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The Rodriguez Theory of how the Banks are Planning to Recoup Losses and Attract Investors Post-Cramdown Rejection

By R. Grace Rodriguez, Esq.

Okay call me crazy for thinking this way. Call it my over-exposure to the Watergate scandal at the tender age of 10, but I am noticing an alarming trend in my practice that leads me to believe that the average American is about to get royally screwed over again by our Banks and the Senators in this Country are protecting them!

Here is what I noticed. Just a few days before it became clear that the Senate was not going to pass the Cramdown in bankruptcy provision, I started getting letters on my pending loan modification files. Aurora and Countrywide were the most prevalent. These letters essentially informed my clients that they did not qualify for a loan modification at this time. (Note however, that these clients are pre-qualified to do a Chapter 13 Bankruptcy and keep their homes in most cases.)

Additionally, they sent out 2nd letters in almost all cases informing the client that they were entitled to a "Special Forebearance" agreement. Essentially the agreement offered the client to pay a reasonable mortgage payment for two to three months, with a final baloon payment of THE ENTIRE AMOUNT OF ARREARAGES. Typically this ranges from three to four months of back payments ($10,000+ usually).

These are the very same banks who informed many of these same borrowers that they would not consider giving a loan modification until they were two to three months behind on their mortgage payments.

On the other side of the table, I have new clients coming to see me after their homes have already been foreclosed upon. I have also performed some of my own investigations to discover some interest foreclosure results. Instead of most of the loans reverting back to the beneficiary, the loans are now being purchased for HUGE DISCOUNTS in many cases 50% off of what was owed on the note.

Now one particular client who consulted with me showed me the loan modification request he had made. He owed $400,000 on first mortgage. His interest rate was 7.25% His regular payments were approximately $2,700.00. His income had decreased due to loss of overtime work. He requeste a loan modification where he would pay 2000.00 a month based on about 4.10 interest. This means the investor would not get as much interest, but they would get their full $400,000. During the loan modification process, the bank, despite the loan modification being in review, foreclosed on the property. US BANK bought the property at foreclosure sale for $242,000.00. The investors on that loan LOST $158K!!! not to mention the cost of the foreclosure sale, and the cost now to fight with my client to evict him! That's easily another $40K.

So I suspect what is happening is the banks are offering investors to come up with a little more money to reinvest in REO's. I also suspect that there is some sort of tacit understanding or agreement among investment bankers to buy up each other's REO inventory so when have the big turn around, the investors who lost so much money in their portfolios with the latest mortgage fiasco, will be able to turn around and make up their losses on the re-investment. This makes the banks look like heros to today's investors. The average homeowner continues to take a big loss.

The way I see it the banks and investors only see numbers on a page. They don't see the effect of multiple foreclosures and empty neighborhoods. I have seen empty houses stripped of their plumbing, electrical and fixtures such as air conditioners because there are not enough people living in certain neighborhoods to report the house was getting stripped.

Americans have to wake up from their apathy and contact their representatives and fight the banks. Were is our "Ralph Nadar" hero who will help the average consumer beat back the American Mortgage Banker's Association and all the money they funneled to key Democratic senators ensuring a "Nae" vote on the cramdown provision?

As long as the average citizen continues to ask the question . . . "What can I do? I'm only one person." and then does nothing, everyone will suffer. I would urge everyone to seek out organizations who are forming everywhere to achieve reform of this industry.

Okay I ranted enough. Like I wrote earlier call me a conspiracy theorist if you will. But would bet a few bucks that I'm right. I would bet that I'm not even beginning to scratch the surface of how much these banks are taking advantage of us all. I welcome your thoughts.

"The Rodriguez Theory of how the Banks are Planning to Recoup Losses and Attract Investors Post-Cramdown Rejection"

Full post as published by The Law of Second Chances on May 05, 2009 (boomark / email).