In Depth Analysis: CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Tuesday, June 10, 2008

Richardson Update: This Workout Smells

by Tanta on 6/10/2008 02:29:00 PM

Our soberer readers (I know we have them) will remember California Congresswoman Laura Richardson (D-Speculator), who is facing foreclosure proceedings on three homes. The uproar began with the foreclosure of sale her unoccupied "second home" in Sacramento, which Richardson claimed was an "error" on WaMu's part, since (she claimed) she had worked out a last-minute modification agreement with WaMu the week before the sale. According to the Daily Breeze, WaMu has filed paperwork to rescind the foreclosure sale, and the man who bought the home is not happy:

The real estate broker who bought Rep. Laura Richardson's house at a foreclosure sale last month is accusing her of receiving preferential treatment because her lender has issued a notice to rescind the sale.

James York, owner of Red Rock Mortgage, said he would file a lawsuit against Richardson and her lender, Washington Mutual, by the end of the week, and has every intention of keeping the house.

"I'm just amazed they've done this," York said. "They never would have done this for anybody else."

York bought the Sacramento home at a foreclosure auction on May 7 for $388,000. Richardson had not been making payments on the property for nearly a year, and had also gone into default on her two other houses in Long Beach and San Pedro.

Richardson, D-Long Beach, has said that the auction should never have been held, because she had worked out a loan modification agreement with her lender beforehand and had begun making payments.
Richardson continues to refuse to authorize WaMu to release any information on her case, although frankly I'm not sure if I were WaMu I'd want to talk about it. This smells terrible, indeed. Perhaps reporters could simply ask some general questions of WaMu about its foreclosure workout policies. Like:

  • How often are modifications or repayment plans offered to owners of vacant investment properties with no or negative equity that have never been listed or rented?
  • How often are modifications offered to borrowers with two other properties currently in foreclosure?
  • How often are modifications arranged in the week before the scheduled trustee's sale, following nearly a year of no contact?
  • Does WaMu's policy on modifications make any reference to requiring a "commitment to homeownership" on the borrower's part? How, normally, is that established?
  • Does WaMu's policy on modifications make any reference to establishing that the borrower does not display a "disregard for debt obligations"? How, normally, is that established?
If, for instance, we had some evidence that stiffing creditors and getting the taxpayers to subsidize her financial imprudence was, like, a pattern of Richardson's long before the house payments went into default, would that, like, indicate that her mortgage problems may not have much to do with "extenuating circumstances"? WaMu may not be able to read a credit report, but the Press-Telegram ferreted this out:
In 2005, when she was still on the Long Beach City Council, she left one mechanic in a lurch with an unpaid bill, then later had her badly damaged BMW towed to an auto body shop but didn't pay for any work and abandoned the car there, owners of the businesses said this week.

The next day, Richardson began using a city-owned vehicle - putting almost 31,000 miles on it in about a year - and continued driving the car five days after she had left the council to serve in the state Assembly, city records show. . . .

Labreche said he spent months leaving messages on Richardson's cell phone voice mail, then he got a collection agency involved, but still the bill went unpaid. . . .

In December 2005, Lillegard filed for a mechanic's lien on Richardson's car to pay the towing, storage and administrative costs, he said. Lillegard said the lien was finalized in February 2006 and he sold the car to a junkyard, though a few days later - too late - Richardson sent him money to put toward the bill.
So in January of 2007, WaMu gave Richardson a 100% loan to purchase a second home, when her credit report would have shown recent derogatories related to the car repair bills, plus the payments on two other homes, on a State Assembly salary that I can't quite see being equal to her existing debts, let alone a new house payment. In other words, she got your basic subprime loan that relied on nothing other than a fervent belief in endless house price appreciation--in January of 2007. Or else she got a loan because she's a VIP.

I continue to want to know why WaMu is bailing out a deadbeat and a speculator at the expense of a good-faith buyer of a foreclosure property, and wasting operational capacity on a deal like this instead of working with struggling owner-occupants who might actually pay back the modified loan. I will leave it to the citizens of California to explain why you want this woman anywhere near fiscal, budgetary, or housing policy power.

(Hat tip to Brian!)