Presentation on theme: "Why A Mortgage Strike? How Would It Work? Forcing a Conversation on Principal Correction www.mortgagestrike.org."— Presentation transcript:
Why A Mortgage Strike? How Would It Work? Forcing a Conversation on Principal Correction
Nothing can Grow in Our Neighborhoods Until the Balance Between Debt Levels and Asset Values Is Restored
“Cuyahoga County home values fall average of 9 percent” Published: Friday, June 22, 2012, 6:00 AM Updated: Friday, June 22, 2012, 1:31 PM by Laura Johnston, The Plain Dealer
Rent Strike Model The model for this Mortgage Strike is a statutory section of Ohio law that defines the legal rights between Landlords and Tenants. A sub-section of that law (ORC , et seq.) provides a court supervised structure for conducting a rent strike against a landlord who refuses to make repairs, etc. ORC states that tenants can pay their rent each month into court instead of paying it to the landlord. The landlord must then come into court and answer for the alleged violations and will only get the escrowed rent when the court is satisfied that the landlord has corrected the violations. The tenants who are paying into court are protected from wrongful eviction and the landlord is forced to do the right thing.
The Usual Mortgage Monthly Payment Process Mortgage Servicer Functions Accounts for Receipt of Payment Divides up payment between Principal, Interest, Insurance, Taxes and Fees Sends Principal and Interest to the Investor(s) Deposits Insurance and Tax portion into Escrow Deducts its own servicer fees Accounts for the distribution of various miscellaneous amounts to different expenses $ Tax and Insurance Escrow Account $ Investor(s) $ Fees $
The Mortgage Strike Monthly Payment Process “Notice: We are on mortgage strike and payment has been made to...” Mortgage Strike Escrow Account Attorney receives the Monthly Payment Will hold the Principal and Interest Payment Will forward funds to mortgage servicer only when a striker requests that(e.g. strike is over), or a court orders payment be released, etc. $ $ Homeowner’s Insurance Real Estate Taxes Mortgage Strikers are responsible to make separate payments to keep their HO insurance and to keep taxes current! Mortgage Servicer No $ ?!
The Mortgage Strike Escrow Payment Process “Notice: We are on mortgage strike and payment has been made to...” Escrow Agent Receives the Monthly Payment in the form of a money order (no expiration) payable to the Mortgage Servicer Makes a record of the Principal and Interest portions (as delineated by servicer’s monthly invoice) Stores the money order(s) in a safe deposit box (per agreement with the striker) Is available to verify for Servicer the amounts received, dates received and terms of custody agreement with striker $ $ Homeowner’s Insurance Real Estate Taxes Mortgage Servicer Receives Notice of Escrow Payment (sent to Lockbox and Correspondence (customer service) postal addresses $ Escrow Agent‘s Safe Deposit Box Escrow Agent
To Qualify As A Participating Mortgage Striker You: Must make full payments into an escrow account on the Mortgage, and cover the taxes and insurance Must be “Underwater” Must comply with Strike Rules for handling monthly payments into escrow Must understand and accept the Risks involved in participating as a Mortgage Striker: Possible Impaired Credit Profile Possible Decrease in FICO Credit Score Possible “Universal Default” Problems Possible Foreclosure and other Litigation
LTV 216 LTV 255 LTV 428
Generic Yard Sign
ESOP did not decide to organize this strike without giving long and careful consideration to the possible consequences. However, the continuing lack of concern from Washington about this devastating problem left us little choice but to use “civil disobedience” to petition the government for relief from unjust debt oppression.
But isn’t it the banks that are refusing to do principal correction? How does the government come into this?
Foaming the Runway & Let them own nothing
... Elizabeth Warren grilled Geithner about HAMP, barraging him with questions about how the program was going to start helping home owners. In defense of the program, Geithner finally blurted out, “We estimate that they can handle ten million foreclosures, over time,” referring to the banks. “This program will help foam the runway for them.”... A lightbulb went on for me. Elizabeth had been challenging Geithner on how the program was going to help home owners, and he had responded by citing how it would help the banks.... All of a sudden, bits and pieces of conversations that I had had began to fall into place. Allison had used the phrase “helping them earn their way out of this” during part of a more extended conversation that summer about his worry that the banks could still collapse. HAMP was not separate from the bank bailouts; it was an essential part of them. From that perspective, it didn’t matter if the modifications failed after a year or so of trial payments or if struggling borrowers placed into doomed trial modifications ended up far worse off, as long as the banks were able to stretch out their pain until their profits returned. Barofsky, Neil ( ). Bailout (pp ). Simon & Schuster, Inc.. Kindle Edition. From Neil Barofsky’s, Bailout
According to data from CoreLogic, there were approximately 11.1 million underwater borrowers at the end of However, Enterprise mortgages represent less than half of the overall underwater population. As of the end of 2011, there were approximately 4.6 million underwater borrowers with Fannie Mae or Freddie Mac backed loans. Of those, 2.5 million have mortgages with current LTVs above 115 percent, and the remaining 2.1 million have mortgages with current LTVs between 100 and 115 percent. The under-reported story through the housing downturn has been that despite the number of people underwater on their mortgages, the vast majority have continued to pay their mortgages, meeting their contractual obligations. For example, approximately 80 percent of the Enterprise’s underwater borrowers are current on their loans. Of the Enterprise borrowers whose current LTV is greater than 125, approximately 75 percent are current. Edward DeMarco, Interim Director of FHFA
Edward DeMarco’s Reasoning I have to protect the assets of the GSEs (Fannie Mae and Freddie Mac) so principal “forgiveness” has to work for the GSEs. Well, OK, it probably makes economic sense for Fannie and Freddie to use the amended HAMP principal reduction incentives because that will produce the greatest return to Fannie and Freddie when dealing with delinquent underwater homeowners. Oh, but the horrors of moral hazard. (People might go into default just to get a loan mod.) Besides most underwater homeowners are “faithful,” making their payments anyway. (So, if they are content to make regular monthly payments on nothing, why should we worry about it?)
And then, all of sudden, nothing happened... again.
I now realize that the American people should lose faith in their government. They should deplore the captured politicians and regulators who took their taxpayer dollars and distributed them to the banks without insisting that they be accountable for how the bailout money was spent. They should be revolted by a financial system that rewards failure and protects the fortunes of those who drove the system to the point of collapse and will undoubtedly do so again. They should be enraged by the broken promises to Main Street and the unending protection of Wall Street. Because only with this appropriate and justified rage can we sow the seeds for the types of reform that will one day break our system free from the corrupting grasp of the megabanks. Barofsky, Neil ( ). Bailout (p. 234). Simon & Schuster, Inc.. Kindle Edition.
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