Unemployed mom wants mortgage deduction after large refi-equity take out.

looks like the bank made a bad decision.

From the subject of the article: "But I hope the credit agencies will take my special circumstances into account and give me a break."

I wonder how many people actually believe that about credit agencies?!

The woman's decision to do the refi-equity take out was arguably quite rational. That this could be a profitable refi for the bank, still boggles my mind. I can understand why this person should default. What's most incredible is the request for a modification that's bound to fail.

Borrowers like this are the strongest argument for the Real Estate bears.

If she didn't intend to own it, why did she buy it?

Great comment on post website..

Let's look at the facts here with the key one being #2:
1) She bought the house at $100,000
2) It went up to $154,000 and she refinanced it at $154,000 which means SHE TOOK OUT $54,000 in cash.
3) Its now down to $120,000 and she cant afford mortgage so she is walking away.

So basically she bought the house with a loan, took out $54,000 in cash to do as pleases, now walking away. And we wonder why banks have struggled. This person took all of the upside ($54,000 cash out) and then walked away when it went down.

There are many sad stories of people losing their house. This is not one of them. This person got somewhere to live and $54,000 cash out over a period of years. They are the example of why the people are to blame for this problem just as the banks have a lot of blame to take. This is an example of a case where you should be just as mad at this person as you are at the banks as they both caused problems by their behavior.

"and we wonder why banks have struggled"

wow, just wow. did someone hold a gun to the person at the bank and say let this person overextend and have zero equity or i'll shoot?

100% agree with the nypost comment.

i don't disagree with it myself. but good lord, this is what bankers are hired to do for a living. manage risk. make underwriting decisions. not just generate fees with each loan document signed and wait for things to fall apart at a rate they have decided will occur and will be acceptable.

oops, they were wrong about that future rate of failure. models are a tricky thing to design when you only allow for rising house prices.

I remember reading about many cases of this in California (Irvine housing blog) already a couple of years ago, resulting in short sales of foreclosures. The difference there was that many were $1MM++ houses, and the people who bought them kept taking one HELOC after the other, to buy furniture and cars, or in some cases prop up failing businesses. I don't think you could assign all the responsibility to the banks, although they definitely should have known better.

Nope Bankers make money, that's all they are really good at. The banker on that deal made money and flipped the loan, end of story. And that sorry loan, well in the secondary market all people care about are current loan to value and payment history, so this is is one worthless loan.

"this is what bankers are hired to do for a living. manage risk"
Agree w/ Riversider, that's not really what bankers were doing during the boom. There was no risk to them if they were just going to sell off that mtge.

"Not too many people around my neighborhood are aware of my predicament, at least not until now. There are no foreclosure signs up -- because there is no bank forcing it."

The day of reckoning is near, not because I wish and pray for it, because I do not. It will come because 'for every action, there is an equal and opposite reaction.'

The mortgage problem won't be solved until market forces dictate a minimum amount of home owner equity(skin in the game). Even at 80% LTV, equity is wiped out in a foreclosure/liquidation which can easily extend past a year. For jumbos this could easily mean 70% LTV at origination.

The need for higher-than-20% LTV is a function of a decade of lower-than-20% LTV. Of course, public policy is to continue 3.5% down FHA loans for the time being. At least with the way things are structures now, govt has upside exposure to the market not melting down, which is better than before.

public policy is to reinflate home prices to the detriment of renters and everybody that hadn't been using their home as an investment and pay taxes. hope obama fails in this arena asap.

> "I used the money I accumulated from not paying the mortgage to pay off all my credit-card debt and clean up all my other debt -- except for the house."

this lady could have used some advice. why wasting $ paying down debt when she's obviously heading towards bankruptcy? in that scenario, the only debt worth paying is student loans. save like there's no tomorrow cause cash will be king till her credit recovers.

http://online.wsj.com/article/SB10001424052748704471504574443600711779692.html
http://www.youtube.com/watch?v=EpATNp5DjYI

Ludwig von Mises was snubbed by economists world-wide as he warned of a credit crisis in the 1920s. We ignore the great Austrian at our peril today.

Mises's ideas on business cycles were spelled out in his 1912 tome "Theorie des Geldes und der Umlaufsmittel" ("The Theory of Money and Credit"). Not surprisingly few people noticed, as it was published only in German and wasn't exactly a beach read at that.

Government-imposed expansion of bank credit distorts our "time preferences," or our desire for saving versus consumption. Government-imposed interest rates artificially below rates demanded by savers leads to increased borrowing and capital investment beyond what savers will provide. This causes temporarily higher employment, wages and consumption.

Theorie des Geldes" did not become the playbook for policy makers. The 1920s were marked by the brave new era of the Federal Reserve system promoting inflationary credit expansion and with it permanent prosperity. The nerve of this Doubting-Thomas, perma-bear, crazy Kraut! Sadly, poor Ludwig was very nearly alone in warning of the collapse to come from this credit expansion. In mid-1929, he stubbornly turned down a lucrative job offer from the Viennese bank Kreditanstalt, much to the annoyance of his fiancée, proclaiming "A great crash is coming, and I don't want my name in any way connected with it."

We all know what happened next. Pretty much right out of Mises's script, overleveraged banks (including Kreditanstalt) collapsed, businesses collapsed, employment collapsed. The brittle tree snapped. Following Mises's logic, was this a failure of capitalism, or a failure of hubris?

Mises's solution follows logically from his warnings. You can't fix what's broken by breaking it yet again. Stop the credit gavage. Stop inflating. Don't encourage consumption, but rather encourage saving and the repayment of debt. Let all the lame businesses fail—no bailouts. (You see where I'm going with this.) The distortions must be removed or else the precipice from which the system will inevitably fall will simply grow higher and higher.

"Government-imposed expansion of bank credit distorts our "time preferences," or our desire for saving versus consumption. "

add to that labor supply distortions, as speculation (with that asset allocation distortions) and leisure will take over time that was previously devoted to productive endeavors. but to be fair, every single Austrian economist should be vindicated during a credit bubble/crash. other economic schools have yet to understand credit. in a way, soros reflexivity is in part a translation of basic Austrian precepts begging for recognition by the chicago boys.

"Mises's solution follows logically from his warnings. You can't fix what's broken by breaking it yet again. Stop the credit gavage. Stop inflating."

-----------

tell obama! the idiot is promising Americans he will do anything necessary to bring home prices up. what a f*cking moron!

"I moved here after my divorce."

That sums it up.

I realize it's politically incorrect to say this, but here it goes: most Americans simply cannot AFFORD to get divorced. Even with both Dad and Mom working, most couples can barely afford to maintain ONE residence, much less TWO. And yet, every divorcing couple feels that they are entitled to live in separate domiciles.

so true. but what's the solution? i know a couple that had trouble divorcing in nyc due to barely being able to afford 1 roof over their heads, fortunately without kids. they bought their home more than 10 years ago uptown, so were happy making little money and proud of their RE "acumen"... till the divorce came. money doesn't make you happier after some point, but makes things so much easier!

Money cannot buy true long term happiness, but the lack of it can make you miserable.

"so true. but what's the solution?"

Well, they could learn a thing or two from the "Greatest Generation" and those generations before them: MAKE THE MARRIAGE WORK.

"For better or worse, in good times and bad" isn't just a bunch of nice words to say in a white dress and black tuxedo before a big party with cake -- it means you work THROUGH your problems, rather than tossing in the towel because "we grew apart" or "he doesn't listen to me".

That is, unless your vows were "For the foreseeable future, until it's no longer convenient or until I find someone better."

"Money cannot buy true long term happiness, but the lack of it can make you miserable."

Well said, Sunday.

"For the foreseeable future, until it's no longer convenient or until I find someone better."
---------------------------

wow, sounds like home-ownership nowadays.

Don't be silly.

No one ever pledges fidelity to a property.

I think the main thing from the article being overlooked here is that the woman bought a 4 bedroom house for $100,000! I thought that was a typo at first and someone left out an extra 0.

Also, if this woman walks away, she will need to decalre bankruptcy because refis are RECOURSE mortages, which means the bank can hold her repsonible for the money even after they foreclose. Onyl the loan you use to purchase the house is non-recourse. I hope someone told the woman this or else she will be in for a rude surprise.

"Also, if this woman walks away, she will need to decalre bankruptcy because refis are RECOURSE mortages, which means the bank can hold her repsonible for the money even after they foreclose. Onyl the loan you use to purchase the house is non-recourse. "

I don't think that's true.

I could be wrong, but maybe you're thinking of HELOCs or 2nd mortgages?

whether it's non-recourse or recourse depends on state law, in this case pennsylvania. the house seems to be pretty much an old shack in need of repairs in suburbia/middle of nowhere, that's why it was only $100k.

There was an article recently pointing out that in California a refinance can introduce recourse. This woman lives in Pa and from the story has no personal assets. Even if there was recourse, she's not working, what wages would you garnish?

recourse is on both income and assets. in CA only the purchase 1st mortgage is non-recourse. hence, any refi, 2nd, HELOC, ... is recourse. tons of people bought using 2 mtg to avoid downpayment. if they walk away, they will face recourse only on the second if they didn't refi. on everything if they refi.

http://www.burtpolson.com/2008/09/recourse-vs-non-recourse-loans.html

Don’t Make the California Refinance Mistake.

Central to the mortgage bailout plan is the refinance of adjustable rate mortgages to fixed rate mortgages. There is even a plan to nearly double the “conforming” loan limit to help jumbo mortgages refinance. But before you jump in, make sure you are not making the California Refinance mistake. California homeowners have been making the “refinance mistake” as long as the bubble has been going on. The big mistake homeowners make is turning a ”non-recourse” second loan into a “recourse” loan by refinancing it. A non-recourse loan is a loan that the bank can only look to their secured interest. In other words, they can only foreclose, they cannot get a deficiency judgment and chase you into bankruptcy collecting it. THIS IS HUGE! You can walk away from a non-recourse loan. So how is a second mortgage a non-recourse loan? Simple, it was “purchase money” for your home. A purchase money loan is one where the money went from the lender, to escrow, and then to the seller or to pay purchase closing costs. In California, purchase money loans made on your home (note: not second home or investment properties) are non-recourse. It’s simple as that.

The mistake comes when you refinance your second purchase money mortgage. Because it is no longer a “purchase money” loan a refinance transforms it into a “recourse” loan. That means the lender will chase you into bankruptcy collecting it. Or worse, they will sell it to a debt scrounger, the worst form of debt collector. Your life will be hell if it falls into their hands. It used to be second mortgages were never purchase money. Enter the housing bubble and creative Wall Street financing. The result: the 80/20 loan. It was really a beautiful thing. Buy a house with no money down, get two loans, a cheap interest rate first covering 80% of your loan, and a high rate second mortgage covering the 20% you were supposed to put down to have some skin in the game. Wall Street sold the loans to different investors and bought insurance on the second to cover the higher risk of default. But there was an unintended consequence Wall Street seems to have

overlooked. The Purchase Money Rule made these loans “non-recourse.” This has come back to bite. It turns out ETRADE has a bunch of California Second Mortgages. Guess what? They are unsecured now because housing prices have fallen so much, and there is no recourse against the borrowers. They can just walk away-AND THEY ARE.

http://www.bills.com/blog/is-my-heloc-a-recourse-or-non-recourse-loan-in-california/

Second mortgages may or may not be recourse loans under California law. If the second mortgage was taken out at the time of sale and was used as purchase money loan then it is a non-recourse loan.(Brown v. Jensen , 41 Cal.2d 193 (1953).) However, if the second mortgage was financed after the initial purchase of the property and is on a second deed, then Section 580b does not apply. Similarly, Section 580b also does not apply when the borrower has refinanced the property to take out additional equity or obtain financing at better terms. (Union Bank v. Wendland , 54 Cal. App. 3d 393, 400 (1976).)

most piggy-back loans weren't purchase RS. the idea was to avoid PMI at the same time, so they were structured as HELOCs, hence they are recourse (i was buying puts on PMIs while they were lobbying to try to end this practice, that's why i know about it).

anyway, this is is great part just semantics. banks have been selling to collection agencies these deficiencies, whether they are recourse or not. and they've been successful collecting $ even from non-recourse loans. don't be shocked here, most borrowers couldn't tell whether they had a fixed rate loan or a variable. most have no clue what recourse versus non-recourse means.

"If the second mortgage was taken out at the time of sale and was used as purchase money loan then it is a non-recourse loan."

if it went directly from lender to escrow...

I doubt the average borrower or even some California lawyers are fully aware of the laws. A big reason why mortgage brokers should face a similar regulation faced by stock brokers. I'm speaking of the "know your customer rule". Brokers must be on the hook for reccomending a mortgage that is not in line with the stated risk profile of the borrower. This rule fairly well in the brokerage industry.

The fact is that US taxpayers ultimately pay for this women’s actions. In my opinion, this woman has committed financial fraud where our government and financial institutions are the accomplices. They are all equality responsible.

The bigger lesson here is that government needs to get out of BOTH supporting the mortgage loan market in ANY way and thus directly and indirectly being responsible for systematic bank losses or failures.

Government involvement in the mortgage market was supposed to make buying a home "more affordable" but all it has done is create a steady inflationary pressure on prices and - when abused by financial institutions has it has been for the last 10 years - an unrealistic spiraling of prices that has far outpaced increases in income. This recent torrid pace also set up the potential for a tsunami of foreclosures, bankruptcies, and government bailouts of financial institutions that took reckless risk while trying to exploit government subsidies and largesse. Yet of course the government continues to do all it can to keep this price inflation machine alive - mostly because it would be political suicide to truly oppose this financial and political cash cow.

It seems hard for even economists to understand that price inflation - especially government driven inflation - is NOT necessary for a healthy economy. Unfortunately, it is like asking a heroin addict if taking away his dope is a good idea.

But that is exactly what need to do. Yes, it might lead to real estate price deflation - that would lead to more foreclosures - and bank failures, but the system needs to be reset. Home ownership isn’t a national necessity. Government tax breaks, subsidies, purchases of mortgage securities and outright manipulation of interest rates create unnecessary price distortions and economic inefficiencies. Financial institutions should not depend on manipulating the government’s involvement in the mortgage market. Everyone believes that this system is vital to our country’s future but instead it is pushing us to a potential financial meltdown that will make the housing “crisis” look like a picnic.

This woman’s situation is a perfect example of the consequences of the intersection of irresponsible individuals, government and financial institutions. We have become a country dependent on handouts and politicians fighting to give out individual and corporate welfare.
All three have to learn how to be responsible and not manipulate or take advantage of a manipulated mortgage market.

It is time for this woman - and all others involved - to grow up and accept that our economy isn’t about taking part of some multi-level ponzi scheme that is going to ultimately create far more pain that the “benefits” it created.

Agree 100%.

Everything has a cost, including the government support of the mortgage market.

" doubt the average borrower or even some California lawyers are fully aware of the laws. A big reason why mortgage brokers should face a similar regulation faced by stock brokers."

I am not a lawyer and I know that EVERY mortgage (yes, that includes refinancings) are recourse. I guess law schools should teach Google 101 since that is where I did my research.

the only mortgage that is non-recourse is the original one.

Agree with memito.

Just shoot the bitch and be done with her.

ditto... the bullet should be tax deductible.

My favorite part...am single and dating again"...not for long..

That $1450 payment implied a rate of around 11%. This was not a good borrower.

where do they get the people for these articles? I would never in a million years, go public with the fact that I'm not paying my mortgage. this should be somewhat embarrassing to most people.

on the other hand, it's a great idea. she can easily live in that house rent free for the next 2-3 years before she's evicted. I like the idea that she's paying off her credit card debt because the CC companies will get a judgement against her a lot quicker than her mortgage company will and the CC companies will take the money right out of your bank accounts after they have a judgement.

I'm beginning to believe this may be a fake story. The Post ran a fake story after the crisis about wall street women working as topless dancers which got exposed soon after. Story seems a little boiler plate. The mortgage rate seems too high for the time period.

http://business.time.com/2013/01/02/whats-hot-on-the-dating-scene-good-credit/

http://www.nytimes.com/2012/12/26/business/even-cupid-wants-to-know-your-credit-score.html?_r=0

some people should watch the Frontline documentary "the untouchables" before posting their opinion. All that mattered to banks back then was to close the god damned loan, as they were planning to package it and resale it anyway...

Not a bad decision from the bank by the way, but a bad decision from the suckers who bought the derivatives that included such shitty loans...

>some people should watch the Frontline documentary "the untouchables" before posting their opinion.

Are you referring to this discussion: http://streeteasy.com/nyc/talk/discussion/15826-frontline-special-on-ny

http://www.pbs.org/wgbh/pages/frontline/untouchables/