"8 Signs You Should Not Buy a House" may be a tough list to absorb if you've been turning a blind eye to immediate financial issues like credit card debt and savings accounts, but following this advice will put you in a much safer position for a new home. Once you've made sure it's the right time to buy, "8 Home Buying Blunders" has some tips that should help protect you from unanticipated problems at closing or after you've moved in.

"8 Signs You Should Not Buy a House" [Morningstar]
"8 Home Buying Blunders" [Morningstar]
(Photo: Smath.)

The biggest advantage is that whether you currently own a home or are renting an apartment, you can get far more bang for your buck with a mobile home. Single wide mobile homes (even ones of recent manufacture) can often be had for under $10,000 used, in a mobile home park.

You'll also be building equity in something you can re-sell, and—if you find a good neighborhood—mobile home parks tend to have low car traffic, meaning your kids can have more freedom outside.

As for the biggest disadvantage: oh look, a tornado.

It's not really true that tornadoes are attracted to mobile home parks, but it is true that when a tornado his a manufactured home community it generally leaves a real mess, and what that attracts is news crews and their cameras.

"The affordable housing option you may have never considered – but perhaps should"
(Photo: mattza)

Can you tell where this is going? MC went along with the scheme, then discovered the bank was foreclosing on him. He writes:

Back in November of last year I called my bank (Flag Star Bank) on several occasions and asked them to help me due to I was paying 3000.00 per month in mortgage and I couldn't afford to continue that payment after loosing my second job. I was told on two separate calls that there was nothing they could due until I was late or my loan was delinquent. I told them that I didn't want to have late payments reported to my credit and they informed me that there were several programs to help and all I had to do is miss some payments.

I proceeded to miss some payments (3 months) and I then contacted them and was told to submit a Loan Modification package. I submitted the package in June and was not called or contacted for for about 45 days. Then I got a letter asking for more documents. Pay check stubs for two months and bank statements for two months. I sent the new docs and was told that the process is in order and I will hear something in 7 to 10 days. I didn't hear for a week or so and then got a letter in the mail saying my property had a sell date of Sept 15. I then got really scared and contact them several times asking why this was happening and what I needed to do. I spoke to several people over there and each of them told me the sell date would be postpone for 30 days while they reviewed the loan modification package. I confirmed with a second and third call and was told the same thing. I was even told the lady that I was talking to was sending an email to the attorney office right after the call telling them to postpone the sell date. After all this my property was sold on Sept 15th back to the bank. My family and I are now homeless and out on the street. I have been told since then that the case is being referred to the attorney office for eviction. I did everything they ask and I was treated like nothing. I have no house, I have to move and my family has to say goodbye to our house.

We are now looking for rentals but with the late mortgage payments my credit is screwed and things are not looking good. I paid 3024.00 on a mortgage for 2 years that I will never see again. I feel like an idiot but hopefully they will get what they got coming.

To compound a bad situation, now MC is having trouble finding a place that will rent to him since his credit is besmurged by the foreclosure. Granted, MC should have realized a foreclosure was possible if he read his mortgage contract, but it was within reason to trust the bank's advice in these times, which are rife with skipped payments and easy loan modifications. Any advice for MC?

(Photo: austrini)
(Thanks, Raj!)

(Click to embiggen)

Sure home sales have picked up the past few months, but is it sustainable, or mainly people trying to get in before the new homebuyer tax credit expires in November?

One disturbing indicator of how the mortgage market is still messed up: The 7-month program to refinance underwater homes has only reached 3% of eligible borrowers.

And even after refinancing, some of these homeowners still owe more than their house is worth, as banks refuse to refi at the real market price for fear of realizing the loss on their books. Some of those who re-fied are already in foreclosure.

Consumers are more stressed than ever to make their mortgage payments. With hundreds of thousands of Option-ARM mortgages resetting this month, high unemployment, strapped bank accounts and cut credit lines, the housing crisis is far from over.

US foreclosures' flurry of activity [USFST]
(Big Graphic: GDS Digital)
PREVIOUSLY: Newsflash: The Next Tsunami Of Aggressively Irresponsible Loans Didn't Magically Disappear
Monthly Mortgage Rate Resets, 2007-2016

If you have a disputed account on your credit report, both Fannie Mae and Freddie Mac will automatically kick your application back to your bank for manual underwriting. If your bank really wants that loan, they'll underwrite it themselves before sending it back upstream. But if they can't or don't want to do that, they'll just reject your application and blame it on Fannie or Freddie.

Before you buy or refinance a home, pull copies of your credit report and clean it up if necessary. If you see any disputes that were resolved in your favor but that you can't get the bureau(s) to remove, look for a lender that will offer in-house underwriting.

"Old credit disputes can scuttle loan" [Washington Post]
(Photo: me'nthedogs)

"Detroit house auction flops for urban wasteland" [Reuters]
(Photo: stan)

The Fannie Mae executive, Edward Pinto, told a House subcommittee that "it appears destined for a taxpayer bailout in the next 24 to 36 months" because further losses will wipe out its $30+ billion in cash reserves. The current FHA head, David H. Stevens, said there's no way that will happen. Well, "absent any catastrophic home price decline."

"Concerns Grow About Another Another Mortgage Giant" [New York Times]
(Photo: Redacted)

Research using a massive sample of 24 million individual credit files has found that homeowners with high scores when they apply for a loan are 50% more likely to "strategically default" — abruptly and intentionally pull the plug and abandon the mortgage — compared with lower-scoring borrowers.

These strategic defaulters tend to know the consequences of walking away, and they tend to live in "negative-equity markets where home values zoomed during the boom and have cratered since 2006." To them, it's a business decision and the best of a range of bad options. One consequence of the study, however, may be that lenders won't be as willing to offer loan modifications to borrowers who fit the profile, as they'll possibly still walk away at some later date.

"Homeowners who 'strategically default' on loans a growing problem" [LA Times]
(Photo: dingbat2005)

Collection ammounts where the original debt was under $100 will be totally disregarded, MarketWatch reports. Back in Feb we reported that they would still be taken into account but only matter less. Also, FICO'08 has been rolled out to all three credit bureaus since last month. Before it was only being tested at one and there was some disagreement over whether all the bureaus would accept it.

However, Freddie Mac and Fannie Mae haven't adopted FICO '08 yet. So if you're getting a traditional conforming mortgage backed by one of them, lenders are still going to judge you under the old FICO system.

No matter what flavor of FICO gets applied to you, you can do better at the credit score game by paying your bills on time, maintaining low debt to income ratios, high available credit to debt ratios, keeping old credit cards open, and disputing erroneous items from your credit report.

New credit scoring model may boost some borrowers' scores [MarketWatch]
PREVIOUSLY: 6 Ways Your Credit Score Changes Thursday

...mortgages will stay cheap, provided you have the stellar credit needed to get one, and savings accounts will continue to generate low, but safe, returns. They also said rates will stay low for an "extended period." Growth may be picking up, but unemployment remains high. August home sales fell, too, for the first time in four months. It seems the slog to economic recovery will be anything but short.

Fed Signals Growth Return Not Enough to End Stimulus [Bloomberg] (Photo: frankieleon)

You should click through to read the detailed list, including some reasoning behind these tips, but here's a quick summary:

• "Start with the basics." Approach your first home purchase conservatively.
• "Consider your income."
• "Bow to unknowns." We're talking starting a family, or realizing in 5 years that you never wanted the career you're currently in and need to switch paths.
• "Map out expenses." A lot of home buyers are stunned by the annual cost of maintenance.
• "Buy best (or cheapest)." If you can't afford the ideal home, it's better to go cheap and save up rather than settle for a mediocre substitute that will drain your accounts while keeping you stuck in a home you don't like.
• "Stretch the house." The longer you live in one house, the longer you put off the expense of moving to a newer/bigger one.
• "The eight-hour rule." If you can't sleep at night due to worries about how to pay for the upcoming mortgage, you don't need that mortgage.

"7 New Rules for First-Time Home Buyers" [New York Times]
(Photo: PinkMoose)

Here's something I came across today: a husband and wife bought a condo, moved in, spent $30K on renovations, and then found out that they didn't own that condo, but the one next door instead.

Update: It turns out this story is five months old, and I apologize for posting it without checking the timeliness of it. There had been an update to the story back in April of this year, and things didn't turn out well for the "owner":

Kyte fought hard to keep the condo, but in the end he was forced to move.

"Every part of me is sad right now," said Kyte.

Kyte lived in unit #4, but according the city he actually owned the deed to unit # 5, the run-down apartment next door.

"It looks terrible," said Kyte.

Kyte paid a little over 45k for the condo that wasn't his and sunk another $30k into the renovations. My Fox Atlanta reports that after the renovations it appraised for more than triple the purchase price.

"Colo. Man in Condo Mix-up Evicted" [My Fox Atlanta] (Thanks to Beth!)
"Condo owner finds out he's been living and renovating in the wrong unit" [Fox31] (Thanks to LadySiren!)
(Photo: 少佐)

First, here's a story of Wells Fargo delaying the verdict on a loan modification approval until the last minute, then offering the homeowner an $11,000 loan, with interest, instead.

Our loan is currently held by Wells Fargo. When entering the loan we were perfectly capable of making payments but, like many Americans, when the economy was damaged by questionable financial practices we found that the income from my wife's business lowered and maintaining payments became a struggle (I am employed by the government and therefore my income is static – fortunately). We are in a situation where we are making the decision to pay bills or buy food for ourselves and our child.

It was with a great deal of excitement that we entered into the loan modification process provided by the makinghomeaffordable.gov program. From our viewpoint we meet all the criteria for this relief program. Regrettably that excitement has turned into anger, disappointment, and despair. The relief program as implemented by Wells Fargo has been a parade of what is in my opinion incompetence and miscommunication. We never speak to the same person twice. Paperwork was lost by Wells Fargo twice, forcing us to resubmit the paperwork overnight via fed-ex at our expense. We would wait weeks to hear any news, then finally call to ask what the status is only to be told that they need us to fax additional information – this after being assured that Wells Fargo had all the information that they needed. One wonders why we had to initiate this communication, and why Wells Fargo did not call us to ask for this information. When we asked the Wells Fargo rep. if we could speak to the person handling our case we are told "no one handles your case, we all look at it". When we ask to speak to a supervisor we find that none apparently exist. We come to the end of this process to be told that we do not qualify, but that they would like to offer us a "loan" for $11,000 and we are asked verbally (not in writing) not to pay or mortgage for three months to pay down other debt. I use quotes because the documents we received clearly indicate that this is a loan but there are none of the usual trappings of a loan like term, APR, etc – so we are not sure what we are looking at. After the three months, the money is to be repaid in accordance to the terms set forth in our agreement, but no terms have been set forth and none exist on the "contract" for the "loan" they sent us. They are clear that there are to be no grace periods on this additional loan and if we miss a payment there will be repercussions. Taking a family that is in financial distress from a loan soured by the economic situation…and offering them a loan seems like bad policy at best, profiteering at worst. In any event, it seems an unwise solution to our problem.

In closing I have three questions for you and those wise ones in your organization:

Who can we appeal this decision to?
Who can we contact to complain?
Who can we write to that has oversight of this specific branch of Wells Fargo?

TARP Oversight? Attorney General of our state? makehomeaffordable.gov?

Because I would like to keep my home.

This second story involves CitiMortgage, which approved a loan modification, but then 3 months later increased the monthly mortgage payment so that it's actually $90 higher than the borrower's original payment.

I am a mortgage holder of a CitiMortgage loan. My current 1st mortgage with Citi seemed to fit every criteria for the government home loan modification. It was a long process but I finally was able to get set me up with my 3 month trial payments for the government loan modification in June.

Effective July 1 my mortgage payment was lowered from $1727 to $1503 a month to reach the 31% of my gross family income. In early July we sent Citi all of our financial information needed to verify we were eligible for the modification. Just today we received a letter in the mail raising our mortgage from the initial $1727 to $1817, an increase of $90 from my initial mortgage payment!!! The $90 a month is to cover what they said was a low escrow account, for an increase to our homeowners insurance. I understand the increase for our insurance, but there was no explanation as to why we did not receive the loan modification. If we qualified for the modification there actually shouldn't have even been an increase with the higher homeowners because taxes and insurance are included in the reduction percentage to 31%.

I spoke with a person in the loan modification division and they said that because we just filed bankruptcy (another story) that they don't know if they can process our modification. I know in all the literature I've read about the modification I haven't seen anything about bankruptcy making you ineligible, I would think that people going through a hard financial time should be more in need to be eligible. What concerns me is that one of the largest mortgage companies has no idea if I am eligible for this modification. Who can I contact, who can I reach out to? Lowering to $1500 made my house affordable again to us but if our mortgage does go back up to $1800 we're surely headed to foreclosure. $325 is a big difference for a my family with 3 kids under the age of 5.

I am hoping beyond hope you could help me get this story out and get some attention to find me help.

We contacted one of the loan counselors at Making Home Affordable (the official government website for the program) and asked what these borrowers should do. The counselor told us that they hear complaints like these all the time from frustrated borrowers, and that if you're having problems getting your bank to cooperate you should call one of their counselors at 888-995-HOPE. She says you can authorize them to act on your behalf and talk to the bank for you. It may not solve the problem, but it would at least give you a chance to have someone with more expertise on the program talk to the bank's loan modification people.

Note that if when you call you're given an option to speak to someone in your area or to a counselor, choose "counselor" to reach someone immediately.

Find a Counselor [Making Home Affordable]
"Judges' Frustration Grows With Mortgage Servicers" [New York Times]
(Photo: 111 Emergency)

Justice Schack's take is straightforward, and sends a tremor through some bank suites: If a bank cannot prove ownership, it cannot foreclose. "If you are going to take away someone's house, everything should be legal and correct," he said. "I'm a strange guy - I don't want to put a family on the street unless it's legitimate."

As a result, he's become an example for other judges to follow, and a "dangerous" rogue in the eyes of lenders.

What's surprising, however, is Judge Schack isn't coming up with novel readings of the law. He's just forcing lenders to follow the rules.

"To the extent that judges examine these papers, they find exactly the same errors that Judge Schack does," said Katherine M. Porter, a visiting professor at the School of Law at the University of California, Berkeley, and a national expert in consumer credit law. "His rulings are hardly revolutionary; it's unusual only because we so rarely hold large corporations to the rules."

"A ‘Little Judge' Who Rejects Foreclosures, Brooklyn Style " [New York Times]
(Photo: steakpinball)

From Reuters:

"July marks the third time in the last five months where we've seen a new record set for foreclosure activity," James J. Saccacio, RealtyTrac's chief executive, said in a statement.

"Despite continued efforts by the federal government and state governments to patch together a safety net for distressed homeowners, we're seeing significant growth in both the initial notices of default and in the bank repossessions."

RealtyTrac says notices of default, auction or repossession have reached nearly 2.3 million in the first seven months of the year. There are now more than half a million bank repossessions currently on the books. Repossessions are particularly awful because they represent properties that the bank couldn't even sell at auction. These vacant properties lower the value of the surrounding real estate.

As unemployment rises and property values fall it makes it more difficult for people to sell their homes, which in turn increases the number of foreclosure filings.

The national unemployment rate is currently at 9.4%. I am sorry to have to tell you all of this. Here is a picture of a kitty playing XBOX.

U.S. home foreclosures set another record in July [Reuters]
(Photo:Seven_Null7)
(Photo:darabidduckie)

The Oasis I luxury condominium, offspring of the mortgage bubble and discarded in its burst, never got to full occupancy. Those that did swapped their condos for the more full Oasis II next door. However, for no apparent reason, Victor's bank wouldn't let him swap his mortgage. What was supposed to be a vacation home and eventually a permanent residence has now become a strange parallel life. The vacant building attracts unauthorized visitors at night. Other times, reports news-press.com, standing still in the building, the silence is overpowering.

We all knew the mortgage meltdown was devastating, but now it's also creepy.

Downtown Fort Myers condo has 32 stories, and one lonely tale [news-press.com] (Thanks to Anita!)

Mortgage companies collect fees for appraisals, insurance, legal services and other administrative busywork when homes go into foreclosure, and many make more on delinquent loans than they do on those in good standing. So unless homeowners' loans are through businesses that values their ability to keep roofs over their heads above the bottom line, they're out of luck:

"It frustrates me when I see the government looking to the servicer for the solution, because it will never ever happen," said Margery Golant, a Florida lawyer who defends homeowners against foreclosure and who worked in the law department of a major mortgage company, Ocwen Financial. "I don't think they're motivated to do modifications at all. They keep hitting the loan all the way through for junk fees. It's a license to do whatever they want."

Until legislators give mortgage servicers a reason to help those in trouble, expect the foreclosures to keep piling up.

Lucrative Fees May Deter Efforts to Alter Troubled Loans [New York Times]
(Photo: loreshdw)

Roger "appreciated the irony", but "just wanted to get back to painting." Oh, and he lost the house he was interested in buying. Someone else got it.

Ironic turn after man's Westpac protest [The Nelson Mail] (Thanks to Tresser!)
(Photo: Marion Van Dijk/The Nelson Mail)

Many states have outlawed collecting upfront fees for loan modifications - talking people into forking these over are the heart of the scam - but there is an exception for attorneys. So what these places are doing is hire a few lawyers who just provide a storefront face while the loan mod ripoff continues in the boiler room.

Beware of any service that asks for a hefty upfront fee, it's often the sign of a con. And if your mortgage is in trouble, don't listen to some guy who cold calls you on your cellphone. Instead, phone a HUD-approved nonprof no-fee housing counselor.

Would you buy a mortgage from a car salesman? [Red Tape Chronicles] (Photo: travelator)

From the Nelson Mail:

Mr Griffiths, a loyal Westpac customer for 25 years, decided to withdraw his money after the bank rejected his application for an $80,000 mortgage. "It's about time normal people took a stand."

He said the bank turned down his application because he did not have a regular income as an artist. However, he was a successful artist, exhibiting his paintings at the World of Wearable Art complex, in Christchurch and New York, he said.

He wanted to buy a $385,000 property in Mapua, had $200,000 in cash and was going to sell his $110,000 campervan.

That more than met the bank's criteria for a 20 per cent deposit, and the property which included a home and commercial premises would have returned $500 a week, he said.

The bank says that if he can provide evidence that he can make regular payments, they'd be happy to have him back. Hey, at least he got a free gym bag out of the deal.

$190,000 withdrawn in $20 bills [Stuff.co.nz] (Thanks, Jonathan!)
(Photo:MARTIN DE RUYTER/ The Nelson Mail)

The agency will have broad powers to regulate any firm that offers a consumer financial product, including mortgages, credit cards, and other loans. Armed with subpoena power, the agency's regulations will set a minimum standard for financial products, and won't preempt states that chose to write tougher rules.

The new independent agency would be called the Consumer Financial Protection Agency and would be overseen by a five-member board. The administration's proposal would allow the new regulator to levy annual fees or assessments on the financial industry to help pay for regulation, and would create a new "victims' relief fund" to accept any civil penalties the agency collects from firms.

The consumer financial regulator would be able to force testimony and obtain information under the new regime, and would be able to broadly assess potential risks to consumers. To ensure that rules enacted by the agency are having the desired effects, the agency would also have to do a self-assessment of any significant rule it passes within five years.

The Treasury also said the agency would work with the Department of Housing and Urban Development and the Federal Reserve on efforts to eliminate unnecessary mortgage-related paperwork, among other things. It would enforce recently-enacted credit card legislation and ban unfair practices such as "yield spread premiums," which are side payments from lenders that encourage mortgage brokers to push consumers into higher priced loans.

The 152-page bill will now head to the House Financial Services Committee. The full House is expected to vote on the measure by the fall.

Administration's Regulatory Reform Agenda Moves Forward: Legislation for Strengthening Consumer Protection Delivered To Capitol Hill (Press Release) [Treasury Department]
Obama Unveils Consumer Protection Agency Legislation [The Wall Street Journal]
(Photo: HeatedGroundPhotography)

Here's how Obama described it on "The Tonight Show" in March (when he wasn't making fun of the retarded):

"When you buy a toaster, if it explodes in your face, there's a law that says, 'Your toasters need to be safe,' " Obama said. "When you get a credit card or you get a mortgage, there's no law on the books that says, 'If that explodes in your face, financially, somehow you're going to be protected.'"

In other words, it would be sort of a financial version of the Consumer Product Safety Commission—although hopefully if Congress takes the time to create it, they'll also take the time to fund and staff it adequately.

"Obama wants shield for consumers" [CNN] (Thanks to Ben and Neff!)
(Photo: DieselDemon)

Waters said it's frustrating. She's spent more than an hour on hold before, listening to music and getting transferred to different departments.

She said the process can be worse for homeowners who are only slightly behind in their mortgage payments. A grossly delinquent homeowner might get a specialist on the line who can modify the loan, Waters said. But other cases are handled by someone who merely threatens homeowners to pay up.

In at least two cases, the congresswoman said, she wasn't able to resolve the situation until she appealed directly to the chief executive officers of Bank of America and Wells Fargo. Both banks responded favorably, with Wells Fargo even sending Waters a long letter of apology.

"Trying to contact the servicers is an absolute nightmare for anyone," even a member of Congress, she said.

Even if your Representative isn't willing to call a C.E.O. for you, they all have staffers called constituent liaisons whose sole job is to help you out. It never hurts to give them a call and see what they say.

Can't afford your mortgage payment? If the bank won't take your call, your member of Congress just might. [AP]
PREVIOUSLY: Bank Of American Puts Congresswoman On Hold For Two Hours
(Photo: jack dorsey)

From BusinessWeek:

Buyers who haven't owned a home for three years or longer are eligible for an $8,000 tax credit, thanks to a provision in this winter's stimulus package. Now, under a little-noticed program announced May 29, the Federal Housing Administration will steer the funds to cover closing costs directly-in some cases even offsetting the 3.5% minimum down payment FHA loans require. That's enough to cover most or all of the down payment and fees for homes up to the U.S. median price, now about $169,000.

Of course, some think that the "no money down" lifestyle contributed to the housing bubble, and point out that buyers who receive down payment assistance default at a higher rate than those who don't need it.

Will you take advantage of this program?

FHA Loans: Return to 0% Down [BusinessWeek]
(Photo:coffeego)

1. Graduating from college
2. Getting your first job
3. Getting married
4. Birth of a child
5. Buying your first home
6. Sending your child to college
7. Changing jobs
8. Working at home
9. Selling your home
10. Buying a second home
11. Getting hit with a major illness or injury
12. Getting divorced
13. Retiring
14. Death of a spouse

(Photo: tjean314)

Unamused, Massachussetts U.S. District Court Judge William Young upheld $275,000 in sanctions against Ameriquest and its lawyers (PDF). This quote from the bankruptcy judge speaks volumes: "It is worth repeating as a warning to lenders and servicers that the rules of this Court apply to them."

Much of the financial services industry apparently forgot, in the heady years of a booming economy, that they had to play by the rules. But they do. Paperwork and proof matter, especially when it comes to taking a home. Just because Ameriquest and its ilk have been securitizing—essentially a convoluted sale supposed to allow investors to shoulder profit and loss—their loans for years, that does not mean their intentions will hold up in a federal court.

Judge Young resorted to an Oscar Wilde quotation and a Thomas Nast cartoon to express his disgust at the conduct of Ameriquest and its lawyers, who apparently thought otherwise. As it turned out, Ameriquests's law firm had already tried to foreclose the loan—for Wells Fargo, and Ameriquest had given away all its important right in the securitization.

This ought to be a forceful reminder to the lending industry of why it matters who can produce the note.

$275,000 Sanctions in Mortgage Shell Game [Consumer Law & Policy Blog]

Sam Glover is a consumer rights lawyer, enemy of shady debt collectors, previous Consumerist contributor, and writes the Caveat Emptor blog. His column appears the first Monday of every month on Consumerist.

...with 60-day delinquincies predicted at 65-75%. "Loan modifications hold clear value for many homeowners provided the modified payments are sustainable, but more often than not, reducing the home payments to an affordable level may not be enough to rescue borrowers who are overextended on other credit and expenses," said Diane Pendley, a managing director at Fitch.

Many modified mortgages will default again, Fitch Ratings projects [LAT] (Scan: SyndProd)

Arends ran the numbers for 10 major cities, starting in 1987 and again in 1994. From 1987, home prices in those cities "produced a real return of 1.15% a year over inflation over that time." If you start from 1994, the return is 2.2% above inflation. Neither return takes into account annual property expenses like insurance, maintenance, or taxes.

Conventional wisdom long held that home ownership was a route to wealth, and the imputed rent — in other words, the right to live in your home — was just part of the value you got from it. Under that widespread view, the recent housing bust was simply a temporary, though deep, pothole.

Yet for very many people, even over the past 15 or 20 years, the imputed rent may have been all, or nearly all, the real value they actually got from their home.

"Is Your Home A Good Investment? " [Wall Street Journal]
(Photo: Sam Beebe / Ecotrust)

Derek Thompson at The Atlantic writes,

I'd like to offer a bit of analysis, but all I've got is bewilderment. The reason I find the revolving door between Wall St. and Washington somewhat acceptable is that I think it's important that those who govern Wall Street understand it. But Paulson, by his own admission, didn't really. Think about this: A guy whose $46 million compensation package was made possible by leaving during Goldman's mortgage-security boom "was not paying much attention" to the mortgage-security boom! I don't know if Paulson is fibbing, or if mortgage-securities were such a specialized and esoteric money machine that basically nobody understood what was going on, but either way, this seems devastating.

We'll admit, before we read that Wired article we thought a quant was a Star Trek term. We still don't know how mortgage-backed securities really work. But we didn't make close to $50 million on them, either.

"Hank Paulson Admits He Doesn't Understood Mortgage Securities" (Thanks to B!)

RELATED
"Paulson's Complaint" [Newsweek]
(Photo: cogdogblog)

"Un-Broke: The Seth Green Cribs Edition" [Funny or Die] (Thanks to Charlie!)

We'll update the post with more information as it comes in.

"Freddie Mac Official Dead in Apparent Suicide" [Washington Post]
"Freddie Mac CFO found dead " [CNN]

"AmTrust says, "We love you! Really!"" [JustShootMeNow]
(Photo: Caitlinator)

Banks cut off mortgage brokers [Bankrate]

From Vanity Fair:

Just after October 6, 2008, when Iceland effectively went bust, I spoke to a man at the International Monetary Fund who had been flown in to Reykjavík to determine if money might responsibly be lent to such a spectacularly bankrupt nation. He'd never been to Iceland, knew nothing about the place, and said he needed a map to find it. He has spent his life dealing with famously distressed countries, usually in Africa, perpetually in one kind of financial trouble or another. Iceland was entirely new to his experience: a nation of extremely well-to-do (No. 1 in the United Nations' 2008 Human Development Index), well-educated, historically rational human beings who had organized themselves to commit one of the single greatest acts of madness in financial history. "You have to understand," he told me, "Iceland is no longer a country. It is a hedge fund."

Wealth tripled, the stock market multiplied nine times, and a country the size of Kentucky with as many residents as Peoria, IL found itself at the forefront of investment banking. Trouble is, they didn't really have any idea what they were doing.

Marketplace Money took a look at how Iceland is coping with their bankrupt nation — (their debt is 850% of their GDP). Apparently, they're eating porridge and slowter, a kind of haggis.

Teitur Thorkellsson: It's made from intestines and blood and fat of the sheep, meaning everything but the meat.

Teitur Thorkellsson says that during the boom no one bothered with slowter. Now, it's become almost chic.

Thorkellsson: Right after the economic crash, then this became the most fashionable thing ever. You know, families were getting together and friends were invited to stand with their hands bloody in the kitchen making this slowter food, because it's extremely cheap.

And if you thought our mortgage situation was bad, check out what Iceland was doing. They were using something called a foreign currency mortgage:

Vanity Fair:

For the past few years, some large number of Icelanders engaged in the same disastrous speculation. With local interest rates at 15.5 percent and the krona rising, they decided the smart thing to do, when they wanted to buy something they couldn't afford, was to borrow not kronur but yen and Swiss francs. They paid 3 percent interest on the yen and in the bargain made a bundle on the currency trade, as the krona kept rising.
...
It must have seemed like a no-brainer: buy these ever more valuable houses and cars with money you are, in effect, paid to borrow. But, in October, after the krona collapsed, the yen and Swiss francs they must repay are many times more expensive. Now many Icelanders-especially young Icelanders-own $500,000 houses with $1.5 million mortgages, and $35,000 Range Rovers with $100,000 in loans against them.

Whoops.

Marketplace Money talked to a woman with a foreign currency mortgage who is about to lose her home:

Hognadottir: It has been good for Iceland.

Beard: The collapse?

Hognadottir: Yes, in a way. Because the greed of the people. There was so much greed. But now people are more caring. We're becoming more human again. And that's what I like. And if I lose my house for that, that's a good cause.

Wall Street on the Tundra [Vanity Fair]
Iceland Warms Up to Frugality [Marketplace Money]
(Photo:Kristin Sig)

Fewer than half of loan modifications made at the end of last year actually reduced borrowers' payments by more than 10 percent... [while] nearly one in four loan modifications in the fourth quarter actually resulted in increased monthly payments.

How can a loan modification, which is meant to bring a troubled borrower back on track, actually increase fees? Some lenders add fees or past-due interest to the loan when they modify it. In cases where the modified loan resulted in a less than 10% reduction or where the payment amount increased, default rates are at nearly 50%.

The "good" news is that lenders seem to have done a little better at actually reducing loan amounts for troubled borrowers in the last quarter of 2008—the percentage of loans reduced by more than 10% jumped from a quarter of all modified loans to 37%.

"Loan Modifications Not Helping Homeowners" [Associated Press via Huffington Post] (Thanks to Kitt!)
(Photo: TheTruthAbout...)

Your Lender: Lenders realize that this is a terrible time for everyone. You may be able to return your house and call things even, avoiding foreclosure with what's known as a deed in lieu. Your bank might also be willing to allow a short sale, where you sell the house for less than the value of the mortgage.

If you're already in foreclosure proceedings, you may be able to walk away without a chase. Several states, including Arizona and California, prohibit lenders from pursuing foreclosed borrowers. Don't try this if you have lots of cash and are tiring of the payments on your beach house. A lawyer will be able to guide you out of your house toward the path to solvency.

The Taxman: Several states are following the federal government's lead and won't treat forgiven debts as income at least through 2012. Again, a lawyer can help you figure out if you qualify.

Your Credit Score: Yeeaahhhh, no way to escape this one. You're going to take a big nasty hit and it's going to stand out on your credit report for seven years. If it's your only black mark, don't sweat it too much. FICO may have to change their algorithm to downplay foreclosures. "To the extent that foreclosure doesn't predict future behavior as much as it did in the past, you'd expect that the FICO algorithm would change to adjust for that," said Todd J. Zywicki, a law professor at George Mason University.

Regardless of what you choose, if you're unwilling to spend any more money on your mortgage payments, spend a few dollars on a lawyer to help figure out your options.
Thoughts on Walking Away From Your Home Loan [The New York Times]
(Photo: jetsetpress)