Bank of America Says They Modified 50,000 Mortgages… Whatever That Means…
Originally posted in May of 2009…
Woohoo! Yea! The wonderful, caring philanthropists at Bank of America have reached out to help American homeowners because they see that our nation is in crisis and they wanted to do the right thing and help out wherever they could.
It shouldn’t come as much of a surprise that BofA’s being so helpful, after all they helped the U.S. government out by agreeing to buy Countrywide and Merrill Lynch, right? Maybe that should be their new slogan: Helpful to a fault.
People, please. Here’s the story as it appeared in the Wall Street Journal on May 23rd:
Bank of America Corp. has so far modified mortgages for more than 50,000 borrowers as part of its settlement of predatory lending charges brought by state attorneys general against Countrywide Financial Corp. The move potentially saves financially troubled homeowners as much as $823 million, according to a report provided to state officials this week. Under the terms of the settlement, which covers 390,000 borrowers, Bank of America agreed to, where possible, modify the terms of certain sub-prime mortgages and option adjustable-rate mortgages serviced by Countrywide, which was acquired by Bank of America last year.
Okay, so they were court ordered to do it, so fine. It’s still “good” though, right? Well, let’s take a closer look, shall we. Since “we” are the type to read things closely and all the way to the end, aren’t we?
First, let’s do a little 4th or 5th Grade math… nothing too elaborate… I’m using my daughter’s Hello Kitty calculator, for example. If there were 50,000 borrowers whose mortgages were modified, and the borrowers “potentially” received savings of “as much as” $823 million, the average amount of the “modification” would be $16,460, which over a 30-year term would work out to $45.72 per month on average. Right? I think that’s right.
So, here’s my problem… Bank of America’s calculator works differently than mine. Here’s what the article goes on to say:
Bank of America says that the modifications done to date are saving borrowers an average of $195 per month in principal and interest payments. Ninety-three percent of the modifications have involved sub-prime mortgages.
The biggest savings have gone to homeowners with option ARMs, which allow borrowers to make a minimum payment that may not even cover the interest due and can lead to a rising loan balance. Savings for these borrowers average $311 per month, according to Bank of America.
Don’t you just love the little dig at sub-primers at the end of the first paragraph? Awesome. It wasn’t really the bank’s fault… or the government’s fault… or Wall Street’s fault… it was those despicable and oh-so-irresponsible sub-prime borrowers who broke the bond market and then the entire world. Of course 93% were sub-prime borrowers, morons. It’s part of a settlement against Countrywide for predatory lending. What would you expect most of the victims to be, ‘A’ paper people? I’m pretty sure that predatory lenders only go after sub-prime borrowers. Maybe I’m wrong… go figure.
So, getting back to the math… how can the average borrower’s savings be $195 per month? Although perhaps an over-simplification, the cost of saving 50,000 borrowers $195 per month over a 30-year period would be $3.5 billion and change, and that a far cry from the $823 million the bank claims to have saved the 50,000 borrowers in the first paragraph. What’s going on here? Why can’t the numbers work… ever?
If I ever read an article on this subject and the numbers work, I think I’m going to send flowers and candy to the bank the following day. I won’t like them any better, but they will deserve the recognition.
It gets worse, though. Because BofA also said that the borrowers with the Option ARMS saved $311 per month. So, if we were to assume that 7% of the 50,000 borrowers had Option ARMS, there would be 3,500 of them… times the $311 per month equals $1,088,500… times 12 months equals $13,062,000… times 30 years equals: $391,860,000… and that’s almost half of the $823 million the bank claims to have saved the 50,000 borrowers in paragraph one of the WSJ article.
I’m so confused it hurts. I’m staring at Hello Kitty and looking for answers. Please Kitty… please… help me to understand. Want a treat?
The article also went on to say that, for the borrowers that did not qualify for a modification, Bank of America provided them with “assistance valued at $22.4 million”. First of all, assuming we’re talking all cash here, that’s roughly two grand each. But why does it have to be assistance that’s valued at something?
Do you see why I get so upset about this stuff? In my experience, which is significant by the way, whenever this sort of nonsense is going on it’s because someone’s lying about something. And since in this instance, we’re talking about a bank here, it should go without saying that it’s the bank.
The rest of the article is even worse. What’s the re-default rate on the modifications? Bank of America’s not sure… the program’s so new and everything’s been happening so fast that it’s impossible to keep track. How this bank handles credit card charges and transactions is beyond me. If you can’t keep track of 50,000 loan modifications you’ve had months to work on, how in the world can you tell me the balance on my Visa card in real time?
This was my personal favorite of all the paragraphs in the article:
In some cases, borrowers’ monthly payments actually increased even as their interest rates were reduced in part because unpaid amounts were added to the loan balance.
Oh good, we’ll I’m certain that those mortgages will work out just fine as real estate values continue to plummet and rates have nowhere to go but up. Crackerjack work there, Kenny. (That’s BofA’s Mr. Kenneth Lewis to those that don’t know him like I do.) You’re still a weak-willed sycophant jackass, Kenny.
Look, if loan modifications aren’t taken more seriously and soon, we’re all in serious trouble. Foreclosures breed foreclosures. They lower housing prices, which leads to lower consumer spending… which leads to reduced corporate profits… which leads to more layoffs… which results in more foreclosures. As of today, we have essentially nothing in place to stop that vicious cycle. And if this Bank of America story is any sort of example of how we can expect banks to perform as a result of court proceedings, then that idea certainly leaves me flat.
I think I’ll stop at Home Depot later and pick up a pitchfork, just in case. Torches scare me…
Mandelman out.
I did the same mathematical calculations with my really cool, top of the line Barney calculator and it worked just like yours.
Apparantly they're using a superduper charged Johnny Quest model.
My bad.
Apparantly they're using a superduper charged Johnny Quest model.
My bad.
lotzahomes...
I knew they would have some kind of technology advantage... I always get thrown for a loop when division is involved. Luckily, I have an 8th grader, so she's way up on stuff like that... kids today!
Here is why modification math is on a par with "fuzzy math" of the congressional budgeting process in which a "budget cut" is merely not as much of an increase as previously planned:
The Obama program requires the borrower to make three monthly "test" payments which are equal to the 31% ratio of the borrower's stated income which the borrower plugged into the bank's online financial form.
The borrower is then asked to supply documentation of said income and sign a forbearance agreement which requires the three lower payments and one balloon payment of all cumulative past due payments, late fees, and charges, including escrow amounts.
One of two things then happens:
The bank reviews the documented income, sends in the 4506-T to the IRS, then declines the modification request based on the 4506-T as the borrower's actual income, even though we all know that the adjusted gross income on a borrower's tax return is lower than their actual cash flow because of legal tax deductions they are allowed to take in order to reduce their tax liability.
The lender files the NOD - if they already have not done so - and takes the house to foreclosure having drained every last penny possible from the borrower after crediting the three test payments to its fees. Sometimes they will delay their decision - "we've got a HUGE back-up" - in order to extract even more money from the borrower, only to decline it at a later date.
-OR-
The borrower is approved after making the three test payments and is offered a modification in which all of the remaining past due payments, et al are "capitalized" into the modified loan balance with a two year teaser rate, another two years at a rate 1% higher, and then a "permanent" adjusted payment for the remaining term of the loan.
The kicker here is that the new payments are principal and interest payments along with required impounded escrow payments, usually causing the new total monthly payments to be higher than the payments the borrower could not afford. As a result, the borrower re-defaults... and the foreclosure process continues...
(There are other issues, including the fact that there are instances in which the payments are amortized over a 40-year period but the term of the loan is not changed, thereby creating a massive balloon payment at term. I have also seen two balloon payments on one loan because of a principal forbearance being utilized by the lender to achieve the 31% ratio in conjunction with the amortization change.)
The US consumer has become the Mr. Bill to the Bankster's Mr. Sluggo.
I need a government issued Obamalator to figure this shit out. My handy dandy purple Barney calculator keeps telling me it'll take 100 years to help 9,000,000 homeowners. That can't be right!
The chief benefit of the Obamalater is that it can factor in deceit, obfuscation, fraud, and greed. The weakness, however, is that it cannot solve the equation 1 + 1 = 2.
For instance, 600,000 monthly job losses x 12 months, somehow equals 2.5 million new jobs created (or saved). :shock:
For instance, 600,000 monthly job losses x 12 months, somehow equals 2.5 million new jobs created (or saved). :shock:
dcd...
I think my personal favorite is Citigrroup. If you check Hoover's you'll see that Citi is worth about $12 billion in terms of its outstanding shares.
We, the taxpayers, have put $79 billion into Citigroup, and provided the zombie bank with $320 billion in loan guarantees.
And according to Sec. Geithner, we the taxpayers own roughly 36 %.
The Obamalator is the equivalent of a circus mirror on steroids.
Trix are for kids!
Trix are for kids!
To be honest, I liked Mitt Romney, and my expectations for Obama weren't that high... but I didn't expect this level of political expediency, the blatant lying and obvious corruption with corporate interests. And for that, I hope he loses in 2012.
If you want to know just how disappointed I am in him... I'll take Palin/Plumber in 2012... (and when I say "Plumber, I'm talking Joe.)