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".