Business Writer
By Andy Ross
On August 8th, 2009, the Wall Street Journal published an opinion piece titled How to Save an Underwater Mortgage that was penned by Martin Feldstein – despite the fact that is was fraught with egregious errors and irresponsibly misleading information the Wall Street Journal did not publish the letter I sent to them my setting the record straight.
http://online.wsj.com/article/SB10001424052970204908604574330883957532854.html
The gist of Feldstein’s article was that homeowners with mortgages in the USA can walk away from their mortgage debt obligations free and clear, with no residual consequences.
In the 6th paragraph Feldstein explained, for example, that “mortgage defaults in the United States, unlike almost every other country are effectively no-recourse loans meaning the creditor can take the house used as collateral but is unable to take other assets or income to make good on the balance.”
Nothing could be further from the truth.
That information is patently false. Those who have read Feldstein’s article and actually buy into this false understanding of mortgage collections are in for a big surprise when their mortgage company comes knocking on their door for the deficiency balance. Shame on the Wall Street Journal for not checking the facts of one mans supplied information before publishing his opinion.
For the past 20 years I have worked as a mortgage banker responsible for underwriting, documenting, funding and collecting payments on thousands of loans in every state in the nation. I have written and serviced mortgages – including FHA loans – on behalf of all of the big name lenders including Countrywide, Bank of America, Wells Fargo, Washington Mutual, Accredited, Taylor Bean and hundreds of others. Not one of these mortgages is non recourse.
Some of those institutions are extinct now, while others are rebuilding. But one thing they all share in common is that they have never been in the business of writing residential house mortgages that are no-recourse mortgage notes. In the United States that is just not the how mortgage note obligations are written.– at least not when it comes to loans for homes owned by American families. I have never underwritten a mortgage loan outside the United States so I cannot comment on how foreigners do their business.
The standard practice in the U.S. mortgage finance industry is that nearly every mortgage note written on residential property in this country requires the debtor to personally guarantee the obligation. If a mortgage is underwater and the property sells for less than the note balance (including attorney fees and court costs) the borrower is legally obliged to pay the difference – or in legal parlance, the “deficiency.”
There are two types of foreclosure used in the USA (depending upon state statutes), namely “Foreclosure by Sale,” and “Strict Foreclosure.” But it really doesn’t matter which we’re talking about in terms of Feldstein’s opinion piece, because both foreclosure arrangements allow the lender to legally pursue the borrower for any deficiency. This is done through a civil deficiency judgment. Civil deficiency judgments can be effective for up to 20 years
“ I have closed hundreds of residential mortgages and I have not seen one non-recourse loan.”” Says Larry Levinson a New Haven Connecticut Attorney with a specialty in Real Estate Law. Adding “With respect to deficiencies, it should be pointed out that the lender definitely has the right to go after the borrower’s. They need to timely file the motion for deficiency judgment. In my experience it is rare for the lender to actually pursue collection, especially the larger out of state banks. Sometimes the borrower will need to negotiate with the local banks with respect to the deficiency amount”.
The bottom line is that misinformation like that put forth by Mr. Feldstein and then given added credibility by the highly respected Wall Street Journal can cause additional heartache and stress. Borrowers who want to put their lives back in order and who mistakenly think that they are absolved of deficiency debts through foreclosure are being led down a blind alley – by a totally misinformed guide.
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For the record, I am attaching a letter I wrote to the Wall Street Journal immediately after Mr. Feldstein’s opinion ran. They have never responded nor alerted their readers of the misinformation.
Dear Editor,
The opinion you published on August 9th 2009 titled How to Save an Underwater Mortgage by Martin Feldstein contains inaccurate and irresponsibly misleading information. Unless Mr. Feldstein’s information is corrected for your readers it will give consumers the idea that they can just walk away from a foreclosure free and clear.
Nothing can be further from the truth.
In the 6th paragraph Feldstein states that “mortgage defaults in the United States, unlike almost every other country are effectively no-recourse loans meaning the creditor can take the house used as collateral but is unable to take other assets or income to make good on the balance.”
That information is completely false.
For the past 20 years I have worked as a Mortgage Banker responsible for underwriting, documenting, funding and collecting thousands of loans in every state in the USA. I have written and serviced mortgages – including FHA loans – on behalf of all of the big name lenders including Countrywide, Bank of America, Wells Fargo, Washington Mutual, Accredited, Taylor Bean and hundreds of others.
I can assure you that not one of those mortgages is a “no-recourse mortgage note.” In the USA the kind of non-recourse mortgage loans Feldstein refers to are usually reserved for large commercial borrowers. Properties that have income steams attached to them, such as office buildings and shopping centers are likely candidates for non-recourse loans – not residential real estate.
Nearly every mortgage note written on residential property in this country, on the other hand, requires the debtor to personally guarantee the obligation. If a mortgage is underwater and the property sells for less than the note balance (including attorney fees and court costs) the borrower is legally obliged to pay the difference – or in legal parlance, the “deficiency.” There are two types of foreclosure used in the USA (depending upon state statutes), namely “Foreclosure by Sale,” and “Strict Foreclosure,” and both allow the lender to pursue the borrower for a deficiency.
A civil deficiency judgment can be effective for up to 20 years and gives the lender the ability to garnish wages and attach other real and personal property. Deficiency judgments are often sold to collection agencies and can later rear their ugly heads and cause financial ruin all over again for borrowers. Misinformation like that put forth by Mr. Feldstein can cause additional heartache and stress to those borrowers who want to put their lives back in order and who mistakenly think that they are absolved of deficiency debts through foreclosure.
Respectfully yours,
Andrew Ross
New Haven Connecticut andy@andyrossgroup.com 203-641-4666
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