Boulder Realtor Opinion: Even Citigroup Feels The Heat to Modify Mortgages

The pressures Citigroup and other mortgage servicers are facing put them in a tough situation. This Boulder Realtor thinks that they have a responsibility to investors that put up the money for the loans but the investors knew the risk.

When investors make calculated decisions to loan money that they know has a greater loss risk, they just charge more for the loan. Enticing buyers to take loans they shouldn’t, mortgage brokers and ‘predatory’ lenders truly gambling on the numbers and knowing that instead of a 1% to 2% loss rate on a typical mortgage portfolio that gets sent up to the market and instead knowing that the loss rate potential is going to be 8% or 11%?

No wonder there’s a shake-up.

The great thing about this is that investors are starting to wise up and renegotiate with some borrowers. While it’s difficult to put this together for some, not everyone gets thrust into the foreclosure parade. If you’ve got one company servicing your loan and a different company that’s invested, it’s almost a conflict of interest. Can you get the servicer to refinance. In some cases, they tell you where to go. If that’s the case, don’t wait, call your lender, a new lender or a trusted professional like your Realtor to work through it. There are new programs from many lenders and there are even some FHA ‘rescue loans’ so make the call, know where you stand and get some help but don’t just wait for it to go away.

And know this: even U.S. Treasure Secretary Henry Paulson has called for financial firms to help borrowers by esing terms on lots of mortages. The Chariman of the FDIC has even proposed that mortgage servicers make low initial ‘teaser’ interest rates permanent on performing subprime loans.

Hear that? “performing” sub-prime loans. That means you may not have to wait until you’ve missed payments to renegotiate. Let’s see if it becomes a reality. It only makes sense. These people don’t want to own homes, they want to own “money” per se.

If you’re not sure where you are on your loan, go get the paperwork and see if you have an adjustable rate. Is there a pre-payment penalty? are you about to adjust? If you can’t figure it out, make the call to a trusted advisor and get some assistance before you have a problem. You may need to sell the house to get clear of the loan. That’s okay too but take the step and make decisions based on facts and be pro-active.

In the meantime, Complex debt securities tied to the mortgages have plunged in value, leaving them with more than $40 billion in losses. Citigroup took a $3.5 billion write-down in the thrid quarter, and has said it expects to face upt ot $11 billion in additional losses connected to the credit crunch by year’s end. Have they asked themselves the question: What if they had renegotiated each of these ‘bad’ loans instead of adjusting them up to unreasonable levels essentially forcing massive foreclosures. Foreclosures means no money flow.

It isn’t brain surgery nor is it rocket science, but apparently Douglas Duncan, chief economist for the Mortgage Bankers Association argues that lenders aren’t the only ones to blame for the sub-prime lending debacle. He says the borrowers who didn’t follow through on their obligations are just as culpable. What a load of horse patootie. Sure, we’re all responsible for our own behavior and I also know that they took a calculated risk and darn well know, in fact were banking on a certain amount of loss and now guys like Duncan want to point the finger at the simple folk that, like most of us, don’t think beyond the week-end (okay maybe the end of the month)… and were enticed by easy money? What nonsense, welcome to homeownership Duncan, I hope you like it. dang.

How’s that for Monday morning quarterbacking?

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