and your family keep this house.” the FMC man answered reassuringly.

“But, aren’t all the banks wrecked after the President’s bail out got shafted by Congress?” Mr. Smith responded, dejectedly.

“No, a good number of the shakier ones went down, but there are a lot of good banks that are still in business. Along with you and your house, part of our job is to get this thing working again. That includes the responsible banks that were able to go through the meltdown and stay open. We can help them, too.”

“In fact, Mr. Smith, if we can get your mortgage repaired here, just about everyone will benefit.” FMC Agent Brown answered.

“Even if the outfit that lent us the money is one of the ones than went belly up?” Mr. Smith asked.

“Let’s talk about your mortgage. You originally financed through Nationwide Mortgage Finance, here in River City, right?” Agent Brown began.

“That’s right, but they went out of business.” Mr. Smith continued.

“I know. But your mortgage wasn’t really in Nationwide, Mr. Smith. It had been ‘bundled’ and sold to a finance firm in Arlington. They packed it up and securitized it and a lot of other mortgages, then sold them to a company called Shelby and Barsh. S and B is out of business, but they weren’t holding your mortgage when they failed. Most of their assets, including your mortgage, were sold on ahead to an investment banking company called Mazzara which was held by a sovereign wealth trust in the UAE. That is where your mortgage is right now.” Agent Brown explained.

“They pretty much told me that when I spoke to the Mortgage Help Line, but they didn’t know the details. Our problem got started when we tried to refinance.” Mr. Smith complained. "We listed it for sale, but that went nowhere."

“Right, Mr. Smith. That is where we come in. I have our records of the history of that first mortgage here. Let’s go over the numbers and make sure that they are accurate.”

“You purchased the home at its appraised value in August of 2005 for $229,500. You made a $14,500 down payment. Your mortgage for the balance of $215,000 ran 48 months at 5.25% until it reset at 6.75% this year. Your mortgage payments at 5.25% were $1966 a month. You have a good record of making those payments until just recently.”

“When your rate reset, you were looking at $2430 a month, and you tried to refinance. The appraisal on your refinance dropped to $188,000 so the best loan you could get was going to short your mortgage payment around $500 a month. I assume that is when you decided to foreclose.” Agent Brown offered, checking his file.

“That’s right. We pretty much went from owning a $229,000 house at 5.25% to owning a $188,000 house with a 6.75% rate on a $215,000 mortgage. We made those payments for four months through the summer, but we just couldn’t keep up. It seems like everything else went up at the same time.” Mr. Smith explained.

“Is the Federal Mortgage Correction going to buy this house for us? I mean, how does that work? Ellen and I have thought about every possible way we could keep this house, but we came up with nothing.” Smith asked.

“Well, Mr. Smith, FMC isn’t going to buy your house for you. That isn’t exactly how the bailout works. What we can do is make it so you can stay in it with a mortgage payment you can afford. To accomplish that we can offer a two pronged solution.

“First, we can take some of the $700 billion, track down whoever holds your mortgage and make them an offer. Naturally, they would like to get all $215,000 that was financed in the first place. That is not going to happen. They are going to get to start talking to us at the current $188,000 appraisal, but from there, they will have to decide what it’s worth to them to not wind up owning your foreclosed house. I would estimate that this mortgage can be purchased from them for around $165,000 or so.”

“After we obtain the house, you and the FMC will have to arrive at a new mortgage agreement. That is the second prong. We never wanted to be in the mortgage business, so we’re already out of our comfort zone. The interest on your new mortgage is going to have to compensate us for our investment and our trouble. In our favor, we can make a little money. In your favor, you can have a solid thirty year mortgage at market rates -- a mortgage with a payment you can live with -- but you’re not going to get the money your mortgage holder lost getting out of your foreclosure. We’re the ones who did the heavy lifting on that account, and we will get that money. Your new mortgage will make it possible for you to pay for the house and settle with us.”

“Our purchasing muscle and the foreclosure threat knocked $23,000 off the appraised value you were trying to refinance. Your new mortgage with us will be for the appraised value of $188,000 and that figure will determine your mortgage payments. The outfit in UAE will have purchased a discounted copy of your $215,000 original mortgage and wound up with $165,000. Compared to worthless, toxic paper, which is what it was before we bought it, they will probably feel like they did the best they could have expected.”

“All the details of this agreement will have to wait until you get through the mortgage application process, but they will probably wind up looking about like what we have discussed. Can we make this deal?” the Federal Mortgage Correction agent asked, smiling.

What in the world could be better than bailing out bankers?

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