Extend and Pretend: A 40 Year, 2% Loan Mod

Banks are going to qiuite some lengths to avoid doing principal mods. I’d love to know how Bank of America will book this loan versus the it one currently has.

Lawyers for borrowers have been pushing principal mods when the bank is having trouble proving standing and is suddenly very willing to negotiate. But deals are confidential, so I have not gotten any reports as to success.

Comments from the reader who passed this along:

This is a BAC mode from 10/8. Note that there is only a two week window to execute this. Note the terms. Deferral of a portion of the principal. FOURTY YEAR MATURITY. 2% interest.

This is one hell of a mod. I wonder if this was cooked up as this loan has a Doc problem behind it. The mod would eliminate all the paperwork issues. I also wonder how this new loan will be accounted for. I can’t tell if this is in a pool or actually owned by BAC. But if it is going on someone’s books at par then the whole thing is just a scam. This is not a loan. It is a patch to gloss over accounting and regulatory problems.

Bank of America October 2008 Mortgage Modification

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46 comments

  1. Matt

    Delinquent balance of about 42,000. 297K at 6 percent, rough numbers, 2,000 a month payment, 21 months not paid less 10 percent late payment fees etc. Wonder how many of these BAC is going to do? Was the deferred principal a balloon or amortized?

  2. Kevin Egan

    Gee, could I mod my grad school loans (7.75%, 15 years) on terms like those? It would sure help my bottom line.

    This loan mod looks like the best evidence yet for why Congress is apparently rushing to legalize the MERS loans retrospectively during the lame-duck session, as John Carney reports based on leaks, probably from horrified Congressional staffers.

    http://www.cnbc.com/id/40150186

    Yves, do you think this MERS whitewash is unstoppable now? I have a hard time believing that Congress can get away with passing a law that immunizes the largest swindle in history, but I guess that’s the residual boy scout in me.

    But if they do pass it, is that the end of any accountability and chance of redress, or could a law like that be circumvented or even unpassed eventually? Once you start legislating in reverse, I would think there’s no end to it…

    1. Matt

      Regarding MERS. Check out the reports of MERS deleting any record of a mortgage or note being in MERS. I understand all it takes is a 150.00 one time fee to start adding and deleting mortgages in the MERS system. As part of the electronic white wash, if being in MERS was a problem, then delete all references to it being in MERS.

      1. Bank of American Terror

        The original deed in trust is still going to show MERS all over it. As for congress rushing through a lame duck modification to the law, Yves mentioned that’s a constitutional ‘thingie.’

        1. Matt

          The picture I’m getting is that Countrywide and WFC kept all the paperwork at home. And that people are reporting that electronically registered MERs allegations of ownership are disappearing right and left whenever the dates are wrong and/or the MERs registrant deletes them. So those MERs “registrations” made after closing may or may not still be at MERs. I want to know if anyone has a record of a MERs transaction after it is “deleted”. Not like MERs is going to tell anyone about the fake transactions. MERs doesn’t even make them, the people paying the 150 dollar dollar fee to become MERs data entry people do.

          1. Scott Bridges

            How then could congress bum-rush lame duck legislation to validate a proprietary/secret system? The Banksters claim it’s all about contract law, but how can they be valid contracts with such massive amounts of proprietary systems, that have been conclusively shown to have been used to perpetuate fraud? In other words, trust is completely destroyed, and the mother fuckers don’t seem to understand that’s what being a bank is all about.

  3. DisgruntledinLaLaLand

    There should be an uproar among people who are diligently paying their mortgages on time – people like me stuck in a 6% and not eligible for a refi since I don’t meet the new impossible standards. I, too, would love a 40-year 2% modification. Heck, a 20-year 4% would be great too. But the Obama administration is only pushing on banks to help people who first must ruin their credit ratings or allow foreclosure to start before getting thrown some bank largess.

    1. Jane Doe

      If the other side had screwed up your mortgage papers, you would have the same leverage regardless of whether you pay or not. So, your comment about paying is just so off point as to be on Pluto.

  4. chris

    JP Morgan chase just sent us a bill for all the payments we missed. The total is over 15 grand. I don’t want to pay them another dime.

        1. Jane Doe

          You should get a local foreclosure attorney involved in the process. If they do not indeed have proof. You may be able to negotiate.

        2. Jane Doe

          You should get a local foreclosure attorney involved in the process. If they do not indeed have proof. You may be able to negotiate.

  5. Hadley Monico

    “But if it is going on someone’s books at par then the whole thing is just a scam. This is not a loan. It is a patch to gloss over accounting and regulatory problems.”

    This homeowner should therefore set fire to these papers, either in the bathtub or kitchen sink, after making copies and scanning the “offer”. Where are the ambulance chasers?! People must sue the fuck out of these lenders if they aren’t going to work something out.

  6. brian

    I’d be curious about residential loan standards in Japan. Many years ago I heard that Japanese banks made long term loans of up to 99 years provided you had children who could be legally obligated by their parents to pay the debt even though underage. The reason it apparently worked was the cultural taboo of selling real estate owned by previous generations of the family. Any truth to that or urban legend?

  7. JimmyE

    This is not a 40 year 2% mortgage . It is a step up mortgage . The rate increases :
    1 Nov 2015 3%
    1 Nov 2016 4%
    1 Nov 2017 4.375%

    It is still pretty good .

    1. Scott Bridges

      “Still pretty good” is highly subjective. Does she have stable employment? When Sheila Bair got her jumbo from BOA, that was “good” for her. (Rarely do we discuss an inherent need for housing for everyone, apparently that doesn’t even matter these days.) If this lady is unemployed or otherwise having a hard time – what fate awaits?
      For most of us, 800, would be a good payment for a modest property. And only if we’d bought in the 2000 era, before the surge of fraud. Was this homeowner preyed upon to begin with? She can do a forensic audit to see if she was set up to fail – why isn’t that question being asked? It’s well known BOA was a voracious whore, turning tricks from any one would could breath.

      1. Lyle

        The deferred ballon just makes sure that if we see another bubble the bank its its due. If home prices don’t tick up we are looking at a short sale. If the assumption is you want to stay in the house its not a bad deal. (How old is the woman, if in her 50s and she stays in the house the ballon might be her heirs problem, or if she dies broke it is the banks problem. (Note that heirs are not liable for debts of the estate beyond the value of the estate). So to determine the quality of the deal there are a few facts to be known.
        As to the other issues, perhaps one needs to go to Delphi in Greece and consult the oracle. Or at least make some loose tea and read the leaves.

  8. Panos

    A couple of things that I am not sure if people noticed regarding this mod:
    First, the interest rate goes up after year 6, and becomes 4.375% from year 8 onwards.
    Second, the deferred balance of $118K becomes a balloon payment at maturity, or the house is ever sold prior to that (until house prices appreciate, this borrower is not moving if s/he wants to keep the house).

  9. Adam's Myth

    Just more IBGYBG: I’ll be gone, you’ll be gone. At least the banks are including the homeowner in the pantomime this time.

  10. Elizabeth

    This is not just a balloon payment mortgage. The part of the mortgage that is balloon($116k!) is not due for 40 years and bears NO interest.

    I just discounted the $116k at 6% for 40 years. I get a current value of $11k!

    So, not only does this have below market interest rates for 8 years, it also is a giveaway of $100k.

    Yes, I would be very interested in finding out how BAC is accounting for this mortgage.

  11. Knute Rife

    I’m not getting any movement from lenders on principal. I suspect that buried in the mountains of documents generated in the last decade, we’ll find that repo agreements, CDSes, and MBSes are all tied to principal statements, and that banks can therefore not afford to restate principal.

  12. F. Beard

    It’s the principle of not ever cutting the principal that is the principle reason the banks won’t cut the principal.

    Interest rates can change, you see, giving the banks moral cover to change those but banks must never admit they made an improper sized loan. It might discredit their entire counterfeiting operation.

  13. skk

    Yup, even with the step up in rates year 5 onwards – 4.x% by year 8, the 2% for 5 years, the no interest balloon is a heck of a deal.I’d take it. The rolling up of past due payments and fees is a bit mean though . I’d like to know what the house is worth though. Is it worth more than the principal ?

    Its better than the one my buddy got with Chase – again 2% for 5 year,step-up interest to 4.x at year 8, term extended to 2042 ( 32 years ) – but they forgave the late charges and fees – worth 5K – in the mod. He had to fight for his for 18 months – 6 rejections before getting into this plan – which has Fannie Mae/govt. backing – He had to fill in a government form in addition to the Chase one to get this deal.

    He owes 118K on a house worth, around 230K. For him its a good deal, cos he’s 62, nobody to leave the house to, the payments really are affordable now ( SS + side, under the counter business, some savings ) – around 500/month. As he says they can take the house when he’s 94 ! They’ll take it anyway, anyway – he’s got massive health care bills – around 150K which he’s negotiated, individually(!), to 10/month here, 30/month there and so on..

    All this from someone who’s a Mechanical Engineer by profession. I take my hat off to him.

  14. Banksters Prison

    Yes, we just can’t “give” away houses. Which is what they actually did in other countries, so that no one was on the street. In fact, some of those flats are quite valuable, or at least valued by their owners, today as they always were. (Even while the elites changed the sign on their type of Government. )

  15. CaitlinO

    “But if it is going on someone’s books at par then the whole thing is just a scam. This is not a loan. It is a patch to gloss over accounting and regulatory problems.”

    I read the whole article and I’m confused. How does this modification, as beneficial as it seems to be, resolve any problems with the note or affidavits, dates of transfers, etc?

  16. Oliver South

    Extend and Pretend is a lot of fun, once you get the hang of it and abandon your reservations as to the moral of it all.

  17. ron tough

    I am an attorney in a major mid-western city and as part of my job I’ve reviewed dozens of loan mods over the last 12 months for my clients. This modification is very typical and is par for the course, so to speak.

    Overall, this is a terrible deal. The mortgage has been extended to 40 years from today, so all those years of paying are for naught. The note still has an increasing interest rate provision to it meaning that in a few years the payment goes up regardless of what happens to the borrower’s income.

    and the most insidious part of the loan is that there is a balloon payment at the end. An enormous one, nonetheless. So think about this for a second: even if the borrow pays the note on time for the next 40 years, he still won’t own the home.

    As I tell my clients, loan modifications are not for the borrower’s benefit, they are for the bank’s benefit. The bank runs a secret NPV test on the borrower which includes such factors as income, months last, interest rate, zip code, comps, etc. If the test comes back that the bank will make more moneyin the next five yeras by offering a loan mod, the make a loan mod based roughly on 31% of the borrower’s income. If they determine they can sell the home in foreclosure for more money than a loan mod, they put the home into foreclosure. It’s that simple.

    What usually happens is that borrowers in bad areas or economically depressed areas where homes are selling for a fraction of their 2006 prices are getting loan mods as such. The bank figures through it’s NPV test that it’s better to squeeze some money out of the borrower for as long as they can, because if they try to sell at a foreclosure, they’re getting only dimes on the dollar. These people probably did a cash out refi in 2006 for tens if not hundreds of thousands of dollars.

    I’ve only seen one loan modification actually do a principal balance write-off of $16,000 on a $134,000 note.

    Bear in mind that the prevailing belief among lawyers, and probably among the US Treasury itself, is that most, if not all, loan mods will eventually redefault and return to foreclosure.

    Yes, that’s right. Most if not all of the HAMP modifications will redefault and go into foreclosure.

    This is kicking the can down the road. That’s all that this is.

    Housing is totally F**Ked for years and years to come.

    Anyone who thinks there are ‘deals’ in housing today and wants to buy in the next 3-5 years is a GD fool.

    1. Ron

      “loan modifications are not for the borrower’s benefit, they are for the bank’s benefit.”

      Clearly the banking industry cannot mark to market now or in the future since it is BK. This is not a complicated process to grasp but denial is a strong human trait.

    2. Kiel

      Ron,

      My wife an I are now in the market for a home for a variety of reasons.

      We’d like to do a phone consult to get advice from an attorney that understands these issues, and doesn’t do the ‘aww shucks, this all will blow over, and ya’ll folks will be just fine’ routine.

      You’d seem to fit that bill.

      Could you drop me an email to perhaps set this up, or perhaps provide a reference to a resource in the area in which we are looking.

      syl_t10 @ juno.com

      Thanks,
      Kiel

      1. ron tough

        Sorry, kiel, I wish I could help but im only allowed to practice law in my home state! All I have to say is that housing will be getting cheapper for years to come.

    3. psychohistorian

      I am, unfortunately, one of your GD fools. My deluded view is that since I am being forced to sell in this market, if I turn around and buy in the same market it will be a wash….

      I am excluding all short sale and bidding opportunities from my view to limit my living nowhere to a minimum. I knew this was what I was facing but sometimes life doesn’t give you nice choices.

      Oh well, I am still better off than many others.

      1. ron tough

        But it’s not a wash because the money you lose when you sell is real; and the money you’re saving in the wash is imaginary and never really existed other than the 2006 Zillow value.

        It sucks, I see people in your position all the time. There is no single way out and no good way either. Everyone has to figure it out for themselves. You can default, short sale, bring money to the closing table, borrow money from a family member or just stick it out and adjust to your situation.

        Basically 20 years from now we as a society will collectively look back at anybody who bought 1999-2009 and say “wow, that must have sucked to be them.”

  18. bmull

    This looks to me like a mod design to bribe the owner not to walk away from an underwater home. How else can you explain the no interest balloon payment? We need more information.

    1. ron tough

      Like I said above, HAMP is designed to maximize income for the banks. The NPV test (the components and weight of which are secret by the way) was designed by the US Dept. of the Treasury. The banks simply plug in certain demographic and income info about the borrower and the note, tweak the formula as necessary, and then determine whether there is more income to be made by selling the property in foreclosure or by securing an income stream from the borrower.

      If the secret NPV test determines that it’s better to squeeze a little more money from the borrower, they backdoor a mortgage payment of 31% of the borrower’s gross income. They are required to modify the terms of the loan in the following order: 1) lower interest rate; 2) reamortize the loan up to 40 years and 3) principal balance write off.

      Now principal balance write off is a misnomer; it’s actually a ‘no interest principal balance deferment’ aka balloon payment, the purpose of which is solely to reduce payment to something around 31% of the borrower’s monthly gross income.

      I think everyone in the biz, including lawyers and the bankers and the US Dept of Treasury, knows that 1) few people actually pay off mortgage over 40 years and 2) most of these loans will re-default in the upcoming years.

      So, these balloon payments in 40 years time are really just smoke and mirrors and accounting tricks to kick the can down the road.

      What if 15 years from now the borrower needs to sell and move? They’ll never get the 2006 price so they’ll either 1) short sale or 2) redefault and go into foreclosure.

      However you have to remember that most of these borrowers had crappy credit to begin with and it continues to be crappy. They will redefault. Who in their right mind would pay on a mortgage for 40 years only to find out that you STILL don’t own the home?

      Which is why I’m of the opinion that the balloon payments are nothing but smoke and mirrors.

      here’s an similar example: my wife used to work for a franchisor. They sold franchises and received monthly royalties.

      However, some franchisees would stiff the franchisor and the franchisor would get pissed off and make the franchisee sign a promissory note for some ridiculous amount of money, that of course, nobody ever expected the franchisee to pay.

      The franchisor would then book the promissory note as an account receivable due out 90 days.

      So fast forward years ahead and a larger company is looking to acquire the franchisor and signs an agreement based upon a certain valuation and then does due diligence. Due diligence reviews that the company is worth far far less than the book value which includes the absurd amount of accounts receivables due 90+ days out. The larger company of course quickly killed the deal.

      That’s what’s going on with the balloon payments. It keeps the books looking good, it makes the borrowers liable on paper, and it gives the asset some value.

      But the reality is that money will never, ever be repaid.

      1. Siggy

        And that is why the banks that are holding the notes are insolvent. The market recognizes that the notes have zero expected value.

  19. tpn

    Imagine being a landlord, and being able to keep renters in a property in perpetuity, who are also responsible for taxes, upkeep, and cannot break the lease — rather then selling the property off at a net loss. Seems like B of A is the only winner in this scenario.

  20. billygoat

    This 2% 40 year plan was introduced by Stiglitz in his Free Fall book. He didn’t discuss accounting issues.The benefit of the plan is to reduce uncertainty and cost the banks less than continuing the inexorable foreclosure mess.

  21. Johnny Dugan

    Yeah well, since then Stiglitz has called for throwing the banksters in jail. If these bastards want their class war they are going to get it.

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