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.