Saturday, November 14, 2009

Creative Way to Tap Home Buyer Tax Credit

The extension of the tax credit gives buyers, sellers and industry professionals a bit more time to stabilze the housing market.

The First Time Home Buyer (FTHB) Tax Credit has been extended with new provisions for those that already own a home. So, I guess we need to start calling it the Home Buyer Tax Credit (HBTC).  If you have any questions on qualifying for the tax credit, be sure to read one of my earlier posts.
Combined with bargain basement house prices, this could be the best opportunity to buy a home in many of our lifetimes.
The challenge is, there are many that would like to buy a home, but don’t have a down payment to do so. 
I still get calls from prospects that want to know how to use the Home Buyer Tax Credit for the down payment on the purchase of a home.  In Michigan, there’s no way to get the credit at the closing table to use for the down payment.  So, buyers have to get the down payment in other ways and then AFTER closing, file for the tax credit with the IRS.
Now, let’s look at some ideas to get around the issue of the down payment so a greater number of people can take advantage of the tax credit for buying a home.  By the way, I’m going to make you wait until the end of this post to go over a very CREATIVE (but 100% legal) way to buy a home using the HBTC.
First off, let’s dispel some rumors & myths about zero-down programs.  There are really only two mortgage programs left that require no down payment:
  • VA Guaranteed Loans – these are from the Veteran’s Administration and you must have served in one of the nation’s branches of the military to be eligible.  The VA mortgage program is a great way to finance a home if you’re a veteran.
  • Rural Housing Development Authority Loans (RDA) – these loans are for properties in rural areas only, but are another great way to finance a home.
The lowest down payment available to most home buyers is the department of Housing Urban Development’s FHA program.  FHA requires only a 3.5% down payment, so we’re going to focus on meeting that requirement to buy a home. 
Where can a potential home buyer find the down payment funds for an FHA mortgage?
  • GIFT – FHA allows the down payment, and all funds to buy a home, to be from any blood relative or someone that has a vested interest in the buyer’s well-being.  “Vested interest” is a pretty vague statement, so check with a lender to confirm someone you may have in mind that’s not a blood relative.  What’s interesting about gift funds is that there’s really nothing to stop a relative from borrowing the gift funds from a credit card or getting a loan.  Again, check with a mortgage expert before acting on this, because lenders can have different interpretations of this.
  • BONUS – An employer can choose to give a valued employee a bonus and that bonus can then be used for the down payment.  A bonus can also be given sooner than normal so that a buyer can purchase a home.
  • RETIREMENT PLAN LOAN – most 401(k), 403(b), IRA, etc retirement programs, allow a loan to be taken out for the purpose of buying a home.  A loan is often a better way to go then taking a hardship withdraw that incurs a tax penalty.
  • GRANT – there are many organizations that will give a home buyer a grant to buy a home.  Check with friends & family for the availability of these programs.
  • LOAN AGAINST AN ASSET – just as one can use a loan from a retirement asset for a down payment, so can you also use the proceeds from a loan against any asset you own.  Just make sure the asset’s ownership & value is documented and that you don’t get the loan from a relative or interested party.
  • SALE OF ASSET – you can sell a motorcycle, boat, car or just about anything and use the funds for a down payment.  Just make sure the asset’s ownership & value is documented, you’ll also need a bill of sale and a copy of the check from the buyer of the asset.
  • LIFE INSURANCE POLICY – many life insurance policies allow for borrowing against their built up cash value and these funds can be used for a down payment.  There are also organizations out there that will buy your policy off you, but you’ll want to check with an attorney or financial planner before any such sale.
  • HOME EQUITY LINES OF CREDIT – if you currently own a home and are looking to buy your next one, you can tap into the equity in your current home for the down payment on the next one.  Just be sure to check with a mortgage expert before acting on this to be sure you meet all qualification requirements for the new mortgage.
Ok, so that’s the traditional sources to come up with a down payment for a home purchase, using FHA financing.  Just be sure the seller has owned the property for a minimum of 90 days, as this is an FHA requirement with zero flexibility.
Now let’s discuss a very creative way to use the Home Buyer Tax Credit to buy a home. 
Ever heard of a land contract?  It’s a contract between a buyer and a seller to buy the seller’s property – basically, the seller acts as their own bank and more or less gives the buyer a loan.
Well guess what, land contracts qualify for the HBTC!  That allows for a very interesting way to buy a home with little money out of pocket.  An example will be worth a thousand words:
  • Seller has a house that they’re having a hard time selling as they can’t compete with foreclosure sale prices.  So, the seller offers up land contract terms to potential buyers.
  • An interested buyer makes a land contract offer on the property. 
  • After agreeing on a price, interest rate & monthly payment, the seller takes whatever down payment the buyer has (could be very small), has the buyer pre-approved by a trusted mortgage expert (very important) and executes the land contract transaction. 
  • A clause in the land contract gives the buyer only 90 days to come up with an additional $8,000 deposit.  This money will come from the Home Buyer Tax Credit.  If the buyer files for it right away, that’s all the time it should take to receive it. 
  • Once the Home Buyer Tax Credit monies are received by the seller, the buyer can then apply for a mortgage to pay off the land contract.
  • With FHA financing, the seller can even give a credit for up to 6% of the sales price towards the buyer’s closing costs, prepaids & escrows.
  • Buyer effectively can purchase the property with almost zero out of pocket!
Was that idea worth waiting until the end of this post to read?  Maybe. 
There’ll be a lot of people and industry professionals that will write this land contract concept off as too tough to deal with.  Well, we’re in a tough market and the more ideas the better. 
Is this a perfect solution?  No, but show me a better one.  Some of the issues with this land contract concept:
  • The buyer doesn’t get the tax credit because of an outstanding tax lien.
  • The buyer gets the tax credit, but doesn’t deliver it to the seller.
  • The only interested buyer could have credit issues.
  • The seller has a mortgage on their property with a Due-on-Sale clause.
  • The seller could be upside down in their home and need a short sale.
  • The seller could stop making their mortgage payments and let the property go to foreclosure, leaving the buyer in the lurch.
I have solutions for all the above issues.  Anyone interested though, will have to contact me to discuss.

There are issues that no one has any control over:
  • Buyer could lose their job after land contract closing and not be able to qualify for the mortgage.
  • Lender won’t approve the short sale needed to make the deal work.
  • Property values continue to drop and property won’t appraise for needed amount.
  • The world ends on 12-21-2012.
No real estate transaction is a sure thing anymore.  We all just do the best we can.

Saturday, November 7, 2009

Bank of America – Loans & Lies, but no Real Modifications

In July the federal government pressured banks to modify 500,000 mortgages by November 1st.  Bank of America is lying to do its part.


Take a close look at the document image below:

BOA Loan Mod Offer

This is a copy of an actual letter sent to one of my clients who requested a loan modification. 

Note that in several places it alludes to the fact that this IS NOT an approval for a loan modification.  In fact it says, “If for some reason you are not eligible for the Home Affordable Modification Program once you’ve started the trial period, we will contact you and review other options.”

How many tens of thousands of struggling homeowners got letters like this and now think their home is safe from foreclosure? 

My client did – until I pointed out the above sentence. 

I’ve run their numbers and I know they qualify for a loan modification.  With BOA’s track record of incompetency though, I’m very worried they won’t really be approved. 

So, I’ve recommended they send everything that BOA asks for via certified mail or Fed-Ex and keep copies of all cancelled checks to BOA.  It won’t guarantee they’ll be approved for a loan modification or that their home will be protected, but it may help them in a lawsuit against BOA if they get screwed.

I find the wording in the letter, “review other options” particularly frustrating.  Why?  Because it’s more deception.  There are only two other options – short sale (where BOA has a terrible record) or foreclosure. 

BOA is giving homeowners nothing but false hope with this letter.

I’m sure they’re including all the loans they’ve sent these letters out to in the loan modification numbers they’re reporting to the federal government. 

I expect to hear from the “Great Obama” any moment now about how his program has saved so many homes from foreclosure.  Just don’t look behind the curtain or you’ll catch him hiding all these letters.

By the way, BOA (and all the major banks) keep crying that despite their best efforts, they can’t keep up with the flood of loan modification requests. 


Here’s a quote from BOA’s third quarter report (click the hyperlink to read it yourself):

  • Bank of America funded $95.7 billion in first mortgages, helping nearly 450,000 people either purchase a home or refinance their existing mortgage. This funding included $23.3 billion in mortgages made to 154,000 low- and moderate-income borrowers. Approximately 39 percent of first mortgages were for purchases.
  • To help homeowners avoid foreclosure, Bank of America has provided rate relief or agreed to modifications with approximately 215,000 customers during the first nine months of 2009. In addition, approximately 98,000 Bank of America customers are already in a trial period modification under the government's Making Home Affordable program at September 30.

See any contradictions here?

How could they have the staff to “help” nearly 450,000 people purchase or refinance in the third quarter, but only modify 215,000 loans in 9 months? 

Let’s see, that works out to 150,000 new loans per month, but only 27,777 loan mods per month.

BTW - anyone pointing to that 98,000 number already in a trial mod as good news, better reread this post from the top as well as realize that the number only represents 11% of BOA customers eligible for a loan mod. 

Let’s remove another excuse banks use. 

They like to claim they’re ramping up staff as quickly as they can, but still can’t keep up with the flood of loan mod requests. 

Hmmm.  The process of evaluating a loan mod request isn’t that much different than evaluating a request for a purchase or refinance mortgage.  You gather the same documents, run the same calculations and it’s either a yes or no.  Loan mods are actually a lot easier to evaluate as credit is not a factor.

Need more staff?  Over one million people have been laid off from the mortgage industry.  What’s more, they all know the business so they’d need very little training.

Can’t afford to hire them?  Baloney.  The federal government is paying $1,000/year per loan mod for up to 3 years – a total of $3,000. 

The bottom line is the same senior banking executives that made the bad decisions that got our country into this housing crisis, have decided that they don’t want to do loan mods.  They’d rather pursue foreclosures and use TARP bailout funds to cover any losses. 

Where is the heart, courage & intelligence of the “Great Obama” on this matter?

Friday, November 6, 2009

Housing Stabilization at Hand?

President Obama signs bill into law that extends the $8,000 first-time buyer tax credit - and expands it.
Well, it’s official.  The home buyer tax credit legislation made it through the political process in Washington D.C. in seemingly record time.  After just passing the Senate Wednesday, the House passed the bill today and Obama signed it soon after.
The bill also extended unemployment benefits for 14 weeks for most states, but for another 20 weeks for hard hit states like Michigan.  This extension will also keep many from losing their homes to foreclosure, so shouldn’t be overlooked.
Now let’s take a look at the “new & improved” homebuyer tax credit.
Who Gets What?
First-Time Homebuyers (FTHBs): First-time homebuyers (defined as not owning a home in the last 3 years) are eligible for up to 10% of the purchase price or a maximum of $8,000.
Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.
Current Owners: The new tax credit program now gives those who already own a residence incentive to move to a new home. If they’ve owned a primary residence for 5 consecutive years out of the last 8, their eligible for up to a $6,500 tax credit.
Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.
What are the New Deadlines?
In order to qualify for the credit, all sales contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.
What are the Income Caps?
The amount of income someone can earn and qualify for the full amount of the credit has been increased.
Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible
Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.
What is the Maximum Purchase Price?
Qualifying buyers may purchase a property with a maximum sale price of $800,000.

What is a Tax Credit?
A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual’s primary residence.
How Much are First-Time Homebuyers (FTHB) Eligible to Receive?
An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.
Who is Eligible fort FTHB Tax Credit?
Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible.
This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.
How Much are Current Home Owners Eligible to Receive?
The tax credit program includes a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.
Can Homebuyers Claim the Tax Credit in Advance of Purchasing a Property?
No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.
Can a Taxpayer Claim a Credit if the Property is Purchased from a Seller with Seller Financing and the Seller Retains Title to the Property?
Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Some examples of this would include a land contract or a contract for deed.
According to the IRS, factors that would demonstrate the ownership of the property would include:
1. Right of possession,
2. Right to obtain legal title upon full payment of the purchase price,
3. Right to construct improvements,
4. Obligation to pay property taxes,
5. Risk of loss,
6. Responsibility to insure the property, and
7. Duty to maintain the property.
Are There Other Restrictions to Taking the FTHB Credit?
Yes. According to the IRS, if any of the following describe a homebuyer’s situation, a credit would not be due:
  • They buy the home from a close relative. This includes a spouse, parent, grandparent, child or grandchild. (Please see the question below for details regarding purchases from “step-relatives.”)
  • They do not use the home as your principal residence.
  • They sell their home before the end of the year.
  • They are a nonresident alien.
  • They are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
  • Their home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
  • They owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.
Can Homebuyers Purchase a Home from a Step-Relative and Still be Eligible for the Credit?
Yes. As long as the person they buy the home from is not a direct blood relative, the purchase would be allowed.
If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, Will Their Child Still be Eligible for the Credit?
Yes, provided that the child meets the other requirements for the tax credit.
Also, be sure not to try and buy a property in the name of a child as the IRS is also pursuing prosecution of an estimated 500 tax filers reported to have done this.

Tuesday, November 3, 2009

FHA Streamline Refinancing – The Government Taketh Away in a Time of Need

After November 16th, HUD is making it a lot harder for borrowers to lower their mortgage payments through refinancing.


Once upon a time, in a land far, far away, HUD had some common sense.  They allowed borrowers with FHA loans to easily refinance to lower their interest rate and payment.

Then came the too big to fail banks & Wall Street, that huffed and puffed and blew the housing market away.

All the Prez’s advisors and all the Prez’s yes men, haven’t been able to put it back together again.

You gotta smile and make light of the situation as it’s better than beating your head against a wall.

The FHA Streamline program has been around since the 1980’s.  It allowed FHA borrowers to refinance their home loans with no appraisal, no income and no asset verification – a borrower just had to have made their last 12 months of payments on time.

The program made sense, as HUD was already on the hook for the loans if they defaulted, so why not make it less likely for these borrowers to default on their mortgages by making it easy to lower their rates and payments?  Makes a lot of sense.  VA does something similar for veterans, FNMA & FHLMC should have embraced this concept with the Obama Housing-O-Rama.

After November 16th though, HUD will now require income verification, asset verification, stricter payment histories and a borrower must have owned the home for a minimum of 6 months.

The worst change is that borrowers will no longer be able to roll closing costs or escrows into the new loan without a new appraisal.

How many more foreclosures do you think this will cause?  Let’s see, you’re upside down in your home, you’re struggling to make your mortgage payments and now you can’t lower your payment to relieve some of this stress without bringing a boatload of cash to closing that you don’t have. 

And our government is supposed to be protecting us and looking out for our best interests?

So why the change in policy? 

Well, HUD feels there are too many streamline refi transactions being done that are not in the best interests of borrowers.  I agree with that it’s happening as I’ve seen it and stopped several occurrences of it.  There are still some bad/desperate players in the mortgage industry churning loans to fill their pockets.  I just got a call today from a past client that was solicited on the phone for a FHA Streamline refi, being promised a 4.25% interest rate with “only” $6,000 in closing costs.  My quick analysis showed her that it didn’t make sense.  Talked myself out of a possible loan, but it wasn’t in her best interests.  I’m hoping she trusts me that much more and will now refer me that much more often and strongly.

Oh by the way, have you seen the bonuses recently paid to the same “experts” on Wall Street that put the housing market into this mess? 

Instead of trying to remove the few bad apples in the industry, HUD seems intent on throwing out the whole barrel of apples.

That seems to be our government’s new solution to every problem these days – instead of enforcing the laws already on the books to get rid of mortgage crooks, the Madoff Ponzi schemers and the Wall Street scoundrels, they just pass new laws that penalize everyone in entire industries. 

Seems it’s a whole lot easier to pass new laws than to put your friends on Wall Street and bank leaders in jail where they belong.

Sunday, November 1, 2009

Extension & Expansion of Homebuyer Tax Credit

Contrary to what many have reported, it’s not a done deal yet.


The most talked about real estate news of the past week seemed to be all about the First Time Homebuyer Tax Credit getting extended.

I’ve had numerous people contact me asking for the details and have had to tell all of them that nothing has passed yet. 

Given the confusion and misinformation I thought I’d give an actual update on where the extension is.

The big news is that an unofficial voice vote passed the Senate last week, and Senate Majority Leader Harry Reid announced that he’s planning an official November 2nd vote on the extension in the Senate.  Discussions with his counterparts in the House lead him to believe that the House will also pass the bill in the coming week.

This could put the bill on President Obama’s desk by the end of the week.

What could go wrong?  Well, the vote was held up last week by demands for votes on several other amendments, one calling for an end to the Treasury’s TARP program by year end.  An extension of unemployment benefits is also rumored to be causing issues.  Popular bills like this one often have other amendments added to them that might not pass otherwise, so a lot of compromising goes on.

Some New Wrinkles

In its current form, the bill would extend the tax credit to the end of April 2010.  There are several proposed differences from the current tax credit:

  • To qualify, a sales contract would have to be signed by April 30th and the transaction closed by June 30.
  • Income limits would be increased from $75k for single people & $150k for couples, to $125k and $225k respectively.
  • Buyers who have lived in their current home for the last 5 years would be eligible for up to a $6500 tax credit (or 10% of the purchase price).
  • The maximum allowed home purchase price would be capped at $800,000.
  • Military personnel, deployed overseas for a minimum of 90 days in 2008 or 2009, would have until April 30, 2011 to claim the tax credit.
  • To combat fraud, a HUD-1 Settlement Statement will have to be attached to the tax return to secure the credit.

Stabilizing the Housing Market

The Homebuyers Tax Credit is probably the best program passedAffordable house by the government since the financial meltdown started.  Other  measures to stabilize the economy are increasingly under fire for racking up trillions in tax payer debt, while mostly benefiting the elite on Wall Street.

More than 1.25 million taxpayers have taken advantage of the tax credit to pursue the American dream of home ownership.  This has used up approximately $8.5 billion of the $13.6 billion originally set aside for the program. 

Reports show home sales have increased and inventory is down.  Many buyers are finding it difficult to locate a home, being outbid and outhustled.


Even this program has its problems and detractors though.  Recently, the Treasury’s Inspector General for Tax Administration, J. Russell George, told Congress that at least 19,000 filing for the credit hadn’t bought a house when they filed.  Another 74,000 appear to have owned a home in the last 3 years, making them ineligible for the program.  500 plus filers for the tax credit are under 18 years old! 

The IRS is pursuing criminal cases against at least a 100 offenders and is reportedly trying to audit every return where the credit is claimed this year.  They’ll also be auditing themselves as Mr. George is also on record stating that they are investigating at least 53 cases of IRS employees filing illegal or inappropriate claims for the tax credit.

Many detractors are claiming that the tax credit is subsidizing housing values and just pulling forward sales that would have happened anyways. 

One potential problem that the media hasn’t focused on yet, is that the tax credit may be encouraging banks to sit on foreclosed homes.  Many real estate experts have pointed out that the number of foreclosures has been outpacing the number of units entering the market for some time now.  Instead of putting these homes on the market to be sold, banks could be sitting on them to drive down inventory and push up prices – using bailout funds to support this endeavor.  Not a lot that can be done at the “street level” about this, but surely something for our representatives to look into

Don’t Procrastinate

Hopefully, the extension of the tax credit won’t turn more buyers into procrastinators who wait until the last minute to buy.  Buyers should keep in mind that finding a home isn’t like shopping for Christmas items or even a car – where their are multiple copies of the desired item.

Homes are much more unique, rarely are even two homes remotely alike.  Start your search now, as it could take awhile to find what you want.  When you do find it, jump on it or someone else usually will.

Saturday, October 24, 2009

Heads Banks Win, Tails Homeowners/Taxpayers Lose

Too big to fail banks have it all – bailout funds, loss coverage, huge bonuses, no accountability, etc.  No wonder they have no compassion for struggling homeowners!


Despite all the political rah, rah and posturing, banks seem to be running the government these days – and we’re letting them.

Before we get into all that though, I was flattered to be invited to lunch with Senator John Pappageorge (R-MI) on Monday in Troy.  He’s concerned about issues in the housing & mortgage markets (who isn’t), but his frankness about his ignorance on the topics was a pleasant surprise.  No political B.S., just a man admitting he can’t know everything.  We discussed several challenges facing homeowners, he asked some great questions and took notes, and I ended up with an “assignment” to write some briefs for him to possibly present to a joint committee in January.

Annual Checkups

On Thursday I had my annual physical.  My doctor and CPA I  seem to see only once a year and so far, that’s a good thing!  DoctorWhile my doctor was putting me through his procedures, I asked him and his nurse when they’d last had an annual mortgage checkup.  I could tell they were both uncomfortable with the subject, even though I was the one half-naked.  The question is, why were they uncomfortable? 

Our patterns of expectations can be pretty silly and sometimes outright illogical.  We are told and so have come to accept, that we should see doctors, dentists, CPA’s, financial planners, estate planners, and more on a regular basis.  We’re also supposed to have our cars, home heating & cooling systems and numerous other things inspected regularly.

These are all intrusive, take up time and aren’t a lot of fun, but we do them anyways because we understand the danger of ignoring them .  So why do people avoid annual mortgage checkups and look for the nearest exit when I bring them up?

When’s the last time YOU had a mortgage checkup?  Contact me if you’d like to know more.

Big Banks, Big Trouble

After numerous banks failed during the Great Depression, the government stepped up its regulation of banks and banned banks from getting involved in insurance and risky ventures.

Ever since that time, banks have lobbied to dissolve those rules, all in the pursuit of greater profits.  Slowly, over time, bank lobbyists convinced (bribed) politicians and government officials to relax these rules and allow banks greater freedom. 

Looking over the wreckage of our economy, how do you think that worked out for taxpayers and homeowners?

There’s an old story told of how to cook a frog in a pot of boiling water.  If you toss a frog into boiling water, it’ll just jump out to save itself.  But, if you put the frog in the water and then bring it to boil, the frog will react too late to the rising water temperature – the heat sapping its strength so it can’t hop out.

That’s what the system of collusion between the banking industry and the government has done to the American taxpayer on a consistent basis.

If a politician had told you before you voted for them that they would be part of approving the biggest federal bailout of all time AND allow bank executives to pay themselves bonuses with that bailout money – would you have voted for them?

The government knows exactly how to play you though.  It starts with campaign promises you want to hear, but they never seem to deliver on.  It continues once you’ve put them in office with posturing and propaganda all designed to placate and appease you.  But what really gets done, what do they really follow through on?

What’s a politician’s number one concern?  How about a government official?  If you think it’s protecting the American people or doing what’s right for our country, then you haven’t watched the selfishness on most reality TV programs.  The majority of politicians and government officials are concerned with one thing and only one thing – keeping their jobs. 

By the way, these just aren’t any jobs and it’s rarely about the money.  It’s more about the perks and power.  Back in the early 1990’s, GM, Ford & Chrysler all cracked down on vendors and suppliers taking their employees out to lunch, dinner and events.  Why?  Because the employees were making too many decisions based on what was in the employee’s best interest (through perks) and not in their employer’s best interests.

Now think about Washington D.C., the center of the nation that happens to be the world power.  The free lunches, dinners,Washington DC sporting events and more, pale in comparison to the intoxication of being at the “center of the world”.  For some I’m sure it’s more addictive than crack cocaine – and most of us have seen the extremes of what a crack addict will do for their next high.  Why do you think so many politicians are against term limits?

It takes money to stay in Washington D.C. or power.  If you’re a politician you need money to win your next election.  If you’re a government official, you need power over the politicians that appoint you or can force you to resign.

Wall StreetBig banks supply both.  Wall Street firms too.  I’m really not too  sure of the differences anymore between banks, insurance companies, investment companies, hedge funds and the lot.  They’ve successfully managed to be allowed to effectively blur the lines.

Call up a big bank today and ask what they offer.  You can open accounts for checking, saving, money markets, mutual funds, etc.  Want to invest in stocks?  We’ll have that department call you.  The same goes for insurance, annuities, estate & financial planning, commercial loans, credit cards and even risky investing in derivatives and such.  One stop shopping!

Jack of all trades, master of none.  Bank executives thought they had all the angles covered - but they were juggling so many balls and stuffing their pockets with so many bonuses, that they got blindsided by an economic meltdown.  How are you entitled to a bonus when you didn’t see that coming?

Think about all this at election time.  Nothing’s going to change if YOU don’t take the time to vote and make your vote count.  Incumbents should be held accountable for this mess. 

Vote with your wallet also.  What bank do you keep your money at?

The Week AheadHalloween

The Halloween parties already started this weekend.  My wife  Rose and I may be going to one tonight at the Oakland County Boat Club on Sylvan Lake, Michigan’s oldest boat club.  She’s not feeling well as I write this, but I hope she can rally so we can go.

Tuesday is the monthly meeting of the Birmingham-Bloomfield Public Policy committee.  Wednesday I head down to Detroit for a planning meeting for the Mariner’s Inn annual River Rhythm event on November 6th at the Roostertail.  They’re still looking for silent Mariners Innauction donations and tickets are still available.  Click here for more info.

Friday night I’ll be in Detroit again for Angel’s Night with Motor City Blight Busters.  With 65,000 expected volunteers patrolling across the city, it's one of the safest nights in any city anywhere.  A far cry from the 1980’s when the rest of the country tuned into Detroit to see how much of it was burning on Blight BustersDevil’s Night.  John George deserves so much credit for making this happen, but they’re struggling financially due to all the cutbacks in corporate and government donations.  You can help  out by making a donation here.

Both organizations are also in desperate need of volunteers to help with marketing.  Contact me if you’re interested.

On Saturday morning I’ll be in Troy for the “Michigan Money Summit” at the MSU Education Center.  It’s open to the public, so maybe I’ll see you there.

Make everyday count and remember to refer me to family & friends looking to refinance or buy a home.

Monday, October 19, 2009

No Rhyme, No Reason, FNMA/FHLMC & FHA Play Politics

Mortgage programs that make a lot of sense are rendered basically useless by unpublished and unofficial modifications.


A quick update on my recent “Spank Your Bank” post, which has been one of my most commented posts ever.  In no way did I mean to imply that the average worker at large banks should be held accountable for the cowardly/greedy actions of those in top management. 
Also, most smaller regional and community banks weren’t meant to be implied targets.  They are actually alternatives to the “too big to fail” elitist banks.
Nonprofits in Dire Need of Help
Before I get into the post I wanted to introduce my audience to two wonderful Detroit based nonprofits that could use your help.  Before you go hiding your wallet, Mariners Inn and Blight Busters are not asking for money (although they could always use more).  They’re both looking for donations of supplies and volunteers.
Mariners Inn is looking for auction items for its 21st annual River Rhythm fundraising event at the Roostertail on November 6.
Blight Busters needs office equipment and supplies.  They could also use volunteers to help redesign their website and build a social media presence.
Check them out, they’re both struggling to do great things in Detroit in the face of reduced government and corporate funding.
Of Politicians and Programs
By now, thousands of homeowners should be benefiting from refinances that allow them to lower their payments.  Lower payments mean fewer foreclosures, which supposedly is the goal of the Obama administration and many state governments.
This is one of the reasons that FNMA/FHLMC now offers programs that allow a homeowner to refinance even if they owe more than their home is worth.
FNMA/FHLMC already holds the mortgage and the corresponding inherent risk of any default by the homeowner, so why not lower that risk by allowing the homeowner to refinance to a lower payment?  Makes too much sense not to do!
HUD’s allowed that option on FHA loans for over 20 years with its Streamline Refinance program that didn’t require an appraisal or proof of income.
All that’s changing now.
HUD recently announced changes to its Streamline Refinance program effective November 18th, that will require homeowners to pay their closing costs or get an appraisal.  Also, a lender must certify employment and income, which means lenders will verify it.
FNMA/FHLMC’s first upside down refinance program worked pretty well.  It allowed a homeowner to refinance up to 105% of their property’s value with only a slight bump in the going interest rate.
They later rolled out a program allowing refinances on homes up to 125% upside down.  This program has a dismal track record though, as FNMA/FHLMC requires such a high risk premium (higher interest rate) that for most homeowners, the program doesn’t make sense. 
So, we’ve got potentially great programs that President Obama and many politicians point to as evidence they’re doing all the can to help struggling homeowners, when in reality the programs are set up for failure behind the scenes. 
I doubt anyone on Obama’s team has ever taken the time to do the math and analyze how these programs  work.  If they did, they’d quickly see how useless they were.
The most glaring example of this undercover manipulation of the lending system is FHA and credit scores.  Search all you want at, you won’t find anything in writing about the requirements of credit scores to be eligible for an FHA mortgage.
As I write this post though, most lenders now require a minimum credit score of 620 to qualify for an FHA mortgage.  Several have recently bumped that requirement up to 640.
What gives?
HUD is passing on it’s dirty work to lenders to avoid political backlash that’s what.  If HUD came out and publicly stated they were now requiring minimum credit scores, the political response would cost several HUD officials their jobs.  But, these same officials are also being grilled by politicians and Wall Street about HUD’s increasing mortgage delinquencies.  Fear is growing that the FHA program may need a federal bailout.  That won’t sit well with anyone, but leaves HUD officials between a rock and a hard place.  The only way to slow delinquencies and avert a bailout of the program is to do less riskier lending – but, that’s unpopular too. 
Politicians want votes, they don’t want to understand problems like this and have to make a decision that could hurt their career.
So, politicians are indirectly forcing HUD officials into a solution that “unofficially” puts pressure on lenders for doing loans with credit scores under 620. 
Since there’s no official announcement, no one has to take the blame for an unpopular course of action.  No one’s held accountable either. 
Avoiding accountability seems to be a popular survival strategy these days.  Unfortunately, it just leads to mediocrity or worse.
My Week Ahead
Tomorrow, barring a last minute cancellation, I’m supposed to have lunch with Senator John Pappageorge to discuss the housing crisis in Michigan and my thoughts on possible solutions.  I was quite surprised when his office called me about this.
Tuesday I’ll be having lunch with Jeff Ivory, a financial planner who’s made several recent appearances on CNBC’s Squawk Box.  Later I’m also getting together with a Leon Labrecque, a CPA and planner.
Thursday I hope to pop into LBN’s Fall Mixer and then head over to the Troy Chamber of Commerce’s Golden Anniversary event.
Friday morning I hope to attend Gerry Weinberg’s President’s Club.

Sunday, October 11, 2009

Is it Time to Spank Your Bank?

Banks bailed out of bankruptcy by the federal government, refuse to help out homeowners – so why do homeowners keep their accounts at these same banks?

A recent federal report card through September on the results of the Making Home Affordable Program, shows real dismal progress.
Despite 85% of eligible 60-day plus delinquent mortgages being covered by the 63 servicers pledged to participate in the federal government’s loan modification program, only 16% of eligible homeowners have been offered help.
Now that is an improvement over July’s 9% and August’s 12% numbers, but at this rate it’ll be almost another year before banks are helping half of the eligible homeowners. Most will be foreclosed on by that time.
What’s really interesting is comparing how much banks received in federal TARP bailout funds and how they’re “rewarding” the taxpayers that fronted the funds with loan modifications.
TARP Funds
Percent Eligible Homeowners Assisted
Bank of America
$45 Billion
$25 Billion
$45 Billion
$12.5 Billion
PNC (bought National City)
$7.7 Billion
Wells Fargo
$25 Billion
Bank of America is thumbing its nose at taxpayers the worst with a low 11% rate of assistance – all the more troubling as it’s the nation’s largest bank and still hasn’t paid back its borrowed TARP funds yet.
The numbers above have greatly improved since July, but notice they only cover mortgages that are behind by 60 days or more?
Obama’s wonderful promise to homeowners was that you DIDN’T have to be behind on your mortgage to qualify for a loan modification! I’m sure the numbers would look a lot worse if mortgages behind 30 days were added to the figures, much worse if every homeowner with a mortgage payments more than 31% of their gross income was added to the stats.  By the way, that 31% number is what’s supposed to qualify a homeowner for Obama’s Making Home Affordable program.
Now here’s the big question – know anyone with a mortgage at one of the above firms who’s trying to get a loan modification?
If you do, ask that person how it’s going. Chances are they’ll tell you horror stories about paperwork getting lost multiple times, phone calls unanswered, conflicting advice and more.
Do you think these banks really care about homeowners - that also happen to be taxpayers?
As evidenced by their terrible track record with loan modifications, some banks don’t care one bit. We’re all less than pawns as far as their concerned.
Now ask yourself, where do you have your checking and savings accounts?
Why are you giving your business to these banks that show so little concern for Americans needing a break, when we the taxpayers gave them a break with our bailout tax dollars? Where’s the trickle down fairness? The, “do unto others as you’d have them do unto you?”
If the banks wanted to play hardball with homeowners and tell them, “too bad about your financial difficulties, we’re foreclosing anyways”, then they shouldn’t have come begging for our tax dollars as TARP funds. We should have shown them as much mercy as they’re showing homeowners. We should have let tese banks fail.  What goes around comes around guys!
Unfortunately, it’s too late for that as they got their bailout funds, paid themselves bonuses for the mess they created and laughed all the way to their own bank accounts. We were suckers.
We can still get back at these banks though.
This is the official start of the “Spank the Banks” campaign.
The only way we “itty-bitty” taxpayers can show these banks that they need to treat homeowners with more respect, is to take our business away from them. Spank your bank!
I’m amazed when I find out that a homeowner trying to get a loan modification still has their accounts at the bank giving them the run around! Can you say “glutton for punishment”?  These homeowners should Spank their Bank!
How about showing some support for family & friends? If someone you care about is getting jerked around by their lender, spank that bank by making sure you close any accounts you have there.
Now, who wants to start making, “Spank the Banks” t-shirts and bumper stickers?

Friday, October 2, 2009

Are There Foreclosures in your Condo Complex?

Read this before you get blindsided by increased Homeowner Association dues and/or special assessments.


When I wrote an earlier post telling condo buyers to be cautious before buying, I should have also considered advice for those who are already condo owners.

Many condo owners are watching the value of their homes drop dramatically, leaving them severly upside down.

Especially hard hit are condo owners who bought into new developments that are still unfinished or converted apartment buildings where many units sit unsold.  In both these cases, the developer has usually dropped the sale prices of the unsold units in an attempt to get out of the project before their bank forecloses on the project.  Many condo owners have to drive by for sale signs every day advertising these unsold units for less than they paid, often for less than they owe on their units.

There are even a number of condo developments around the country where the developer's bank has foreclosed on the project leaving those who purchased units already in limbo as to maintenance and completion of unfinished common areas.

A more common challenge facing condo owners is financially strapped Home Owner Associations (HOA). 

Condo owners facing economic hardship often stop making their monthly HOA dues payments even before they stop making their mortgage payments.  The banks sitting on foreclosed units, whether listed for sale or not, typically aren't making the required HOA payments. 

These nonpayers cause all kinds of challenges for the HOA in charge of maintaining the complex and paying the corresponding bills.  The HOA has a budget based on the expected monthly dues.  While they usually plan for a small percentage of nonpayments, many are seeing their best laid plans blown apart by the unexpected number of owners not paying their monthly dues.

With less revenue than expected coming in, the first thing the HOA managers usually do is cut back on regular maintenance expenses and delay large capital projects (like replacing leaking roofs).  If the revenues continue to drop they have only two choices:  raise monthly dues on those owners still paying or request a special assessment.  Either option places addition financial burdens on the remaining owners.

All of this also pushes values down even further. Higher HOA dues are a turn-off to potential buyers. So are unkept common areas or pools with no money to open or repair.

Another hidden problem is that most HOA board members have little, if any, financial backgrounds.  Many are just nice people that volunteered for an unpaid position because they care and have the free time.  Compliments to them as it's often a thankless job.  Their lack of financial experience isn't a problem when things are humming along with only an occassional minor bump here and there.  It can be disasterous though, if they fail to take appropriate and prompt action during these times.  It used to be the rare exception that a HOA would declare bankruptcy.  It's not so rare these days.

Traditionally, HOA handle nonpayment of dues in three stages:
  • First sending out warning letters
  • If still no payment, put a lien on the unit
  • Final action would be to foreclose on the owner for nonpayment
None of that really works in today's reality. 

Warning letters mean nothing to owners without jobs or the banks holding foreclosed units. 

Liens don't offer the protection many think they do.  If the HOA puts a lien on a unit that eventually goes to foreclosure, that lien is usually wiped out if the mortgage balance was higher than the sales price.  The HOA needs to start the process all over against the bank that now owns the unit.  It does nothing to recoup the amounts wiped out in the foreclosure, but the bank has to pay any subsequent lien added during their ownership when they eventually sell the unit.  Too often, inexperienced HOA boards don't restart this lien process against the banks owning units.

The last option, that of the HOA foreclosingon a unit, is not an option for any unit where the mortgage balance(s) exceed the value of the unit.  To foreclose an HOA would have to buy out the mortgage holders.  Pretty much a useless option these days.

So what can be done to avoid these issues?

My advice for condo owners is to get more involved with your HOA and ask a lot more questions.  It's so much easier to ignore the potential problem and just keep making your payments, letting someone else handle it - until you get a notice that hits you in the wallet.

Most HOA have regular meetings, start going to them and ask questions.  Ask to see the financials and the plan to address any shortfalls. 

If your reading this and you're a HOA board member, know that there are legal & financial experts that can be brought in to give your HOA board advice on what to do.  If you're a condo owner, make sure your board knows they have these options.

You are now adequately warned.  If you chose not to get involved and you're surprised when your HOA raises dues, hits you with a special assessment or goes bankrupt, we can all say, "we told you so".

Wednesday, September 30, 2009

An Interesting Post from "Mandelman Matters" Blog

I've never reposted someone else's blog before, but this one was compelling enough.  Martin Andelman is a bit "in your face" and a bit more than a little negative.  However, he makes great points and calls it like it really is.

"Enjoy", but fasten your seatbelt...

Loan Modifications: Obama’s Part of Problem, Not Solution

Posted: 29 Sep 2009 04:53 AM PDT

I didn’t want to ever have to write that headline. Like so many millions of Americans, I voted for Barack Obama and truth be told there was one big reason. No, not Sarah Palin. And not because he was the anti-Bush. I voted for Barack Obama for a reason that didn’t show up in the polls: the housing foreclosure crisis; he would do something to stop it.

I know now that I’m far from being alone in this. And I know why it didn’t show up in the polls, after all, during all that joy that was present during the month leading up to the Obama victory, and certainly immediately following it, who was going to talk to pollsters about something as depressing as being at risk of foreclosure? Even today, few people want to make public the fact that they may be losing their home, or even that they’ve already lost a home to foreclosure.

It’s in the press, no question about it, but more in a macro sense. It’s “out there,” as opposed to being “right here”. Even here in Southern California, one of the hardest his areas of the country in terms of people being at risk of foreclosure, I run my errands, go about my business, and don’t bump into it at all. In fact, as I wait for my car to come up in valet parking, all I see are BMWs, Mercedes, and Lexii… the foreclosure crisis seems very far away, even though I know, and certainly as well as anyone, that it’s not.

I know because of where my writing has taken me. I never intended to write over 150 articles and exposes about the foreclosure crisis. And I never thought I’d my writing would touch the lives of so many homeowners that they would call or write to me to tell me their stories and ask my advice. Why would they? I knew nothing about mortgages, and the only way I knew to avoid foreclosure was to pay my mortgage payment each month. Why would anyone call me? But they did and they have and they still do… every single day. And I have no idea how many at this point… hundreds certainly, maybe more. And I talk to them all, sometimes for hours at a time because I care a whole lot about what’s happened to them, and what’s happening throughout our country, and I don’t know if I can really matter, but I have to try.

I started writing about the meltdown in earnest about a year ago, although I did write a few articles beginning maybe a year before that. My first was about what was happening on Wall Street and why. I think the headline read: What’s Happening on Wall Street and Why… I’ve never been a very clever headline writer. I wrote it to help people understand what I knew was a very complex problem, but also one that everyone would soon need to understand.

Then, the government followed by the press started laying the blame for the crisis on “sub-prime borrowers,” and I felt compelled to get involved. It was never “the borrowers,” who were at fault for causing this crisis, let alone the sub-prime borrowers. People with relatively low credit scores and incomes who wanted houses did not destroy the U.S. and global financial markets, no matter what anyone might think. And it wasn’t stated income loans either.

Of course, I chose sarcasm to express my point. I made a tee shirt that said: “Sub-Prime Borrowers Unite. Be Nice to Me or I’ll Stop Making My Car Payments Too.” And I wrote an article to go along with that sarcastic sentiment: “Coming to Terms With the New Power Elite: Sub-Prime Borrowers.” The article was my attempt to point out the fallacies that had quickly become conventional wisdom… it was the sub-prime borrowers’ fault. It was nonsense then… and we now, of course, know… now that 54% of the foreclosures are prime loans, that it wasn’t the borrowers at all… it was and is the banks that have caused this pain.

‘Borrowers didn’t break the capital markets. Borrowers didn’t fraudulently package mortgage backed securities and stand by as they were improperly rated AAA. Borrowers didn’t slice those securities up in a million derivative ways, or leverage them to the hilt, before buying and selling them along with their worthless insurance policies known as credit default swaps. Nope, as all of things and more went on, there wasn’t a single borrower to be found anywhere.

Most annoyingly, it certainly wasn’t borrowers who, knowing that increasing future defaults were imminent, agreed to lower their bank’s reserves for future losses in order to pay themselves untold billions in bonuses. There’s another way of putting that… it wasn’t borrowers that robbed the banks, it was the bankers that robbed the banks. (Why they all still have jobs is beyond me. How big a bank do you have to rob in this country to go to jail anyway?)

Of what were the borrowers guilty? Every time I ask this question I get a fringe answer. You know, the story: A 19 year-old college student bought an $11 million home on the water in Newport Beach. Or how about: The family with income of only $3600 a month, but whose mortgage payment was $4800. It’s a lot like when people talk about welfare fraud, and they point to some woman with 19 children who hasn’t even looked for a job since 1983, conveniently ignoring the fact the more than 70% of welfare spending is spent on children.

At worst Borrowers were guilty of bad judgment. Of trusting bankers. Of wanting more in life than they had in the past. Mostly, however, borrowers, if they were guilty of anything at all, were guilty of not seeing The Great Depression, Part 2 coming around the corner, just like… of, say Henry Paulson, or Ben Bernanke. Bankers, on the other hand, many of them were guilty of criminal fraud. Of manipulating securities. Of trading on inside knowledge. Of lying left and right to everyone, if that’s still a crime in this country.

So, I wrote in order to help people who were suffering understand that what was happening in this country, as our economy slid further into the abyss, was not their fault. It was a controversial viewpoint in the beginning, and I’m thankful it is much less so today. One day, and not so far from now, it won’t be controversial in the least. As of September 26, 2009, the Justice Department is working on 570 cases related to the demise of Wall Street’s banks, so it won’t be long before we all see the arrests and criminal charges levied against the mortgage bank robbers who used to think, a’la Enron, that they were the smartest guys in the room. As far as I’m concerned… that day cannot come soon enough. Maybe then we can start the healing process, and maybe we’ll be better for it.

Regardless all of that, here we are in the fall of 2009, and the crisis has only deepened, and deepened significantly. And not only is that the case, but in addition, both our state and federal governments, by virtue of their incredible lack of understanding as to what’s really going on, have only made things worse… and significantly worse. What up with these guys? Do they just feel compelled to turn checkers into chess, or are they actually that out of touch that they can’t even see how incredibly stupid they so often appear?

I’m really not sure anymore, but if anyone in government is reading this, and I know that you are, then you might as well hear it from me… you’re embarrassing yourselves… terribly, and although it may not be showing up in today’s poles, it’s there… just under the surface, waiting for the curtain to close in the next election’s voting booth.

Brass Tacks…

Okay, so let’s dispense with the pleasantries and call it like it is. According to our government, here’s all there is to know about getting a loan modification:

1. Call your bank directly. You don’t need anyone to help you with a loan modification. It’s easy, thanks to the President’s Making Home Affordable program.

2. If you feel you need assistance, call a HUD counselor, or other nonprofit. That’s it, and that’s all.

3. Whatever you do, don’t pay anyone in advance, no matter what, because paying in advance always makes someone a scammer.

4. There are zillions of scammers out there ripping off what must be hundreds of thousands of homeowners each day. I’m surprised every time I leave my house these days and return home without getting scammed. Just lucky, I suppose. Oh and by the way, so far the FTC and the Attorney General have shut down… 22 companies. I feel a lot safer.

5. If a private sector company wants to help homeowners, it should be willing to work for months on end with a lender or servicer and then send their bill at the end. What a plan… become an unsecured creditor of someone who is having trouble paying their bills and already has bad credit.

And that’s not even the worst of it…

The irrational thinking has led to some of the most contradictory statements that I’ve ever heard come out of a legitimate government. Try these…

 These people paid this company $3,000 and they didn’t even get a loan modification.

 No company can guarantee you that your loan will be modified.

 If they fail to get your loan modified, they have to refund your money.

 You don’t need help getting a loan modification; it’s easy to do it by yourself.

 For help with a loan modification contact a HUD certified counselor.

 The law firm took the clients money and failed to deliver anything of value.

 According to the Obama administration, servicers aren’t doing what they agreed to do.

 Bank of America only modified 4% of the eligible loans.

 Lawyers are using their law licenses to con desperate homeowners out of $3,000.

 August foreclosures came in at 356,000, the sixth straight month over 300,000.

 Another wave of foreclosures expected.

 The recession is over, probably.

Look… I’m not playing around here. Stop treating the country like we can’t put two and two together.

The evidence of servicer nonperformance is now abundant, and coming directly from the U.S. Treasury, but nothing the government says has changed one iota. Hasn’t anyone linked the two things together… the servicers refusals to do modifications, with the firms failing to obtain loan modifications? Really? Someone do something about this… this one is too stupid for me to mention ever again.

They attack private sector companies that charge a fee for trying to help someone accomplish something that the government can’t get done either, even after giving away a few hundred million. WTF.

I read stuff like this every day. Just a few weeks ago, a friend who knows how much this stuff annoys me, sent me an article that had appeared in a mid-western newspaper. It was a front-page type of article, huge though, and it showed a nice young couple standing with a baby in their arms, in front of a foreclosed home, sign and all. To sum it all up in a phrase… the story said that the couple had written a supposed law firm a check for $1,000 last March, the company was the now infamous FedMod… and that’s why they lost their home.

Holy macaroni! I had no idea that could even happen to someone as a result of writing a check to a law firm, regardless of whether the law firm was legit or not. I wrote a check to a contractor once for $2500 and got ripped off, but I didn’t lose my home or my car or anything as a result. What the heck happened here?

I wonder what the government brain in trust thinks when they see people continuing to write checks to companies up front, even though everyone in America has been told by the President and everyone else on down, not to do that. Why do you suppose they keep doing it, are they stupid? Don’t people watch television?

No, they heard you. They’re doing it because they’ve tried what you suggested and it didn’t work worth a damn. Are you listening, by the way?

There’s another possibility, of course. They could all be in the pocket of the banks, but that’s hard to believe. I’m not talking about Obama, Geithner, and the gang at the Harvard Goldman Club… they are unquestionably in the banker’s pockets. I’m talking about everyone else in state and local government… the bankers can’t have bought them all over to their point of view, can they? All of them?

I can’t be the only one that sees what the banks are doing here, right? I know at least 100 attorneys that know what they’re doing because they’ve seen it first hand on hundreds of occasions.

Banks are telling homeowners that they don’t need a lawyer. Isn’t that giving legal advice? Isn’t that the unauthorized practice of law? Why, yes… I believe it is. But who in the country has the balls to sue or bring charges against a bank? Likely, no one. And besides… why all of a sudden does everyone care so much whether I hire a lawyer? I’ve run my own firm for twenty years… and no one ever cared if I hired a lawyer before. Now it’s seems that even the American Bar Association doesn’t think lawyers should be representing homeowners trying to obtain loan modifications. Why do you supposed that would be.

The Bottom-Line…

President Obama… we haven’t heard from you on the housing and foreclosure since last spring when you gave a speech to adoring and cheering crowds. You set their expectations way above what your program delivers, your administration has spent more time grandstanding over the 22 firms you’ve shut down… you’ve made a mess.

One homeowner who watched your speech in late February recently told NPR that when heard you describe the program he felt as if you were speaking directly to him. And then he went through hell trying to get one. It wasn’t his fault, Mr. President… it’s yours.

This whole thing… the foreclosure crisis is going to be laid at your feet in 2010. Either you owe quite a few people an apology, or you better get on the stick and fix it… fast.

We didn’t vote for you in order to hear excuses about servicers being overwhelmed. And we certainly didn’t vote for you in order not to hear from you… to have Treasury and the Fed stonewalling Freedom of Information requests. We voted for you because it meant change. And so far, when it comes to the foreclosure crisis, what you consider change is not the kind many people are believing in these days

Sunday, September 27, 2009

Be Wary of Buying Condos in this Market

Those great looking foreclosure deals on condos may turn out to be a trap for unsuspecting homebuyers.


There are a lot of apparently great foreclosure deals on condominiums on the market right now, but you definitely want to do your homework before buying Condo one.
Attached condos (those sharing at least one wall) in most areas of the country have lost a higher percentage of value than single-family houses. Worse, that trend is expected to continue, probably even get worse.
Why are condos losing value faster than stand-alone homes?
When a condo owner starts getting behind on their mortgage, they usually also stop paying their Home Owner Association (HOA) dues. If enough owners fall behind on their HOA dues, the association has to cut back on their budget, which could affect the upkeep of the common areas. As the problem gets worse, maintenance can be affected and even major projects like roof repair put off. Depending on the association’s reserve funds, they may be forced to raise HOA dues for the rest of the condo owners.
All of these issues will push the value of all condos in the complex lower. Who wants to buy a condo in a crappy looking building? How great of a deal is a condo for $50,000 if the association fee is soon doubling from $150 a month to $300?
These problems will only get worse as the associations get further behind on their expenses because of owners not paying their monthly fees. InMaison-Grande-2 July a condo association in Florida was forced into bankruptcy due to unpaid HOA dues. Many more associations around the country are expected to soon follow. Bankruptcy won’t be an easy solution though, as associations have really no hard assets to sell and no way to go after delinquent HOA dues.
One more issue will have a huge affect on condo values – when more than 15% of owners fall behind on their HOA dues, FNMA, FHLMC & FHA will no longer allow mortgages on the units in the condo complex. When that happens the only way for a condo owner to sell will be to an all cash buyer – driving prices down even further.
If you plan on owning a condo until the market turns around and can afford to absorb higher and higher association fees, then go ahead and buy a condo. Otherwise, I highly recommend doing a lot of due diligence on the condo association’s budget and reserves before buying.

Thursday, September 24, 2009

HUD Announces Major Change to Reverse Mortgages

To keep the program from needing a bailout in the future, HUD is acting quickly to lower the maximum principal limits by 10%.


On September 23, 2009, the U.S. Department of Housing and Urban Development posted Mortgagee Letter 09-43, which announced a new set of principal limit factors for the Federal Housing Administration (FHA) Home Equity Conversion Mortgage (HECM) program. The changes will lower the principal limits for the HECM by 10%.

According to the ML, the new principal limit factors must be used for all HECMs where the FHA case number is assigned on or after October 1, 2009.

So, all loans that currently have a case number or where one can be obtained prior to October 1, may be processed as usual. 

What caused this sudden change?

It seems the HECM program, seemingly like everything else in this country, is in danger of needing a bailout in the future. This was brought to the attention of Congress when an estimated subsidy of $798 million appeared in President Obama’s fiscal 2010 budget. This was the first time in the history of the program that any subsidy had ever been requested. Both the Senate and the House responded quickly, passing bills requiring HUD to adjust the program to avoid requiring any subsidy from the government. As of yet, the Senate and House have not reached a compromise on the differences in their bills, but HUD’s surprise announcement shows they expect it to happen soon.

What caused the subsidy request? Several factors are affecting the stability of the HECM program:

 The continued drop in home prices is causing higher losses when HUD takes a property back after the demise of a borrower and has to sell the property to recapture the loan proceeds.

 Defaults are rising due to unpaid property taxes and home insurance.

 Record numbers of seniors are flocking to HECM’s due to financial distress and lenders ramping up their marketing of the program. Congress suspended the cap on the number of HECM’s HUD was authorized to insure back in 2006.

 Fraud continues to increase causing higher losses.

Industry experts estimate that if the new loan limit had been applied to current HECM’s already in place, nearly 21% of seniors would not have had enough funds to cover their debts – meaning theywouldn’t have been gotten their loans.

HUD’s also been discussing changes in the HECM program to address the property tax and insurance issue. They may require lenders to document that seniors have the ability to pay these items. If they don’t, additional proceeds may be affected to avoid these types of defaults.

So, if you know of anyone thinking of getting a reverse mortgage, tell them to apply ASAP before the new limits kick in.

Saturday, September 19, 2009

Michigan’s Moratorium Mandated Modification Meeting – An Example

What happens at these meetings with a lender representative that Michigan’s new 90 day foreclosure moratorium laws require?

I just had my first experience with Michigan’s new 90 day foreclosure moratorium laws and the meeting with a lender representative the laws mandate. It was pretty interesting.
A homeowner was referred to me to assist her with her meeting. Seems she’s been trying to get her FHA loan modified for over 6 months and has been getting the standard run-around. During this time she hasn’t made any payments and the lender was threatening foreclosure.
I had her send me over her budget and mortgage papers before the September 17th meeting, so I could be prepared to assist her. I also carefully reviewed HUD’s new guidelines for FHA loan modifications.
To be eligible for the this meeting, my client first had to meet with a housing counselor approved with the Michigan State Housing Development Authority (MSHDA) or the United States Department of Housing and Urban Development (HUD). As she’d already done this, I reviewed the paperwork they had given her, along with their budget suggestions. It was a joke. Their best advice was to work more hours or get a second job – easy advice to give, but not practical with unemployment as high as it is. The counseling session was required, but seemed to be a waste of my client’s time.
Interestingly, Michigan’s new 90 day foreclosure moratorium laws allow a homeowner to request that the housing counselor accompany them to their meeting with the lender’s representative. Based on the materials and suggestions they gave my client, I do not recommend this!
My client’s lender had selected a law firm in Southfield to be their representative. The firm states on their website that they have over 30 years of experience representing mortgage servicers and they’re a FNMA retained attorney for the state of Michigan.
I was expecting we’d meet with a seasoned attorney from the firm with an ego problem. Instead, we met with what appeared to be a junior attorney (who I’ll call “Sam”, but that’s not his real name) who was very nice and easy to deal with.
The session began with “Sam” printing out a modification analysis the lender had already done. The bad news was that according to the analysis, my client didn’t qualify for a loan modification. I’m not going to get into all the different variables and the math here, but the bottom-line was that her debt-to-income ratios were too high.
At least according to their analysis. There were several flaws in their analysis though. They didn’t have my client’s income or debts correct, in fact they were way off. We started to go over these errors with “Sam”, but he said he wasn’t authorized to change anything. He was nice enough though, to phone his contact at the lender and get her to agree to go on speaker phone. Let’s call her “Sarah”. “Sarah” was pretty nice, but talked a lot, so it was difficult at first to get her to listen. She seemed intent on just talking over us and telling us it was too bad they couldn’t do anything for my client. When I pressed her to explain how they came up with their numbers, she impressively rattled off a bunch of figures and calculations.
Right at this point an average homeowner would probably have given up and thrown in the towel – exactly what the lenders want. I can’t imagine a housing counselor being of any use at this point either.
I stood my ground though and kept asking questions. I also got “Sam” to print off HUD’s modification guidelines off the web (even though I had them with me) and asked “Sarah” to locate a copy also.
The first mistake they had made was in regard to my client’s income. Once I got “Sarah” to stop trying to talk over and intimidate us, I was able to show her where her mistake was. Seems they calculated and input my client’s take-home pay instead of the required gross pay. This was a mistake of almost 50%. “Sarah” tried to get around this by stating the guidelines allowed them to bump up the take-home pay by 125%. When I asked her to show me where this was allowed, she had “Sam” pull out guidelines she had earlier sent him. Indeed, what was written there supported her statement. Unfortunately for “Sarah”, the guidelines she referenced to support her position were not HUD’s latest guidelines. For someone that talked as much as she did, she didn’t have much to say when I pointed this out.
From there I dove into the mistakes they had made on my client’s debts and expenses. “Sarah” and I had an interesting discussion on the difference between a “debt” and an “expense”. Around this time, “Sarah” started asking us to hold while she went and checked with her manager on my questions.
In the end, my client was tentatively approved for a loan modification that would drop her payment by around 16% which equals just over $300/month. All she has to do to qualify is send in updated paystubs and prove her car is paid off. Of course she was hoping for even a lower payment (doesn’t everyone?), but what she got is the maximum allowed under HUD’s modification guidelines.
After we settled on everything, “Sam” surprised me by telling my client that she was smart to bring the right attorney to represent her, as every other homeowner he’d represented lenders against had brought an attorney that’d done nothing for their client, if they brought an attorney at all.
It was his turn to be surprised when I told him I wasn’t an attorney, but was a multi-certified mortgage lender. He then gave me perhaps the best compliment you can get from an attorney, telling me I should be one.
He also asked for my card and said he’d like to refer me to his own homeowner clients.
So, keep me in mind if a family member or close friend is scheduled for one of these mandated modification meetings with a representative of their lender. I do charge an upfront consulting fee for my time, but if this case is an example of what they can expect to go up against, can they afford not to have a mortgage expert on their side?

Monday, September 14, 2009

Reality NOT on TV – Banks Make Money on Foreclosures

Your odds are better at winning in Las Vegas than against the banking industry and the administration they control.


DETROIT, MI – Wouldn’t it be fun to kidnap the CEO’s of Chase, Bank of America, Citibank and Wells Fargo, hold them somewhere with just the bare living essentials and force them to negotiate loan modifications and short sales with their own customer service departments to earn their freedom?

Imagine their frustration as they have to wait on hold forever, speak with poorly trained, clueless staff who can’t find the documents they’ve faxed or emailed for the umpteenth time and have to keep starting over.

It’d make a great movie! We could call it, “Groundhog Accountability Day for Bank Executives”.

“Sigh”. Unfortunately, that’s a fantasy and reality is what we have to deal with.

Why are the big banks so difficult to deal with? Why don’t they seem to understand that they lose more money when they foreclose on properties than when they negotiate a loan modification or short sale?

Perhaps it’s we who really don’t understand where the money is made.

Do you really think that banks are able to have 24/7 customer service for credit cards and other loans, but can’t seem to come anywhere near that for loan mods & short sales? Do you really think, given technology that can track a package mailed to Timbuktu online, that faxes and emails really get lost? How hard is it really to train someone to do a loan modification or short sale?

Consider this - Chase bought WAMU in September of 2008 for all of $1.9 billion dollars. For that they got a bank with almost $310 billion in assets, $188 billion of it bank deposits. Now Chase will tell you that the deal wasn’t that great as they had to absorb a hemorrhaging mortgage portfolio of $176 billion that they immediately wrote down by $31 billion. That’s true, but hides what really is going on.

If you ignore all the other debt and assets, Chase got $176 billion in home loans for $1.9 billion. That’s just over 1% of face value. Assuming an average loan balance of around $300,000, that’s almost 600,000 mortgages and corresponding homes. That means they paid an average of only $3,000 for each of those loans. Even if they foreclose on the ENTIRE portfolio, do you think they can make money by reselling houses they got for $3,000 each?

In January of 2008, Bank of America paid $4 billion for Countrywide. Countrywide serviced about 9 million loans valued at $1.5 trillion dollars. Do you really want me to run the numbers on this deal?

The failed IndyMac Bank was sold earlier this year to a group including George Soros and Michael Dell, under the name OneWest. Sheila Bair, the head of the FDIC, had made IndyMac her personal guinea pig project for testing out aggressive loan modifications to slow foreclosures. OneWest issued a press release at the sale, stating they would continue to pursue the FDIC’s loan modification and short sale strategy. How long do you think that lasted? Try calling IndyMac now for either and see how far you get. Better yet, call Dell computers and ask them how you can customize your loan modification online just like you can order a computer.

So what incentive do these banks really have to approve loan modifications and short sales?

Who created this financial bonanza for Wall Street? The financial geniuses in Washington D.C. They could have put in place restrictions and requirements tied to the purchase of these banks, but they didn’t. Is this something they could have mistakenly overlooked? Not likely. So, this means our wonderful administration in Washington is allowing the banks to make money off the tax payers that bailed them out.

Nice. Now what are you going to do about it? Probably nothing, as it’s easier to just tune into the latest reality show on TV.

Monday, August 24, 2009

Foreclosure & Bankruptcy: a new Beginning, not the End

It’s not how many times you get knocked down, it’s how many times you get back up. Along the way don’t forget what’s really important – Family, Friends & Life.


TROY, MI – With pretty much everything I do revolving around real estate & lending, I get exposed to a lot of other people’s financial challenges related to the housing crisis. It’s a rare day that I don’t talk to someone in danger of losing their home.

Too many of these people equate losing their home to foreclosure or having to file bankruptcy with failure. For many, this feeling of being a failure can have a devastating affect on their mental well-being, health and relationships.

We all need to get a grip, swallow some pride and lose our egos. Failing at something is not the end of the world.

Remember when you were a kid learning to ride a bike? For most of us, learning meant a lot of falls and crashes, some of them nasty enough for stitches or casts. But most of us got back up, dusted ourselves off and kept at it until we succeeded.

I’ve got a T-shirt I picked up on a ski trip that says, “If you’re not falling, you’re not skiing hard enough!” There’s a lot of truth to that statement. In fact to make it more accurate about life in general we could alter it a bit to, “If you’re not failing, you’re not trying hard enough.”

I went to an entrepreneurial seminar several years ago, where the speaker was from California. He urged the audience to follow their dreams, take chances and not be afraid of failing. He pointed out that few entrepreneurs succeed with their first ventures and jokingly said, “if you haven’t filed bankruptcy, then you’re not trying hard enough.”

Now none of this should be taken out of context and used to justify irresponsible behavior. If you try your hardest to succeed and still fail, you have nothing to be ashamed of. Especially since our current economic situation has foreclosures, personal bankruptcies and unemployment at their highest since the Great Depression.

Keep in mind also, that many successful business people failed in their first endeavors, but later went on to great success. Here’s a list of some rather successful people who have filed bankruptcy:

Roland Hussey Macy
He failed at selling ribbons, provisions to miners and at a general store before going bankrupt in 1855. His next effort, Macy's became the world’s largest store.

J. C. Penny
First store went bankrupt when he refused to give whiskey as a kickback for orders from a large customer. Penny went belly up and got a job in a drapery shop that he later purchased and expanded into 1100 department stores nationwide.

Henry John Heinz
Started his first company in 1869 selling horseradish, pickles, sauerkraut and vinegar. In 1875 the company filed for bankruptcy due to an unexpected bumper harvest which the company could not keep up with and could not meet its payroll obligations. He immediately started a new company and introduced a new condiment, tomato ketchup to the market. This company was, and continues to be, very prosperous.

Milton Snavely Hershey
Started four candy companies that failed and filed bankruptcy before starting what is now Hershey's Foods Corporation. Mr. Hershey had only a 4th grade education, but was certain he could make a good product that the public would want to purchase. His fifth attempt was clearly successful.

Conrad Hilton
Lost all his hotels when he could not pay his bank during the Great Depression. Later, he bought them all back and built a few more. Things worked out pretty good in the end. Just ask Paris.

Frank Lloyd Wright
Famous architect lost his home, Taliesin in Wisconsin and was thrown on the street when business dried up in 1922. During the following decade, he designed some of his most famous projects.

Henry Ford

First two automobile manufacturing companies failed. The first company filed for bankruptcy and the second ended because of a disagreement with his business partner. In June 1903, at the age of 40, he created a third company, the Ford Motor Company with a cash investment of $28,000.00. By July of 1903 the bank balance had dwindled to $223.65, but then Ford sold its first car, and as they say the rest is history

Harry Truman
Opened a shop in Missouri after the First World War only to have it fail miserably. He was further humbled by having to move in with his mother-in-law. Truman later settled his debt for pennies on the dollar when the bank at which the underlying not was written actually went bankrupt itself. He is said to have learned a lot from the misadventure. And it all turned out OK in the in end. You may have heard, he eventually got a good job, in Washington, DC.

Walt Disney

His name is synonymous with Mickey Mouse and the “happiest place on earth,” Disneyland. However, Disney’s career wasn’t always a moneymaking venture. In 1921, he began a company called the Laugh-O-Gram Corporation in Kansas City, Missouri but was forced to file for bankruptcy two years later because his financial backers pulled out. It must have been fate because Disney then headed to Hollywood and became one of the highest paid animators in history.

Sam Walton
His first store was a Ben Franklin discount shop that he made among the most profitable and successful in the chain. Walton's problem was a short lease. When it expired, the building’s owner canceled his lease and took over the store himself. Walton was broke had to start over from scratch. You may have heard, however, that things turned out pretty good in the end. After these early financial difficulties were behind him, he later created the largest company in the world and became a billionaire.

Larry King
Filed for bankruptcy in 1978. He later went on to have a pretty decent career as a talk show host and best selling author.

If you think these people are too far in the past or too big for a relative comparison to the everyday person , look at these people:

David Anderson -
Started first company in 1971 at age of 18 which failed. Promptly starts another, wholesaling plants to Chicago area florists and within two years has Sears account and all major florists in the area. Goes bankrupt 5 years later in 1979. Becomes sales manger for Fortune 500 company. Original investor in Rainforest CafĂ© in 1994. He also opens first Famous Dave’s BBQ that year and the rest is history.

Eva Sun -
In 1997 she was forced to take the reins of her 10+ year-old company after poor management by her husband, while she was raising their kids. In 2004, she was forced into bankruptcy despite her best efforts. The company though survived and today is more profitable than ever.

Jeffrey Yarbrough
Told his story to Fortune Small Business of filing bankruptcy after his three Dallas-based restaurants failed. Started PR firm Big Ink that now has $400k in sales and 4 employees with zero debt.

All these people failed initially and had to file bankruptcy, but they didn’t give up and eventually succeeded. Was it easy? I’m sure it wasn’t as they probably had to deal with their own feelings of failure and embarrassment. They got back up though and focused on their long-term goals of success and eventually achieved them.

There are also thousands more stories of every day people who lost their homes to foreclosure or were forced to file bankruptcy due to medical bills, lawsuits or job loss that persevered by getting back up after being knocked down. They put their lives back together by reaching out to family and friends for support