tag:blogger.com,1999:blog-62950845480933770512024-03-19T05:21:51.302-04:00Drew's Mortgage NewsNews and Thoughts about Mortgages and Real EstateDrew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.comBlogger61125tag:blogger.com,1999:blog-6295084548093377051.post-75540576981527280412010-01-10T17:33:00.000-05:002010-01-10T17:33:16.904-05:00We've Moved to Word Press!If you've subscribed to our blog, we've switched from Blogger to Word Press. Please revisit our blog at <a href="http://www.drewsmortgagenews.com/">http://www.drewsmortgagenews.com/</a> and click on the RSS feed to be sure to get all our blogposts.<br />
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Thanks for following us:)Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com0tag:blogger.com,1999:blog-6295084548093377051.post-5456302714804566352009-11-14T15:16:00.003-05:002009-11-14T15:23:51.924-05:00Creative Way to Tap Home Buyer Tax Credit<b><span style="color: blue;">The extension of the tax credit gives buyers, sellers and industry professionals a bit more time to stabilze the housing market.</span></b><br />
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<b>MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY</b><br />
The First Time Home Buyer (FTHB) Tax Credit has been extended<a href="http://images.google.com/imgres?imgurl=http://ecomodpod.files.wordpress.com/2009/05/first-time-home-buyer-tax-credit1.jpg&imgrefurl=http://ecomodpod.wordpress.com/2009/05/16/first-time-homebuyer-8000-credit-for-down-payment-updat/&usg=__CAKTMRiVZMX8h8wNxu3GzX5LXJg=&h=333&w=420&sz=138&hl=en&start=3&sig2=fMbaS4N8_zu5x10DKOUdDA&um=1&tbnid=vTfSK1FtsnuNCM:&tbnh=99&tbnw=125&prev=/images%3Fq%3D%2522first%2Btime%2Bhome%2Bbuyer%2522%26hl%3Den%26rls%3Dcom.microsoft:en-us:IE-SearchBox%26rlz%3D1I7HPNN_en%26um%3D1&ei=dQ__SpaHB6DvlQe0zNTDCw"><img align="right" height="99" src="http://t2.gstatic.com/images?q=tbn:vTfSK1FtsnuNCM:http://ecomodpod.files.wordpress.com/2009/05/first-time-home-buyer-tax-credit1.jpg" style="display: inline; margin-left: 0px; margin-right: 0px;" width="125" /></a> 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.<br />
Combined with bargain basement house prices, this could be the best opportunity to buy a home in many of our lifetimes.<br />
The challenge is, there are many that would like to buy a home, but don’t have a down payment to do so. <br />
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.<br />
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.<br />
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:<br />
<ul><li>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.</li>
<li>Rural Housing Development Authority Loans (RDA) – these loans are for properties in <a href="http://www.rurdev.usda.gov/mi/maps/mapsmain.htm">rural areas</a> only, but are another great way to finance a home.</li>
</ul>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. <a href="http://images.google.com/imgres?imgurl=https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjSLVG4o3b222dCegscLLIUhFol6SKzfNbMVaoVP3UGfhdXx_R7f53BU9po5-_Hy1MomV-pUJjo7QftxfpL0ewJgAixSl9H9a3cqw4aWNcXivmNcB69DI7OSaCsaO3f9G7hrzw5YcpSJ4bN/s200/lose+cash.jpg&imgrefurl=http://nomoneydowncommercialproperties.blogspot.com/&usg=__mqV8nataoCELM8SKpbhNO5yJTJc=&h=183&w=200&sz=15&hl=en&start=14&sig2=d34M0l5V_zBJBmJm-urC-w&um=1&tbnid=i0Ev4TufWJLGrM:&tbnh=95&tbnw=104&prev=/images%3Fq%3D%2522down%2Bpayment%2Bsources%2522%26hl%3Den%26rls%3Dcom.microsoft:en-us:IE-SearchBox%26rlz%3D1I7HPNN_en%26sa%3DN%26um%3D1&ei=Fg__SrKsOoa0tgfUqeWRDg"><img align="right" height="95" src="http://t3.gstatic.com/images?q=tbn:i0Ev4TufWJLGrM:https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjSLVG4o3b222dCegscLLIUhFol6SKzfNbMVaoVP3UGfhdXx_R7f53BU9po5-_Hy1MomV-pUJjo7QftxfpL0ewJgAixSl9H9a3cqw4aWNcXivmNcB69DI7OSaCsaO3f9G7hrzw5YcpSJ4bN/s200/lose+cash.jpg" style="display: inline; margin-left: 0px; margin-right: 0px;" width="104" /></a><br />
Where can a potential home buyer find the down payment funds for an FHA mortgage?<br />
<ul><li>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.</li>
<li>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.</li>
<li>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.</li>
<li>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.</li>
<li>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.</li>
<li>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.</li>
<li>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.</li>
<li>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.</li>
</ul>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.<br />
Now let’s discuss a very creative way to use the Home Buyer Tax Credit to buy a home. <br />
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.<br />
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:<br />
<ul><li>Seller has a house that they’re having a hard time selling as they can’t compete <a href="http://images.google.com/imgres?imgurl=http://mainlinepatoday.com/wp-content/blogs.dir/110/files/2008/08/first-time-buyer-puzzle.jpg&imgrefurl=http://mainlinepatoday.com/2008/08/01/first-time-home-buyers-tax-creditgood-news-for-buyers/&usg=__2O3HheBtlb6CPINtEwmFO6ZY59I=&h=249&w=250&sz=19&hl=en&start=25&sig2=rq3JVbHCpTfN-AxAGyaYpg&um=1&tbnid=mvlo9VtWk2Q7PM:&tbnh=111&tbnw=111&prev=/images%3Fq%3D%2522first%2Btime%2Bhome%2Bbuyer%2522%26ndsp%3D21%26hl%3Den%26rls%3Dcom.microsoft:en-us:IE-SearchBox%26rlz%3D1I7HPNN_en%26sa%3DN%26start%3D21%26um%3D1&ei=qA__Ss3FEYnElAfkq8HHCw"><img align="right" height="111" src="http://t0.gstatic.com/images?q=tbn:mvlo9VtWk2Q7PM:http://mainlinepatoday.com/wp-content/blogs.dir/110/files/2008/08/first-time-buyer-puzzle.jpg" style="display: inline; margin-left: 0px; margin-right: 0px;" width="111" /></a>with foreclosure sale prices. So, the seller offers up land contract terms to potential buyers.</li>
<li>An interested buyer makes a land contract offer on the property. </li>
<li>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. </li>
<li>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. </li>
<li>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.</li>
<li>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.</li>
<li>Buyer effectively can purchase the property with almost zero out of pocket!</li>
</ul>Was that idea worth waiting until the end of this post to read? Maybe. <br />
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. <br />
Is this a perfect solution? No, but show me a better one. Some of the issues with this land contract concept:<br />
<ul><li>The buyer doesn’t get the tax credit because of an outstanding tax lien.</li>
<li>The buyer gets the tax credit, but doesn’t deliver it to the seller.</li>
<li>The only interested buyer could have credit issues.</li>
<li>The seller has a mortgage on their property with a Due-on-Sale clause.</li>
<li>The seller could be upside down in their home and need a short sale.</li>
<li>The seller could stop making their mortgage payments and let the property go to foreclosure, leaving the buyer in the lurch.</li>
</ul>I have solutions for all the above issues. Anyone interested though, will have to contact me to discuss.<br />
<br />
There are issues that no one has any control over:<br />
<ul><li>Buyer could lose their job after land contract closing and not be able to qualify for the mortgage.</li>
<li>Lender won’t approve the short sale needed to make the deal work.</li>
<li>Property values continue to drop and property won’t appraise for needed amount.</li>
<li>The world ends on 12-21-2012.</li>
</ul>No real estate transaction is a sure thing anymore. We all just do the best we can.Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com2tag:blogger.com,1999:blog-6295084548093377051.post-63897289199804504042009-11-06T14:24:00.002-05:002009-11-08T13:00:43.936-05:00Housing Stabilization at Hand?<strong><span style="color: blue;">President Obama signs bill into law that extends the $8,000 first-time buyer tax credit - and expands it.</span></strong><br />
<b>MORTGAGE EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY</b><br />
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.<br />
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.<br />
Now let’s take a look at the “new & improved” homebuyer tax credit.<br />
<strong><span style="color: blue;">Who Gets What?</span></strong><br />
<strong><em>First-Time Homebuyers (FTHBs):</em></strong> 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.<br />
Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount. <br />
<strong><em>Current Owners:</em></strong> 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. <br />
Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount. <br />
<strong><span style="color: blue;">What are the New Deadlines?</span></strong><br />
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.<br />
<strong><span style="color: blue;">What are the Income Caps?</span></strong><br />
The amount of income someone can earn and qualify for the full amount of the credit has been increased. <br />
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<br />
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.<br />
<strong><span style="color: blue;">What is the Maximum Purchase Price?</span></strong><br />
Qualifying buyers may purchase a property with a maximum sale price of $800,000.<br />
<br />
<strong><span style="color: blue;">What is a Tax Credit?</span></strong><br />
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.<br />
<strong><span style="color: blue;">How Much are First-Time Homebuyers (FTHB) Eligible to Receive?</span></strong><br />
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.<br />
<strong><span style="color: blue;">Who is Eligible fort FTHB Tax Credit?</span></strong><br />
Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible. <br />
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.<br />
<strong><span style="color: blue;">How Much are Current Home Owners Eligible to Receive?</span></strong><br />
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.<br />
<strong><span style="color: blue;">Can Homebuyers Claim the Tax Credit in Advance of Purchasing a Property?</span></strong><br />
No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.<br />
<strong><span style="color: blue;">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?</span></strong><br />
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. <br />
According to the IRS, factors that would demonstrate the ownership of the property would include: <br />
1. Right of possession, <br />
2. Right to obtain legal title upon full payment of the purchase price, <br />
3. Right to construct improvements, <br />
4. Obligation to pay property taxes, <br />
5. Risk of loss, <br />
6. Responsibility to insure the property, and <br />
7. Duty to maintain the property.<br />
<strong><span style="color: blue;">Are There Other Restrictions to Taking the FTHB Credit?</span></strong><br />
Yes. According to the IRS, if any of the following describe a homebuyer’s situation, a credit would not be due:<br />
<ul><li>They buy the home from a <em>close</em> relative. This includes a spouse, parent, grandparent, child or grandchild. <em>(Please see the question below for details regarding purchases from “step-relatives.”)</em></li>
<li>They do not use the home as your principal residence. </li>
<li>They sell their home before the end of the year. </li>
<li>They are a nonresident alien. </li>
<li>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.) </li>
<li>Their home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.) </li>
<li>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. </li>
</ul><strong><span style="color: blue;">Can Homebuyers Purchase a Home from a Step-Relative and Still be Eligible for the Credit?</span></strong><br />
Yes. As long as the person they buy the home from is not a direct blood relative, the purchase would be allowed.<br />
<strong><span style="color: blue;">If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, Will Their Child Still be Eligible for the Credit?</span> </strong><br />
Yes, provided that the child meets the other requirements for the tax credit.<br />
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.Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com0tag:blogger.com,1999:blog-6295084548093377051.post-52235038185084918822009-11-07T17:33:00.001-05:002009-11-07T17:33:11.958-05:00Bank of America – Loans & Lies, but no Real Modifications<p><strong><font color="#0000ff">In July the federal government pressured banks to modify 500,000 mortgages by November 1st.  Bank of America is lying to do its part.</font></strong></p> <p><b>MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY</b></p> <p>Take a close look at the document image below:</p> <p><a href="http://lh5.ggpht.com/_K0_RNECYAY0/SvX1pvll96I/AAAAAAAAAKA/4Ybec85V2Ko/s1600-h/BOA%20Loan%20Mod%20Offer%5B3%5D.jpg"><img style="border-bottom: 0px; border-left: 0px; display: inline; border-top: 0px; border-right: 0px" title="BOA Loan Mod Offer" border="0" alt="BOA Loan Mod Offer" src="http://lh4.ggpht.com/_K0_RNECYAY0/SvX1pyEzZgI/AAAAAAAAAKE/LJokjs5bx5E/BOA%20Loan%20Mod%20Offer_thumb%5B1%5D.jpg?imgmax=800" width="358" height="443" /></a> </p> <p>This is a copy of an actual letter sent to one of my clients who requested a loan modification.  </p> <p>Note that in several places it alludes to the fact that this IS NOT an approval for a loan modification.  In fact it says, “<em>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</em>.”</p> <p>How many tens of thousands of struggling homeowners got letters like this and now think their home is safe from foreclosure?  </p> <p>My client did – until I pointed out the above sentence.  </p> <p>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.  </p> <p>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.</p> <p>I find the wording in the letter, “<em>review other options</em>” particularly frustrating.  Why?  Because it’s more deception.  There are only two other options – short sale (where BOA has a terrible record) or foreclosure.  </p> <p>BOA is giving homeowners nothing but false hope with this letter.</p> <p>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.  </p> <p>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.</p> <p>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.  </p> <p>Bull-puckey.</p> <p>Here’s a quote from <a href="http://newsroom.bankofamerica.com/index.php?s=43&item=8552">BOA’s third quarter report</a> (click the hyperlink to read it yourself):</p> <ul> <li>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. </li> </ul> <ul> <li>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.</li> </ul> <p>See any contradictions here?</p> <p>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?  </p> <p>Let’s see, that works out to 150,000 new loans per month, but only 27,777 loan mods per month.</p> <p>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.  </p> <p>Let’s remove another excuse banks use.  </p> <p>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.  </p> <p>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.</p> <p>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.</p> <p>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.  </p> <p>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.  </p> <p>Where is the heart, courage & intelligence of the “Great Obama” on this matter?</p> Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com7tag:blogger.com,1999:blog-6295084548093377051.post-29967124158308300512009-11-03T11:49:00.001-05:002009-11-03T11:49:00.866-05:00FHA Streamline Refinancing – The Government Taketh Away in a Time of Need<p><font color="#0000ff"><strong>After November 16th, HUD is making it a lot harder for borrowers to lower their mortgage payments through refinancing.</strong></font></p> <p><b>MORTGAGE EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY</b></p> <p>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.</p> <p>Then came the too big to fail banks & Wall Street, that huffed and puffed and blew the housing market away.</p> <p>All the Prez’s advisors and all the Prez’s yes men, haven’t been able to put it back together again.</p> <p>You gotta smile and make light of the situation as it’s better than beating your head against a wall.</p> <p>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.</p> <p>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.</p> <p>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.</p> <p>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.</p> <p>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.  </p> <p>And our government is supposed to be protecting us and looking out for our best interests?</p> <p>So why the change in policy?  </p> <p>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.</p> <p>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?  </p> <p>Instead of trying to remove the few bad apples in the industry, HUD seems intent on throwing out the whole barrel of apples. </p> <p>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.  </p> <p>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.</p> Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com0tag:blogger.com,1999:blog-6295084548093377051.post-75496082055224672932009-11-01T14:26:00.001-05:002009-11-01T14:26:44.582-05:00Extension & Expansion of Homebuyer Tax Credit<p><font color="#0000ff"><strong>Contrary to what many have reported, it’s not a done deal yet.</strong></font></p> <p><b>MORTGAGE EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY</b></p> <p>The most talked about real estate news of the past week seemed to be all about the First Time Homebuyer Tax Credit getting extended.</p> <p>I’ve had numerous people contact me asking for the details and have had to tell all of them that nothing has passed yet.  </p> <p>Given the confusion and misinformation I thought I’d give an actual update on where the extension is.</p> <p>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.</p> <p>This <em>could</em> put the bill on President Obama’s desk by the end of the week.</p> <p>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.</p> <p><strong><font color="#0000ff">Some New Wrinkles</font></strong> </p> <p>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:</p> <ul> <li>To qualify, a sales contract would have to be signed by April 30th and the transaction closed by June 30.</li> <li>Income limits would be increased from $75k for single people & $150k for couples, to $125k and $225k respectively.</li> <li>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).</li> <li>The maximum allowed home purchase price would be capped at $800,000.</li> <li>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.</li> <li>To combat fraud, a HUD-1 Settlement Statement will have to be attached to the tax return to secure the credit.</li> </ul> <p><font color="#0000ff"><strong>Stabilizing the Housing Market</strong></font></p> <p>The Homebuyers Tax Credit is probably the best program passed<a href="http://lh6.ggpht.com/_K0_RNECYAY0/Su3g8ttyaoI/AAAAAAAAAJ4/7qbT6B9YuCk/s1600-h/Affordable%20house%5B2%5D.jpg"><img style="border-bottom: 0px; border-left: 0px; display: inline; margin-left: 0px; border-top: 0px; margin-right: 0px; border-right: 0px" title="Affordable house" border="0" alt="Affordable house" align="right" src="http://lh5.ggpht.com/_K0_RNECYAY0/Su3g9Ea70uI/AAAAAAAAAJ8/-Nxbo8LKZTU/Affordable%20house_thumb.jpg?imgmax=800" width="128" height="97" /></a> 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.</p> <p>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.  </p> <p>Reports show home sales have increased and inventory is down.  Many buyers are finding it difficult to locate a home, being outbid and outhustled.</p> <p><font color="#0000ff"><strong>Concerns</strong></font></p> <p>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!  </p> <p>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.</p> <p>Many detractors are claiming that the tax credit is subsidizing housing values and just pulling forward sales that would have happened anyways.  </p> <p>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</p> <p><font color="#0000ff"><strong>Don’t Procrastinate</strong></font></p> <p>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.</p> <p>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.</p> Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com1tag:blogger.com,1999:blog-6295084548093377051.post-10925850909722411362009-10-24T11:19:00.001-04:002009-10-24T11:19:23.639-04:00Heads Banks Win, Tails Homeowners/Taxpayers Lose<p><b><font color="#0000ff">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!</font></b></p> <p><b>MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN</b></p> <p>Despite all the political rah, rah and posturing, banks seem to be running the government these days – and we’re letting them.</p> <p>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.</p> <p><strong><font color="#008000">Annual Checkups</font></strong></p> <p>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!  <a href="http://lh6.ggpht.com/_K0_RNECYAY0/SuMa8qacqFI/AAAAAAAAAJQ/ELG7FJkD2yQ/s1600-h/Doctor%5B3%5D.jpg"><img style="border-bottom: 0px; border-left: 0px; display: inline; margin-left: 0px; border-top: 0px; margin-right: 0px; border-right: 0px" title="Doctor" border="0" alt="Doctor" align="right" src="http://lh5.ggpht.com/_K0_RNECYAY0/SuMa84n2XZI/AAAAAAAAAJU/ybXdRqniCjw/Doctor_thumb%5B1%5D.jpg?imgmax=800" width="134" height="134" /></a>While 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?  </p> <p>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.</p> <p>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?</p> <p>When’s the last time YOU had a mortgage checkup?  Contact me if you’d like to know more.</p> <p><font color="#008000"><strong>Big Banks, Big Trouble</strong></font></p> <p>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.</p> <p>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.  </p> <p>Looking over the wreckage of our economy, how do you think that worked out for taxpayers and homeowners?</p> <p>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.</p> <p>That’s what the system of collusion between the banking industry and the government has done to the American taxpayer on a consistent basis.</p> <p>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?</p> <p>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?</p> <p>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.  </p> <p>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.</p> <p>Now think about Washington D.C., the center of the nation that happens to be <em>the</em> world power.  The free lunches, dinners,<a href="http://lh4.ggpht.com/_K0_RNECYAY0/SuMa9Ikw0NI/AAAAAAAAAJY/xztWG1Of1dE/s1600-h/Washington%20DC%5B3%5D.jpg"><img style="border-bottom: 0px; border-left: 0px; display: inline; margin-left: 0px; border-top: 0px; margin-right: 0px; border-right: 0px" title="Washington DC" border="0" alt="Washington DC" align="right" src="http://lh6.ggpht.com/_K0_RNECYAY0/SuMa9XjlV-I/AAAAAAAAAJc/VZ9amxxu2Ys/Washington%20DC_thumb%5B1%5D.jpg?imgmax=800" width="128" height="102" /></a> 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?</p> <p>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.</p> <p><a href="http://lh3.ggpht.com/_K0_RNECYAY0/SuMa9r4FFbI/AAAAAAAAAJg/nJLn1EMi_1E/s1600-h/Wall%20Street%5B3%5D.jpg"><img style="border-bottom: 0px; border-left: 0px; display: inline; margin-left: 0px; border-top: 0px; margin-right: 0px; border-right: 0px" title="Wall Street" border="0" alt="Wall Street" align="left" src="http://lh4.ggpht.com/_K0_RNECYAY0/SuMa94KVwMI/AAAAAAAAAJk/7h1aeTQ_6sQ/Wall%20Street_thumb%5B1%5D.jpg?imgmax=800" width="148" height="121" /></a>Big 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.</p> <p>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!</p> <p>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?</p> <p>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.  </p> <p>Vote with your wallet also.  What bank do you keep your money at?</p> <p><font color="#008000"><strong>The Week Ahead<a href="http://lh5.ggpht.com/_K0_RNECYAY0/SuMa-I3Bv6I/AAAAAAAAAJo/hch_n_RkSgM/s1600-h/Halloween%5B3%5D.jpg"><img style="border-bottom: 0px; border-left: 0px; display: inline; margin-left: 0px; border-top: 0px; margin-right: 0px; border-right: 0px" title="Halloween" border="0" alt="Halloween" align="right" src="http://lh3.ggpht.com/_K0_RNECYAY0/SuMa-TdO9lI/AAAAAAAAAJs/48j8e1vKwDQ/Halloween_thumb%5B1%5D.jpg?imgmax=800" width="132" height="124" /></a></strong></font></p> <p>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.</p> <p>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 <a href="http://www.marinersinn.org/"><img style="border-bottom: 0px; border-left: 0px; display: inline; margin-left: 0px; border-top: 0px; margin-right: 0px; border-right: 0px" title="Mariners Inn" border="0" alt="Mariners Inn" align="right" src="http://lh4.ggpht.com/_K0_RNECYAY0/SuMa-gY-XyI/AAAAAAAAAJw/5lQskYMVRRg/Mariners%20Inn%5B8%5D.jpg?imgmax=800" width="37" height="31" /></a>auction donations and tickets are still available.  Click <a href="http://www.marinersinn.org/" target="_blank">here</a> for more info.</p> <p>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 <a href="http://www.blightbusters.org/about.html"><img style="border-bottom: 0px; border-left: 0px; display: inline; margin-left: 0px; border-top: 0px; margin-right: 0px; border-right: 0px" title="Blight Busters" border="0" alt="Blight Busters" align="right" src="http://lh4.ggpht.com/_K0_RNECYAY0/SuMa-mKOlhI/AAAAAAAAAJ0/WTiaJFRSEI4/Blight%20Busters%5B5%5D.jpg?imgmax=800" width="60" height="73" /></a>Devil’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 <a href="http://www.blightbusters.org/" target="_blank">here</a>.</p> <p>Both organizations are also in desperate need of volunteers to help with marketing.  Contact me if you’re interested.</p> <p>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.</p> <p>Make everyday count and remember to refer me to family & friends looking to refinance or buy a home.</p> Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com3tag:blogger.com,1999:blog-6295084548093377051.post-70052496824656992962009-10-19T06:16:00.003-04:002009-10-19T06:29:37.935-04:00No Rhyme, No Reason, FNMA/FHLMC & FHA Play Politics<strong><span style="color: blue;">Mortgage programs that make a lot of sense are rendered basically useless by unpublished and unofficial modifications.</span></strong><br />
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<strong>MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN</strong><br />
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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. <br />
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.<br />
<u>Nonprofits in Dire Need of Help</u><br />
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, <a href="http://www.marinersinn.org/" target="_blank">Mariners Inn</a> and <a href="http://www.blightbusters.org/" target="_blank">Blight Busters</a> are not asking for money (although they could always use more). They’re both looking for donations of supplies and volunteers.<br />
Mariners Inn is looking for auction items for its 21st annual River Rhythm fundraising event at the Roostertail on November 6.<br />
Blight Busters needs office equipment and supplies. They could also use volunteers to help redesign their website and build a social media presence.<br />
Check them out, they’re both struggling to do great things in Detroit in the face of reduced government and corporate funding.<br />
<u>Of Politicians and Programs</u><br />
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.<br />
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.<br />
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!<br />
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.<br />
All that’s changing now.<br />
HUD recently <a href="http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-32ml.doc">announced</a> 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.<br />
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.<br />
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. <br />
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. <br />
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.<br />
The most glaring example of this undercover manipulation of the lending system is FHA and credit scores. Search all you want at HUD.gov, you won’t find anything in writing about the requirements of credit scores to be eligible for an FHA mortgage.<br />
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.<br />
What gives?<br />
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. <br />
Politicians want votes, they don’t want to understand problems like this and have to make a decision that could hurt their career.<br />
So, politicians are indirectly forcing HUD officials into a solution that “unofficially” puts pressure on lenders for doing loans with credit scores under 620. <br />
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. <br />
Avoiding accountability seems to be a popular survival strategy these days. Unfortunately, it just leads to mediocrity or worse.<br />
<u>My Week Ahead</u><br />
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.<br />
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.<br />
Thursday I hope to pop into LBN’s Fall Mixer and then head over to the Troy Chamber of Commerce’s Golden Anniversary event.<br />
Friday morning I hope to attend Gerry Weinberg’s President’s Club.Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com7tag:blogger.com,1999:blog-6295084548093377051.post-16434497181610837192009-07-19T15:49:00.007-04:002009-10-16T06:43:03.011-04:00Witch Hunt or Consumer Protection? - 178 Loan Mod Companies Pursued by Government.<span style="color: red;">Loan Modification companies seem to be the latest mortgage industry group in the crosshairs of government officials.</span><br />
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<strong>MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN</strong> <br />
-- DETROIT, MI – Over the last several weeks I’ve noticed a substantial increase in the number of loan modification companies being investigated by various government agencies.<br />
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All I can say is that it’s about time.<br />
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Now don’t misinterpret that statement - I believe that loan modifications may be part of a viable solution in getting our country out of the current housing crisis, although it’s too soon to determine their actual long-term effectiveness.<br />
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I also have nothing against loan modification companies in general nor the people that work at them. I’ve met or connected with many individuals that are intent on really helping people and do their best to do so.<br />
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Lastly, many homeowners do need some type of assistance as lenders don’t have their best interests in mind when they do loan modifications and many lenders draw the process out seemingly forever.<br />
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On the other hand, I’ve personally heard many stories from homeowners victimized by loan modification companies, have heard the same stories from mortgage associates and have read many more on the internet.<br />
<br />
<strong>From Subprime to Loan Mods</strong><br />
I <a href="http://drewsmortgagenews.blogspot.com/2008/11/lifespan-of-loan-modifications.html">predicted</a> over a year ago that loan modification companies would become the new subprime “churn & burn” debacle. This was triggered by my observations that many local subprime loan originators were flocking to do loan modifications. I even heard several stories of these originators approaching the same clients they’d put in subprime loans, with offers to now do loan modifications for them.<br />
<br />
There really is no barrier of entry to do loan modifications. All you need is a phone and the ability to find clients. Finding clients is easy with so many homeowners struggling with their mortgage payment.<br />
<br />
This should all sound familiar as much of it applied to the mortgage industry in general until recently, when state governments started requiring individual licensing of loan originators and the federal government created a national registration system.<br />
<br />
When Michigan enacted its Loan Officer Registration Act, April 1, 2009, the state expected 10,000 to register based on past data. To date only 3141 have met the requirements of 24 hours of class time, passed a multiple choice test and background screening. How many of the unregistered do you think are now using their limited mortgage knowledge to do loan modifications?<br />
<br />
<strong>Desperate People do Desperate Things<br />
</strong>One would think that a homeowner, burned by a bad mortgage, would be a bit more cautious when considering a loan modification.<br />
<br />
The number of loan mod companies popping up however, prove otherwise. It’s basic supply and demand – the numbers of these companies wouldn’t be expanding if there weren’t desperate homeowners to support them.<br />
<br />
So, how do homeowners get burned by these companies? In no particular order:<br />
<br />
<ul><li>Paying upfront fees for a modification never completed. </li>
<li>Being told they’ll get a principal balance reduction, when in reality it rarely happens.</li>
<li>Getting approved for a modification that raises their payment or insignificantly lowers it.</li>
<li>Following advice to not contact their lenders during the loan mod process, only to get foreclosed on.</li>
<li>Not being made fully aware of the possible credit damage, legal issues and tax consequences.</li>
</ul><br />
<br />
It’s all boils down to these companies over-promising and under-delivering.<br />
<br />
<strong>What Took the Government So Long to Act?<br />
</strong>If I saw this problem coming over a year ago, you’d think the smart people in our government would’ve saw it coming also.<br />
<br />
In a recent informal poll of mortgage originators by “Think Big Work Small”, 81% responded that over 50% of those doing loan modifications are “rats”.<br />
<br />
Unfortunately, just like with the mortgage meltdown and the banking crisis, the government only seems to act after the damage has already been done. Here’s a list of the agencies currently chasing loan mod companies:<br />
<br />
<ul><li>Federal Trade Commission</li>
<li>United States Attorney’s Office for the Central District of California</li>
<li>Arizona Attorney General’s Office</li>
<li>California Department of Justice</li>
<li>California Department of Real Estate</li>
<li>State Bar of California</li>
<li>Colorado Attorney General’s Office</li>
<li>Idaho Attorney General’s Office</li>
<li>Illinois Attorney General’s Office</li>
<li>Iowa Department of Justice</li>
<li>Kansas Attorney General’s Office</li>
<li>Maine Attorney General’s Office</li>
<li>Maine Department of Professional and Financial Regulation, Bureau of Consumer Protection</li>
<li>Maryland Department of Labor, Licensing, and Regulation, Office of the Commissioner of Financial Regulation</li>
<li>Massachusetts Attorney General’s Office</li>
<li>Michigan Attorney General’s Office</li>
<li>Missouri Attorney General’s Office</li>
<li>New Jersey Attorney General’s Office</li>
<li>New Jersey Department of Banking and Insurance</li>
<li>New Mexico Attorney General’s Office, Consumer Protection Division</li>
<li>North Carolina Department of Justice</li>
<li>Ohio Attorney General’s Office</li>
<li>Oregon Department of Justice</li>
<li>Texas Attorney General’s Office</li>
<li>Washington Attorney General’s Office</li>
</ul><br />
<br />
Charges are being filed because of deceptive and/or false advertising (Section 5 of the FTC Act), charging upfront for services before rendered, unlicensed activities, mail fraud, attorney misconduct and several others.<br />
<br />
<strong>Solutions<br />
</strong>The Obama administration really needs to step up and address this issue quickly. The crooks and sharks need to be forced out of the industry to protect homeowners. Honest professionals also need protection - from overzealous government agencies. It’d be a real shame if those that were actually doing good things for homeowners were put out of business, fined or jailed.<br />
<br />
An easy to implement option would be to allow loan modifications to only be done by licensed mortgage companies and attorneys. The mechanisms are already in place across the country to control this.<br />
<br />
A better solution would be for the administration to create a national solution instead of letting all 50 states come up with their individual plans.<br />
For a list of the loan modification companies currently be investigated, click <a href="http://www.box.net/shared/xnjy8kjmdq">here</a> and then click on “preview”.Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com3tag:blogger.com,1999:blog-6295084548093377051.post-47377234961976295092009-07-26T12:55:00.006-04:002009-10-16T06:42:35.930-04:00Homebuyers – You’re Pre-Approved by Payment, not Purchase Price!<strong><span style="color: blue;">Lenders do a terrible job of educating homebuyers that they’re actually approved for a monthly payment, not a purchase price. Why don’t pre-approval letters make this clear?</span></strong><br />
<br />
<strong>MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN</strong> <br />
<br />
July 26, 2009 -- Troy, MI – A homebuyer follows instructions and jumps through the hoops (which are many today) necessary to get a pre-approval letter before looking at homes for sale. They find one they like, at a price their pre-approval letter says they’re good for, make an offer, negotiate back and forth with the seller and finally agree on a price. They’re elated.<br />
<br />
Then the rug gets pulled out from under them and they’re told they don’t qualify for this house and all their efforts were in vain.<br />
<br />
What’s even scarier is that often the homebuyer doesn’t find out they don’t qualify for the property they got their hopes up for, until weeks into the formal approval process, sometimes only days before the target closing date.<br />
<br />
Why does this happen?<br />
<br />
The lender they were dealing with didn’t do a very good job of explaining how the mortgage industry actually approves homebuyers. Even if they did, it was just one of the numerous topics discussed and the homebuyer forgot about it. Then, the lender didn’t double-check the pre-approval requirements for the specific property.<br />
<br />
Because of issues like this, it’s extremely important that homebuyers understand the following:<br />
<br />
MORTGAGE APPROVALS ARE MOSTLY BASED ON MONTHLY HOUSING PAYMENTS NOT PURCHASE PRICES!<br />
<br />
Let’s study the pre-approval process to understand why.<br />
<br />
A homebuyer only makes so much money per month, which means they can only afford to spend a portion of that income on a monthly housing payment. The rest of their income goes towards various income taxes, car payments, credit card payments, student loans, etc. On top of that, unless the homebuyer wants to freeze in the dark during winter, they have to pay utilities to keep the heat & lights on (if you’re outside the snowbelt, think air-conditioning).<br />
<br />
If you think about this, it makes sense.<br />
<br />
Now, let’s look at an example homebuyer:<br />
<br />
Annual Income: $75,000<br />
Monthly Debt Payments: $1,000<br />
<br />
How much of a housing payment would this person qualify for?<br />
<br />
First, let’s break the annual income down to a monthly basis: $75,000 / 12 = $6,250/month income.<br />
<br />
FNMA/FHLMC typically allows 40% of one’s gross monthly income to go towards monthly debt, including a housing payment. The 40% number is called a Debt Ratio. The other 60% of monthly income is allocated for income taxes, utilities, food, clothing, car insurance & gas and other necessities of life.<br />
<br />
So, to calculate the maximum amount of monthly debt allowed we calculate 40% of the monthly income:<br />
<br />
$6,250 x 40% = $2,500.<br />
<br />
But, our example homebuyer already has $1,000 per month in existing debt. That money then, cannot be allocated towards a housing payment. So, we calculate what’s left:<br />
<br />
$2500 minus current debt payments of $1,000 = $1,500 for a maximum housing payment<br />
<br />
This is what our example homebuyer could afford. Now, they don’t have to spend that much of course. There are also other variables that could allow for a somewhat higher housing payment. For example, if the homebuyer put 20% down, the 40% debt ratio might be allowed to increase to 45% as the higher down payment compensates for the higher debt ratio.<br />
<br />
Now that we know our example homebuyer’s maximum housing payment we’re done right? Wrong – houses are sold by price, not monthly payments. So now we have to convert the maximum housing payment to a purchase price.<br />
<br />
Here we run into a problem. It’s actually the reason many pre-approval letters are misleading and homebuyers get unpleasant surprises.<br />
<br />
The term “housing payment” is not the same thing as a mortgage payment. The mortgage industry considers a housing payment to include the following:<br />
<br />
Mortgage payment<br />
Monthly amount for property taxes<br />
Monthly amount for home insurance<br />
Monthly association fees<br />
<br />
Property taxes are usually the biggest unknown when pre-approving a homebuyer for a home they haven’t identified yet. Depending on the state your in, property taxes can vary significantly for similarly priced homes. Let’s look at an example:<br />
<br />
Assume:<br />
Loan amount: $200,000<br />
Interest Rate: 5.250% (APR 5.891) no PMI<br />
Home insurance: $900 annually<br />
<br />
<br />
<br />
<div align="left"><img alt="" border="0" id="BLOGGER_PHOTO_ID_5362816369940151586" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEif5fQkwge4AhguzLPzxg_yHxunDwOGgtAXHpk7gX4OCtcC-qgAhKwTgMTnuo0EiTEhQGDpq18zP4HB2yWugosIM9aOfP234VeQIo2qCViej_EemdDwsw7vwUZAoiG769RhFFt7Sh2Y838/s400/Junk.jpg" style="cursor: hand; display: block; height: 89px; margin: 0px auto 10px; text-align: center; width: 433px;" /><br />
</div><br />
<br />
If we compare these two monthly housing payments to our maximum payment allowed of $1,500, you can see that our example homebuyer would not qualify for property #2 - even though it had the exact same sales price as property #1.<br />
<br />
We’ll leave the reason as to why property taxes may vary on similarly priced properties to a future article. For now, just ask your local real estate expert.<br />
<br />
How can a homebuyer address this problem? Simple, demand something in writing from the lender you get pre-approved by, that specifically states the maximum payment you’re qualified for. While they’re at it, they should also disclose the interest rate they pre-approved you at. Interest rates change daily and if it takes you a month or two to find a property, higher rates could affect your pre-approval purchase price just like property taxes.<br />
<br />
Real estate agents also need to understand this issue to better assist their homebuyers. Agents should contact their homebuyer’s lender with the property taxes and any association fees to confirm the homebuyer does indeed qualify for the specific property, before writing an offer.<br />
<br />
Understanding the process, putting specifics in writing and relying on true professionals can remove many of the unpleasant surprises in the pre-approval and home buying process.Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com4tag:blogger.com,1999:blog-6295084548093377051.post-20699768565809902042009-08-16T14:47:00.005-04:002009-10-16T06:41:46.242-04:00HUD finally allows Loan Modifications on FHA Mortgages<strong><span style="color: #3333ff;">Better late than never - four months after Obama announces FNMA/FHLMC loan modification plan, HUD makes FHA loans eligible.</span></strong><br />
<br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiyP9BDFMISSlRFPKYHxl3mhBogG3ZIScrPH18KOfjoHbSKKQUuK4dzzh3g3jgseKa-kr3ENupCtiOY_33dZJXCiIUeqiG-RgMeVb7qxIuo1MTYc4KxaJuHKmhaxt1Bu4eSh9i1tdPzSWE/s1600-h/HUD+Slow.JPG"><img alt="" border="0" id="BLOGGER_PHOTO_ID_5370635739557711666" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiyP9BDFMISSlRFPKYHxl3mhBogG3ZIScrPH18KOfjoHbSKKQUuK4dzzh3g3jgseKa-kr3ENupCtiOY_33dZJXCiIUeqiG-RgMeVb7qxIuo1MTYc4KxaJuHKmhaxt1Bu4eSh9i1tdPzSWE/s400/HUD+Slow.JPG" style="cursor: hand; float: right; height: 247px; margin: 0px 0px 10px 10px; width: 128px;" /></a><br />
<strong>MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN</strong> <br />
<br />
TROY, MI – On July 30, HUD published <a href="http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-23ml.doc">Mortgagee Letter 2009-23</a>, that detailed their long awaited loan modification program for homeowners with FHA mortgages. What took so long? President Obama announced the “Making Home Affordable Program” (MHA) for FNMA & FHLMC mortgages back on March 4th of this year.<br />
<br />
We should all be glad HUD’s modification program is finally available, but HUD is supposed to be a homeowner advocate and watchdog. Some watchdog! HUD’s response time on this means if they were guarding your house, the crooks would have already been back several times and stolen everything but the kitchen sink before they sounded an alarm.<br />
<br />
This latest piece of legislation does show the Obama administration fully believes the best way to solve the housing crisis and stem the tide of foreclosures is to make home payments affordable. This was sorely lacking with FHA’s other modification options. Most homeowners with FHA mortgages were forced into forbearance programs that usually increased their monthly payments.<br />
<br />
HUD’s forbearance program was actually designed for different economic times when a job loss or other economic hardship was typically temporary. Worse-case in those days, a homeowner could usually sell their home to pay off the mortgage they were having difficulty paying. The current Great Recession and percentage of upside homes no longer makes forbearance a very realistic and viable option.<br />
<br />
The new guideline kicks in August 15, 2009 for homeowners with FHA mortgages.<br />
<br />
<br />
<strong>Who’s Eligible<br />
</strong>The FHA mortgage to be modified must be at least 12 months old and the homeowner must have made at least 4 full monthly payments.<br />
<br />
The FHA mortgage must be less than 12 months behind on payments, but surprisingly, it s required that the mortgage be at least 30 days behind. This is a major difference from the MHA program where no delinquency is required.<br />
<br />
The homeowner must still live in the property with the FHA mortgage being modified, so rental properties with FHA mortgages are not eligible.<br />
<br />
The homeowner cannot have deliberately defaulted on their FHA mortgage payments. I’d like to know how HUD and the mortgage servicers intend to determine this. My guess is that they won’t - except in obvious cases where a homeowner has a lot of liquid reserve funds in non-retirement accounts.<br />
<br />
The homeowner must first try to qualify for other loss mitigation home retention options – FHA Special Forbearance, Loan Modification and Partial Claim. This is a silly requirement that could lead to confusion, unnecessary delays and ultimately foreclosures instead of the intended modifications. FNMA & FHLMC modifications have no such requirement.<br />
<br />
<br />
<strong>The Modification Process<br />
</strong>A homeowner will have to submit detailed financial information to whoever is servicing their FHA mortgage and sign a hardship affidavit attesting to their financial difficulties. This information may be provided either in writing or verbally over the phone.<br />
<br />
Similar to the FNMA/FHLMC modification process, the goal of the FHA modification is to lower the Principal, Interest, Taxes & Insurance (PITI) payment to 31% of the homeowner’s gross monthly income. HUD calls this a Front End Ratio.<br />
<br />
Unlike the FNMA/FHLMC modification program though, the FHA version also has a Back End Ratio requirement where total debt payments including PITI, cannot exceed 55% of gross monthly income. Any second mortgages must also be included in the Back End Ratio.<br />
<br />
The last calculation is the toughest to understand – up to 30% of the current mortgage balance, less payments in arrears (up to 12 months) and allowable foreclosure costs, may be deferred along with the corresponding payment amount. The amount deferred is also limited to that which will bring the PITI payment down to 31% of the homeowner’s gross monthly income.<br />
<br />
Confused yet? I’d like to know why HUD made this so complicated. It’s bound to cause major confusion in the customer service ranks. HUD did provide an example to illustrate the process:<br />
<br />
<em>Homeowner had a reduction of income and is delinquent 3 full mortgage payments. The unpaid principal balance on the mortgage on the date of default is $150,000 and the monthly payment is $1,220 (consisting of P&I of $920 and escrows, including MIP, of $300). The financial analysis reveals that the homeowner’s gross monthly income is $3,500 and the total monthly other recurring debt payments are $800.<br />
<br />
In order to fulfill the 31% Front End Ratio requirement, the homeowner’s total monthly mortgage payment would have to be reduced to $1,085 ($3,500 x 31%). Therefore, P&I would have to be reduced to $785 ($1,085 total monthly mortgage payment less $300 escrow and MIP). Assuming that the loan modification will have an interest rate of 6% and a P&I of $785, the new mortgage amount would have to be $130,931, resulting in a principal reduction of $19,069 ($150,000 unpaid principal balance less $130,931). In this example, the homeowner’s Back End ratio is 53.9% ($1,885/$3,500), which satisfies the 55% Back End Ratio limitation.<br />
<br />
In this example, the maximum principal deferment is $41,340 (30% of $150,000, less the $3,660 delinquency, or $45,000 - $3,660). However, based on their gross income, the homeowner is eligible only for a principal deferment of $19,069 plus $3,660 arrearages (which would include any foreclosure costs incurred to that point, in accord with Mortgagee Letter 2008-21) for the total deferment of $22,729.</em><br />
<br />
Once a modified payment is calculated, a homeowner must undergo a trial modification period and make three consecutive trial monthly mortgage payments on time. Failure to do so will result in foreclosure.<br />
<br />
The good news is that no payments will be due and no interest charged on the amount deferred until the rest of the mortgage is paid off. HUD is NOT forgiving part of the mortgage balance. Effectively, HUD is lowering the current payment by extending the term of the mortgage.<br />
<br />
<br />
<strong>Other Issues<br />
</strong>A lender may not charge a homeowner any fees for doing an FHA loan modification and all late fees must be waived.<br />
<br />
No appraisal is required, but a lender may perform an inspection of the property to confirm it’s in livable condition.<br />
<br />
The interest rate may be lowered to 2% above the monthly average yield on U.S. Treasury Securities, adjusted to a constant maturity of 10 years.<br />
<br />
A modified mortgage must result in a lower payment for the homeowner.<br />
<br />
By the way, lenders will be paid up to $1250 for each FHA mortgage they modify. Hopefully, lenders use that money to hire a few extra bodies to handle the increased workload and don’t just use the funds to pad their profits.<br />
<br />
Click <a href="http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-23mlatach.doc">here</a> to read more HUD issued guidelines on modifications.<br />
<br />
<br />
Overall, it’s about time HUD caught up with FNMA & FHLMC in regards to more aggressive loan modification guidelines. It didn’t make sense to force FHA lenders to only offer an antiquated forbearance option to homeowners experiencing economic hardships.<br />
<br />
It’s interesting that there’s still no official loan modification program to lower payments on VA mortgages.<br />
<br />
I’d like to know how many homeowners with FHA mortgages lost their homes to foreclosure while waiting for these new modification guidelines from HUD. Many of them could probably have avoided foreclosure with this new modification plan. Congress should call the organization to task for this delay.<br />
<br />
If anyone you know has any questions on modifying their FHA mortgage please forward them this article. Although we don’t handle loan modifications, if they need further assistance have them contact me, but please warn them there may be a consulting fee for my time.Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com4tag:blogger.com,1999:blog-6295084548093377051.post-49968165315178218862009-08-17T10:08:00.003-04:002009-10-16T06:41:22.321-04:00GNMA President to Step Down - A Sign of coming Trouble?<strong>MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN </strong><br />
<br />
<strong>Troy, MI</strong> - Bloomberg reported late last week that Joseph Murin was stepping down after only 13 months on the job. <br />
<br />
GNMA (Government National Mortgage Association) mainly securitizes FHA and VA mortgages and has seen its business almost double in the last 2 years.<br />
<br />
Why would an executive walk away from a business seeing such explosive growth?<br />
<br />
FHA loans have only become popular because so many other mortgage options have dried up. The low credit score & down payment requirements for FHA loans have many mortgage experts predicting significant future defaults.<br />
<br />
David Moffet resigned as FHLMC CEO this past March and Herb Allison recently left FNMA.<br />
<br />
Makes on wonder why all these executives are leaving these mortgage related organizations.<br />
<br />
It does not bode well for the future of these organizations. More trouble is coming, which means more governmment bailouts.Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com0tag:blogger.com,1999:blog-6295084548093377051.post-25718086243091551552009-08-24T06:38:00.004-04:002009-10-16T06:41:02.739-04:00Foreclosure & Bankruptcy: a new Beginning, not the End<div><strong><span style="color: #3333ff;">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.</span></strong> <br />
</div><br />
<div></div><strong>MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN</strong> <br />
<br />
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.<br />
<div><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiO4C6C2xlAa-AP6GRmIonoxem1DUJ8TD35tohS28sV2pY73zogzEB1L9OVbpmMV6kA2ID1BJPLRRZ7flX05QRRjvouXhjxuGE-re1TYyBlZgxwq4gJdXnzCt1LosNqYAPXjZRyVnXdF4Y/s1600-h/Bills.bmp"><img alt="" border="0" id="BLOGGER_PHOTO_ID_5373480089473269410" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiO4C6C2xlAa-AP6GRmIonoxem1DUJ8TD35tohS28sV2pY73zogzEB1L9OVbpmMV6kA2ID1BJPLRRZ7flX05QRRjvouXhjxuGE-re1TYyBlZgxwq4gJdXnzCt1LosNqYAPXjZRyVnXdF4Y/s400/Bills.bmp" style="cursor: hand; float: right; height: 145px; margin: 0px 0px 10px 10px; width: 147px;" /></a><br />
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.<br />
<br />
We all need to get a grip, swallow some pride and lose our egos. Failing at something is not the end of the world.<br />
<br />
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.<br />
<br />
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.”<br />
<br />
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.”<br />
<br />
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.<br />
<br />
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:<br />
<br />
<strong>Roland Hussey Macy<br />
</strong>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.<br />
<br />
<strong>J. C. Penny</strong><br />
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.<br />
<br />
<strong>Henry John Heinz<br />
</strong>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.<br />
<br />
<strong>Milton Snavely Hershey<br />
</strong>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.<br />
<br />
<strong>Conrad Hilton<br />
</strong>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.<br />
<br />
<strong>Frank Lloyd Wright</strong><br />
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.<br />
<br />
<strong>Henry Ford</strong><br />
</div><br />
<div>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<br />
<br />
<strong>Harry Truman<br />
</strong>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.<br />
<br />
<strong>Walt Disney</strong><br />
</div><br />
<div>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.<br />
<br />
<strong>Sam Walton</strong><br />
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.<br />
<br />
<strong>Larry King<br />
</strong>Filed for bankruptcy in 1978. He later went on to have a pretty decent career as a talk show host and best selling author.<br />
<br />
<br />
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:<br />
<br />
<strong>David Anderson</strong> - <a href="http://www.famousdaves.com/about-daves/daves-biography/">http://www.famousdaves.com/about-daves/daves-biography/</a><br />
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 Café in 1994. He also opens first Famous Dave’s BBQ that year and the rest is history.<br />
<br />
<strong>Eva Sun</strong> - <a href="http://images.businessweek.com/mz/08/70/pp_fu1.jpg">http://images.businessweek.com/mz/08/70/pp_fu1.jpg</a><br />
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.<br />
<br />
<strong>Jeffrey Yarbrough</strong> – <a href="http://money.cnn.com/2008/09/15/smallbusiness/back_from_the_brink.fsb/index.htm"><span style="font-size: 78%;">http://money.cnn.com/2008/09/15/smallbusiness/back_from_the_brink.fsb/index.htm</span></a><br />
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.<br />
<br />
<br />
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.<br />
<br />
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 <br />
</div>Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com8tag:blogger.com,1999:blog-6295084548093377051.post-53092627728850260642009-09-14T22:20:00.005-04:002009-10-16T06:40:42.434-04:00Reality NOT on TV – Banks Make Money on Foreclosures<strong><span style="color: blue;">Your odds are better at winning in Las Vegas than against the banking industry and the administration they control.</span></strong><br />
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<strong>MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN</strong> <br />
<br />
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?<br />
<br />
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.<br />
<br />
It’d make a great movie! We could call it, “Groundhog Accountability Day for Bank Executives”.<br />
<br />
“Sigh”. Unfortunately, that’s a fantasy and reality is what we have to deal with.<br />
<br />
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?<br />
<br />
Perhaps it’s we who really don’t understand where the money is made.<br />
<br />
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?<br />
<br />
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.<br />
<br />
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?<br />
<br />
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?<br />
<br />
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.<br />
<br />
So what incentive do these banks really have to approve loan modifications and short sales?<br />
<br />
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.<br />
<br />
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.Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com5tag:blogger.com,1999:blog-6295084548093377051.post-50567069131137758642009-09-19T14:26:00.002-04:002009-10-16T06:39:59.916-04:00Michigan’s Moratorium Mandated Modification Meeting – An Example<b><span style="color: blue;">What happens at these meetings with a lender representative that Michigan’s new 90 day foreclosure moratorium laws require?</span></b><br />
<b></b><br />
<b>MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN </b><br />
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. <br />
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.<br />
I had her send me over her budget and mortgage papers before the September 17<sup>th</sup> meeting, so I could be prepared to assist her. I also carefully reviewed HUD’s new guidelines for <a href="http://drewsmortgagenews.blogspot.com/2009/08/hud-finally-allows-loan-modifications.html">FHA loan modifications</a>.<br />
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.<br />
Interestingly, Michigan’s new <a href="http://drewsmortgagenews.blogspot.com/2009/06/michigan-tries-to-slow-foreclosures.html">90 day foreclosure moratorium laws</a> 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!<br />
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.<br />
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.<br />
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.<br />
At least according to <i>their</i> 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.<br />
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.<br />
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. <br />
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.<br />
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.<br />
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.<br />
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.<br />
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.<br />
He also asked for my card and said he’d like to refer me to his own homeowner clients.<br />
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?Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com2tag:blogger.com,1999:blog-6295084548093377051.post-14854336440231917362009-09-24T07:48:00.001-04:002009-10-16T06:39:40.719-04:00HUD Announces Major Change to Reverse Mortgages<span style="color: blue; font-size: large;"><strong>To keep the program from needing a bailout in the future, HUD is acting quickly to lower the maximum principal limits by 10%.</strong></span><br />
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<strong>MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN </strong><br />
<br />
On September 23, 2009, the U.S. Department of Housing and Urban Development posted <a href="http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-34ml.doc">Mortgagee Letter 09-43</a>, 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%. <br />
<br />
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. <br />
<br />
So, all loans that currently have a case number or where one can be obtained prior to October 1, may be processed as usual. <br />
<br />
What caused this sudden change?<br />
<br />
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.<br />
<br />
What caused the subsidy request? Several factors are affecting the stability of the HECM program:<br />
<br />
<br />
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.<br />
<br />
Defaults are rising due to unpaid property taxes and home insurance.<br />
<br />
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.<br />
<br />
Fraud continues to increase causing higher losses.<br />
<br />
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.<br />
<br />
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.<br />
<br />
So, if you know of anyone thinking of getting a reverse mortgage, tell them to apply ASAP before the new limits kick in.Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com0tag:blogger.com,1999:blog-6295084548093377051.post-52397212344644196192009-09-27T15:33:00.002-04:002009-10-16T06:39:06.725-04:00Be Wary of Buying Condos in this Market<b><span style="color: blue; font-size: small;">Those great looking foreclosure deals on condos may turn out to be a trap for unsuspecting homebuyers.</span></b><br />
<br />
<b></b><br />
<b>MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN </b><br />
<br />
<span style="font-size: small;">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 <a href="http://lh4.ggpht.com/_K0_RNECYAY0/Sr_A7u9iBBI/AAAAAAAAAI8/W5PCE9WIhVs/s1600-h/Condo%5B3%5D.jpg"><img align="right" alt="Condo" border="0" height="184" src="http://lh4.ggpht.com/_K0_RNECYAY0/Sr_A8EwsirI/AAAAAAAAAJA/na1Sl737_E0/Condo_thumb%5B1%5D.jpg?imgmax=800" style="border-bottom: 0px; border-left: 0px; border-right: 0px; border-top: 0px; display: inline; margin-left: 0px; margin-right: 0px;" title="Condo" width="244" /></a> one.</span><br />
<span style="font-size: small;">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.</span><br />
<span style="font-size: small;">Why are condos losing value faster than stand-alone homes?</span><br />
<span style="font-size: small;">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.</span><br />
<span style="font-size: small;">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?</span><br />
<span style="font-size: small;">These problems will only get worse as the associations get further behind on their expenses because of owners not paying their monthly fees. In<a href="http://lh6.ggpht.com/_K0_RNECYAY0/Sr_A9AlqWYI/AAAAAAAAAJE/DxZHxjM42PY/s1600-h/Maison-Grande-2%5B3%5D.jpg"><img align="right" alt="Maison-Grande-2" border="0" height="199" src="http://lh4.ggpht.com/_K0_RNECYAY0/Sr_A9oZeEZI/AAAAAAAAAJI/2d7qpHe_gMc/Maison-Grande-2_thumb%5B1%5D.jpg?imgmax=800" style="border-bottom: 0px; border-left: 0px; border-right: 0px; border-top: 0px; display: inline; margin-left: 0px; margin-right: 0px;" title="Maison-Grande-2" width="177" /></a> July a condo association in Florida was </span><a href="http://www.dailybusinessreview.com/Web_Blog_Stories/2009/July/Maison_bankruptcy.html"><span style="font-size: small;">forced into bankruptcy</span></a><span style="font-size: small;"> 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. </span><br />
<span style="font-size: small;">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.</span><br />
<span style="font-size: small;">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.</span>Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com2tag:blogger.com,1999:blog-6295084548093377051.post-41511507654960314662009-10-02T09:10:00.003-04:002009-10-16T06:38:16.917-04:00Are There Foreclosures in your Condo Complex?<span style="color: blue;"><strong>Read this before you get blindsided by increased Homeowner Association dues and/or special assessments.</strong></span> <br />
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<strong>MORTGAGE EXPERT, DETROIT, BIRMINGHAM, BLOOMFIELD, ROCHESTER, ROYAL OAK, TROY, MICHIGAN</strong> <br />
<br />
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. <br />
<br />
Many condo owners are watching the value of their homes drop dramatically, leaving them severly upside down. <br />
<br />
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.<br />
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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.<br />
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A more common challenge facing condo owners is financially strapped Home Owner Associations (HOA). <br />
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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. <br />
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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.<br />
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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.<br />
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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.<br />
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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.<br />
<br />
Traditionally, HOA handle nonpayment of dues in three stages:<br />
<ul><li>First sending out warning letters</li>
<li>If still no payment, put a lien on the unit</li>
<li>Final action would be to foreclose on the owner for nonpayment</li>
</ul>None of that really works in today's reality. <br />
<br />
Warning letters mean nothing to owners without jobs or the banks holding foreclosed units. <br />
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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.<br />
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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.<br />
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So what can be done to avoid these issues?<br />
<br />
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.<br />
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Most HOA have regular meetings, start going to them and ask questions. Ask to see the financials and the plan to address any shortfalls. <br />
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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.<br />
<br />
<div><br />
</div>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".Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com0tag:blogger.com,1999:blog-6295084548093377051.post-58181533195155521212009-10-11T16:43:00.002-04:002009-10-16T06:37:41.959-04:00Is it Time to Spank Your Bank?<b><span style="color: blue;">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?</span></b><br />
<b></b><br />
<b>MORTGAGE EXPERT, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY, MICHIGAN</b><br />
A recent <a href="http://www.treas.gov/press/releases/docs/MHA%20Public%20100809%20Final.pdf">federal report card</a> through September on the results of the Making Home Affordable Program, shows real dismal progress.<br />
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.<br />
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.<br />
What’s really interesting is comparing how much banks <a href="http://www.snl.com/Sectors/Financial-Institutions/FIG/Home/Tarp.aspx">received</a> in federal TARP bailout funds and how they’re “rewarding” the taxpayers that fronted the funds with loan modifications.<br />
<table border="1" cellpadding="0" cellspacing="0"><tbody>
<tr><td valign="top" width="175"><b>BANK</b><br />
</td><td valign="top" width="112"><b>TARP Funds</b><br />
</td><td valign="top" width="240"><b>Percent Eligible Homeowners Assisted</b><br />
</td></tr>
<tr><td valign="top" width="175">Bank of America<br />
</td><td valign="top" width="112">$45 Billion<br />
</td><td valign="top" width="240">11%<br />
</td></tr>
<tr><td valign="top" width="175">Chase<br />
</td><td valign="top" width="112">$25 Billion<br />
</td><td valign="top" width="240">27%<br />
</td></tr>
<tr><td valign="top" width="175">Citibank<br />
</td><td valign="top" width="112">$45 Billion<br />
</td><td valign="top" width="240">33%<br />
</td></tr>
<tr><td valign="top" width="175">GMAC<br />
</td><td valign="top" width="112">$12.5 Billion<br />
</td><td valign="top" width="240">26%<br />
</td></tr>
<tr><td valign="top" width="175">PNC (bought National City)<br />
</td><td valign="top" width="112">$7.7 Billion<br />
</td><td valign="top" width="240">9%<br />
</td></tr>
<tr><td valign="top" width="175">Wells Fargo<br />
</td><td valign="top" width="112">$25 Billion<br />
</td><td valign="top" width="240">20%<br />
</td></tr>
</tbody></table>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.<a href="http://images.google.com/imgres?imgurl=http://www.builderonline.com/Images/Mortgage%2520Lending_tcm10-93225.jpg&imgrefurl=http://www.builderonline.com/economic-conditions/starting-over.aspx&usg=__sWdwc8Ub6EW2jcqP-Un1CJ7NsBA=&h=390&w=300&sz=9&hl=en&start=6&sig2=ll-xqfjv3TiBKpXTORECQw&tbnid=1adore2VkXHA7M:&tbnh=123&tbnw=95&prev=/images%3Fq%3Devil%2Bbank%26gbv%3D2%26hl%3Den&ei=JEPSStybMJWkMO_ApN4D"><img align="right" height="123" src="http://t0.gstatic.com/images?q=tbn:1adore2VkXHA7M:http://www.builderonline.com/Images/Mortgage%2520Lending_tcm10-93225.jpg" style="display: inline; margin-left: 0px; margin-right: 0px;" width="95" /></a><br />
The numbers above have greatly improved since July, but notice they only cover mortgages that are behind by 60 days or more?<br />
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 <a href="http://makinghomeaffordable.gov/">Making Home Affordable</a> program.<br />
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?<br />
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.<br />
Do you think these banks really care about homeowners - that also happen to be taxpayers?<br />
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.<br />
Now ask yourself, where do you have your checking and savings accounts?<br />
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?”<br />
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!<br />
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.<br />
We can still get back at these banks though.<br />
This is the official start of the “Spank the Banks” campaign.<br />
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!<br />
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!<br />
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.<br />
Now, who wants to start making, “Spank the Banks” t-shirts and bumper stickers?Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com10tag:blogger.com,1999:blog-6295084548093377051.post-45083315860535648042009-09-30T07:03:00.001-04:002009-09-30T07:05:02.712-04:00An Interesting Post from "Mandelman Matters" BlogI'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.<br />
<br />
"Enjoy", but fasten your seatbelt...<br />
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<br />
<span style="background-color: #9fc5e8;"><strong>Loan Modifications: Obama’s Part of Problem, Not Solution</strong> </span><br />
<span style="background-color: #9fc5e8;"></span><br />
<br />
<span style="background-color: #9fc5e8;">Posted: 29 Sep 2009 04:53 AM PDT</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">‘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.</span><br />
<br />
<span style="background-color: #9fc5e8;">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?)</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">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?</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">Brass Tacks…</span><br />
<br />
<span style="background-color: #9fc5e8;">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:</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">2. If you feel you need assistance, call a HUD counselor, or other nonprofit. That’s it, and that’s all.</span><br />
<br />
<span style="background-color: #9fc5e8;">3. Whatever you do, don’t pay anyone in advance, no matter what, because paying in advance always makes someone a scammer.</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">And that’s not even the worst of it…</span><br />
<br />
<span style="background-color: #9fc5e8;">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…</span><br />
<br />
<span style="background-color: #9fc5e8;"> These people paid this company $3,000 and they didn’t even get a loan modification.</span><br />
<br />
<span style="background-color: #9fc5e8;"> No company can guarantee you that your loan will be modified.</span><br />
<br />
<span style="background-color: #9fc5e8;"> If they fail to get your loan modified, they have to refund your money.</span><br />
<br />
<span style="background-color: #9fc5e8;"> You don’t need help getting a loan modification; it’s easy to do it by yourself.</span><br />
<br />
<span style="background-color: #9fc5e8;"> For help with a loan modification contact a HUD certified counselor.</span><br />
<br />
<span style="background-color: #9fc5e8;"> The law firm took the clients money and failed to deliver anything of value.</span><br />
<br />
<span style="background-color: #9fc5e8;"> According to the Obama administration, servicers aren’t doing what they agreed to do.</span><br />
<br />
<span style="background-color: #9fc5e8;"> Bank of America only modified 4% of the eligible loans.</span><br />
<br />
<span style="background-color: #9fc5e8;"> Lawyers are using their law licenses to con desperate homeowners out of $3,000.</span><br />
<br />
<span style="background-color: #9fc5e8;"> August foreclosures came in at 356,000, the sixth straight month over 300,000.</span><br />
<br />
<span style="background-color: #9fc5e8;"> Another wave of foreclosures expected.</span><br />
<br />
<span style="background-color: #9fc5e8;"> The recession is over, probably.</span><br />
<br />
<span style="background-color: #9fc5e8;">Look… I’m not playing around here. Stop treating the country like we can’t put two and two together.</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">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?</span><br />
<br />
<span style="background-color: #9fc5e8;">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?</span><br />
<br />
<span style="background-color: #9fc5e8;">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?</span><br />
<br />
<span style="background-color: #9fc5e8;">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?</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">The Bottom-Line…</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">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.</span><br />
<br />
<span style="background-color: #9fc5e8;">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</span><br />
<br />
<a href="http://mandelman.ml-implode.com/">http://mandelman.ml-implode.com/</a>Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com3tag:blogger.com,1999:blog-6295084548093377051.post-64530143165122242222009-06-18T07:11:00.003-04:002009-07-27T07:22:07.411-04:00Michigan tries to Slow Foreclosures with New Laws<span style="color:#ff0000;"><strong>Three new laws make foreclosures tougher on lenders to force them to do more loan modifications.</strong></span><br /><br /><br />June 18, 2009 -- DETROIT, MI – On May 20th, Governor Granholm signed new laws into effect that will put more pressure on lenders to work out loan modifications as opposed to just foreclosing.<br /><br />The new laws, <a href="http://www.legislature.mi.gov/(S(vx1gnf55v5tcv545r3d3oe3p))/mileg.aspx?page=getObject&objectName=2009-HB-4453">PA 29</a>, <a href="http://www.legislature.mi.gov/(S(1ofyabmxweeqkozqsrizjlah))/mileg.aspx?page=getObject&objectName=2009-HB-4454">PA30</a> & <a href="http://www.legislature.mi.gov/(S(aldju2vh2h2dk045cxlghf55))/mileg.aspx?page=getObject&objectName=2009-HB-4455">PA 31</a>, go into effect July 5th and force lenders to perform several addition steps before foreclosing. Interesting that the effective date falls right after Independence Day.<br /><br />The new laws only apply to foreclosures started after July 5th and only on real estate that is the primary residence of a mortgage borrower. The laws also expire in two years. The state legislators appear to be pretty optimistic the housing crisis will be over by then. More likely, there won’t be anyone with a mortgage that hasn’t been foreclosed on or had their mortgage modified by then.<br /><br />Lenders will be required to give written notice to a defaulting borrower, providing the name and phone number for a real person the borrower can speak with. What’s more, this person has to have the authority to negotiate and approve a loan modification. Anyone that’s had to deal with the customer service department at a lender can tell you how frustrating it is to get someone on the phone that can make a decision. So, this is great news.<br /><br />Lenders will also be required to send a defaulting borrower a list of state approved housing counselors and gives borrower the right to require a lender’s authority person to meet with the borrower and the counselor to work out a loan modification. Once a borrower asks for this meeting, the foreclosure is put on hold for 90 days.<br /><br />The laws basically mimic Obama’s “Making Home Affordable” program by requiring a borrower’s housing related debt be no more than 38% of their gross monthly income. Also outlined is how to get to the 38% figure – lowering the interest rate to as low as 3% for at least 5 years, and/or extending the loan term to up to 40 years, and/or deferring up to 20% of the principal balance until the end of the loan term, sale or future refinance.<br /><br />If the borrower qualifies under this outline, but the lender refuses to approve the loan modification, then the lender must go through a judicial foreclosure. This means they have to take the borrower to court, a lengthy and costly endeavor. In other states where judicial foreclosure is required, it can easily take 18 months for this to happen. This is a huge penalty to lenders and should force most of them to approve a loan modification.<br /><br />The new laws were written so that federally chartered lenders cannot claim “federal pre-emption” and ignore state laws. A great move by the state legislators.<br /><br />The laws also have exceptions that defer to FNMA and FHLMC loan modification plans. <br /><br />There are doubts about the number of available counselors to meet with borrowers and representatives from their lenders. This may work in a borrower’s favor though as lenders may prefer to wait until a counselor is available versus pursing the judicial foreclosure process.<br /><br />Of special interest is how the new laws will affect FHA and VA mortgages. FHA & VA loans were not addressed in the Obama loan modification plan. So, will the new Michigan laws force FHA & VA lenders to modify loans down to 38% of a homeowner's gross monthly income?Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com4tag:blogger.com,1999:blog-6295084548093377051.post-1927759055340724452009-07-13T22:53:00.010-04:002009-07-13T23:15:36.156-04:00Are Loan Modification Programs Working?<div><strong><span style="color:#ff0000;">Many financial experts say they aren’t, quoting old data to support their statements. The latest data may force them to change their tune though.</span></strong><br /><br /><br />DETROIT, MI – The Obama administration continues to push loan modifications as the best way to address the nation’s growing housing crisis. Many so called financial “experts’ though, disagree with this focus.<br /><br />It’s interesting to note that the administration recently <a href="http://www.fhfa.gov/webfiles/13495/125_LTV_release_and_fact_sheet_7_01_09.pdf">announced</a> that due to disappointing numbers for its Home Affordable Refinance Plan (HARP), the program was being expanded to allow refinances to 125% of a homeowner’s property value, up from 105%. To be eligible for this program though, homeowners must be current on their mortgage and qualify with required FICO credit scores, income and assets.<br /><br />The disappointing numbers for HARP are a sign that many homeowners don’t qualify for it because they’re either too far upside in their homes or they’re behind on their mortgage payments. This makes loan modifications their only option - hence the administration’s focus on loan mods.<br /><br />So, what about all the naysayers against loan modifications?<br /><br />Well, they all quote studies that seem to “support” their claims that modifications aren’t working due to the high number of homeowners that default on their loan modifications.<br /><br />One of these studies was done by the <a href="http://www.bos.frb.org/economic/ppdp/2009/ppdp0904.pdf">Federal Reserve Bank of Boston</a>, published July 6, 2009. The study had some valid points:<br /><br />1. Lenders are reluctant to modify mortgages. Only 3% of seriously delinquent loans have had modifications.<br />2. Percentage-wise, lenders are modifying FNMA/FHLMC and mortgages held on their books the same.<br />3. 30% of delinquent loans become current with no intervention by the lender.<br />4. Most modifications result in an increased loan balance as back payments are rolled into the loan amount.<br />5. More and more modifications are being done and resulting in lower homeowner payments.<br />6. 26% of modified loans in the 4th quarter of 2008 resulted in lower payments.<br />7. Payment decreases before the 3rd quarter of 2008 ranged from 10-14%.<br />8. Payment decreases in the 4th quarter 2008 averaged 22%.<br />9. 30-45% of modified mortgages redefaulted within 6 months of a modification.<br /><br />These are all interesting statistics. The financial “experts’ all seem to focus on the fact that 30-45% of modified mortgages redefault, while ignoring one important fact – only 26% of the loans modified resulted in a lower payment!<br /><br />Why would a lender expect a homeowner that’s already defaulted on their current payment, to be able to afford that same payment or a higher one? Anyone citing this report’s redefault rate without taking that point into consideration should stop calling themselves an “expert”.<br /><br />A more recent report (through 1st quarter of 2009) from the <a href="http://www.occ.treas.gov/mortgage_report/2009/q1/executive_summary.htm">Comptroller of the Currency Administrator of National Banks</a>, shows something a bit different:<br /><br />1. A significant increase in the number of modifications made by servicers. Up 55% from last quarter. Payment plans decreased in favor of loan modifications.<br /><br /><br /></div><img id="BLOGGER_PHOTO_ID_5358145446394596274" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 88px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfRNyepdeNZG-DEtojTG_QI01TVhrGkkf-KnVp4DeP6nykRnzmEsJnHDRsN5TJHme-0nxoiOvFQuMdVGclqv4pRV3TtGDM3oErZBnAC30A7yUtrReoaXNTjjNnmvOSgX-sdDMBQENQq1k/s400/Mortgage+Metrics+Report+New+Loan+Mods.jpg" border="0" /><br />2. Servicers implemented a higher percentage of mods that reduced monthly payments than in previous quarters.<br /><br /><img id="BLOGGER_PHOTO_ID_5358145606542896834" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 157px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg1kJJa5GZzxypKm5b60GI8FnWHq4Pwi9EyoA-vGIHhS9tmAW0f4-fg87dbrsZxHUHBynxwR2P6zwC7Gc4b7sIQ6SWqSO07PYBcvvSVNdb3sEEEqmZRHI2wkuOzR2rir_TSoVvsqnw57KQ/s400/Loan+Mod+Changes+in+Monthly+PI.jpg" border="0" /> 3. Modifications with lower payments continued to show fewer delinquencies each month following modification than those that left payments unchanged or increased payments.<br /><br /><br /><img id="BLOGGER_PHOTO_ID_5358145796035532658" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 221px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgGL5P5yMjop_Ij63QhdZnpy99mUl7lx9dgp4tHIgoAUdwb4A1zWpKcyYKdGicudnule7PapHK_j4udS6yXZOHoNRDm2dioQiVqSHNhwtcFxc6MZ7fKvFlsc_nOHGZC7G_OOGbkebg0tAM/s400/2008+Loan+Mods+ReDefault+by+Payments.jpg" border="0" /><br />4. Modifications during the first quarter of 2009 resulted in lower monthly principal and interest payments on 54.1 percent of all modified loans<br /><br />5. The percentage of modifications that reduced payments by 20 percent or more increased to 29.3 percent of all modifications made in the first quarter of 2009, up 19.2 percent from the previous quarter.<br /><br />6. Modifications that increased monthly payments declined to 18.5 percent of all modifications during the quarter, down from 25 percent in the fourth quarter and 33.5 percent in the third quarter.<br /><br />One very important statement from the report: “The number of modifications recorded in this report does not reflect actions taken under the Administration's "Making Home Affordable" program, which was announced in March and began to be implemented after this reporting period.”<br /><br />As Obama’s plan is the most aggressive loan modification attempt to date, focusing on reducing homeowner payments to 31% of monthly income, the numbers should start turning even more positive.<br /><br />Even without those numbers, statistics from the 1st quarter of 2009 show improvements in loan modification performance after previous quarters showed a trend to the negative:<br /><br /><img id="BLOGGER_PHOTO_ID_5358149096046345634" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 140px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgRXiutMKkAGCnPjLntWVWMC_u_3Bl1Hw6dEH-iVNPKcuzv1p7oHrbqbncDR2jbJruHqQXZw5nm5ltgEHfrN3qWmjtQ9NzVqhstJzkm1IU3GLznELeT8ldzGZVd6mhpgrnyxG00ljXwBaU/s400/Mortgage+Metrics+Report+First+Quarter+2009.jpg" border="0" /><br />What can we conclude from all this?<br /><br />While it’s important to note that we’re far from out of the woods on the housing crisis and we don’t have enough recent data to really draw any long-term conclusions on the benefits of loan modifications – we do seem to be heading in the right direction.<br /><br />For all the free-market advocates out there railing against bailing out upside homeowners – your arguments went out the window when the government bailed out the banks. If we can bailout upside down banks, how can we not bailout upside down homeowners?<br /><br />For those who believe we have to lower mortgage balances to effectively modify mortgages, I disagree that we have to do so. It would be nice as I’m upside down in my own home, but I think it’s more important to lower house payments.<br /><br />People buy cars all the time where as soon as you drive it off the dealer’s lot, you’re upside down in it. I don’t hear anyone asking for a bailout on their car loan. Why do they continue to pay on their upside down car? Because they need transportation and they can afford the payment.<br /><br />Why are people losing their homes? Because they can’t afford the payments. Statistically, most people are emotionally tied to their homes. Most won’t do the logical thing and walk-away from their upside down home anymore than they would walk-away from their upside down car. Give them an affordable payment and even if they’re upside down, they won’t walk. Bring the payment down to their local rental rates and they won’t be able to live anywhere cheaper. Yes, their will be a small percentage that move in with relatives or move to a lower income area, but most will stay.<br /><br />It seems the so called “experts” live in their own little worlds and seem to have their own agendas. Few actually report unbiased facts, instead preferring to only focus on what supports their positions while ignoring all other facts. Heaven forbid they actually take the time to digest & think through the statistics.<br /><br />The media is just looking for sensational headlines to sell more advertising. Very little actual research seems to happen these days. What’s more, they all seem to regurgitate the same stories, propagating incorrect stories, fooling the public into believing them because of the repetition.<br /><br />So be forewarned not to buy into what you read in the headlines or what so called experts tell you. Click on the links I’ve provided and read the material for yourselves to come to your own conclusions.<br /><br /><br /># # #<br />Drew Sygit writes and speaks about the mortgage & real estate industries. He holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor. He’s presented, spoken and/or written for HUD, Financial Planning Association, Financial Planners Association of Michigan, Michigan Association of CPA’s, Institute of Continuing Legal Education, Oakland Real Estate Investors Association, North Oakland County Board of Realtors and numerous industry publications. He also publishes his own blog: <a href="http://drewsmortgagenews.blogspot.com/">http://drewsmortgagenews.blogspot.com/</a>. He can be reached at <a href="mailto:dsygit@TheLendingEdge.com">dsygit@TheLendingEdge.com</a>.Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com6tag:blogger.com,1999:blog-6295084548093377051.post-20970944307903661602009-07-01T14:22:00.007-04:002009-07-02T09:47:15.948-04:00125% Refi's Announced! The Government Finally Gets it<span style="font-size:130%;color:#ff0000;"><strong>The government appears to be finally understanding how many Americans are upside down in their homes.</strong></span><br /><div><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiILKrGN2YLpxMhtlKszBjKstGjMG9sLuYbjDqCC3BLi7kZkYdpkZUvWBtLJFToN130uvO2F8R20CROz6zr2JWAmiOQly5GQ7fhEN33ghYAZ0TpYDppT7zn60KClrbmoiTdRMP6p3YDyeA/s1600-h/House+Upsdie+Down.jpg"><img id="BLOGGER_PHOTO_ID_5353559137276343810" style="FLOAT: right; MARGIN: 0px 0px 10px 10px; WIDTH: 124px; CURSOR: hand; HEIGHT: 99px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiILKrGN2YLpxMhtlKszBjKstGjMG9sLuYbjDqCC3BLi7kZkYdpkZUvWBtLJFToN130uvO2F8R20CROz6zr2JWAmiOQly5GQ7fhEN33ghYAZ0TpYDppT7zn60KClrbmoiTdRMP6p3YDyeA/s400/House+Upsdie+Down.jpg" border="0" /></a><br />As I've been predicting for months, the FHFA just <a title="" href="http://www.fhfa.gov/webfiles/13495/125_LTV_release_and_fact_sheet_7_01_09.pdf" target="">announced</a> today that they will be allowing FNMA & FHLMC to refi underwater homeowners up to 125% of their property's value.</div><div><br />Previously the cap was at a joke amount of 105% LTV, resulting in President Obama's hyped Home Affordable & Stability Plan being way behind on the estimated number of homeowners it was meant to help.</div><div><br />Whether or not the government should be doing this is up for debate.</div><div><br />The argument against is all for letting the free market work its magic. Get the pain over now and let the economy recover.</div><div><br />Those for government intervention argue that the nation's housing market is "too big to fail". If the government bailed out the "fat cats" on Wall Street, then it should bail out ""Joe Six-Pack" also.</div><div><br />Since we've already started down this slippery slope, it would have been better if they would've done away with the appraisal requirement on refinances all together. A new appraisal hasn't been required on an FHA Streamline refi since 1984. Now with FNMA/FHLMC owned by the government, what's the difference? If it works for FHA, it'll work for FNMA/FHLMC. </div><div> </div><div>Either way, this county's mortgage debt is backed by the government and if payments can be lowered, less homeowners will foreclose. People have to live somewhere. </div><div><br />As a side note, think about what doing away with appraisals on refiances would do to HVCC appraisal issues!</div><div><br />Now, keep in mind that this will take awhile to be implemented as a lot of software needs to be rewritten. </div><div> </div><div>Also, the when the government approved the 105% LTV, FNMA & FHLMC both added pricing hits, which offset some of the gains of lower rates. I would hope they don't do the same this time.</div><div><br />Lastly, let's hope FNMA & FHLMC allow more lenders and brokers to do these loans. Right now, FHLMC forces homeowners to only go to their current lender. These lenders are pretty backed up, some taking 60-90 days or more to close these loans causing many homeowners to miss low rate opportunities.</div>Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com5tag:blogger.com,1999:blog-6295084548093377051.post-5729074700908867942009-06-28T16:24:00.003-04:002009-06-28T16:28:19.067-04:00Talking About a Housing Revolution – Predictions on Housing<div><span style="color:#ff0000;">The Beatles song comes to mind when I consider what the bottom of the housing market and recovery will look like.</span><br /><br /><br />June 28, 2009 -- DETROIT, MI – Recent housing reports brought apparently <a href="http://money.cnn.com/2009/06/16/real_estate/May_housing_starts/index.htm?postversion=2009061609">good news on housing</a> as it was reported that Housing Starts in May jumped 17.2% and Building Permits jumped 4% in April. Also, the National Association of Realtors (NAR) <a href="http://www.realtor.org/research/research/ecoindicator">reported</a> that Existing Home Sales, the Pending Home Sales Index and New Home Sales were all up in recent months.<br /><br />According to Lawrence Yun, chief economist for NAR, "We are at or near bottom in terms of sales."<br /><br />So, it’s a great time to put that home of yours on the market that you desperately want to sell?<br /><br />Not even close.<br /><br />One month of good news doesn’t mean the housing crisis is over. On top of that, it’s spring – a time when home sales invariably go up after winter. Look at the following graph, the same thing happens just about every year:<br /><br /></div><img id="BLOGGER_PHOTO_ID_5352477536085541170" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 458px; CURSOR: hand; HEIGHT: 339px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjdsvSheL69R02k0ksbeLJZE0wwP8xOO3piy-LQRrHWIAJNB2E9Pfmodorj1SLLVKzEXeDlUsFV70iRdPBSJwb6Rjp3BH8bBQyRLekPBkptc8iqaBjt6Kml_qZ7U8WxEnZvov293X_6bpg/s400/Housing+Sales+2003-2009.jpg" border="0" /><br /><div><br />As for the housing starts and building permit numbers – it’s amazing how theses numbers were skewed to look good. The numbers reported by NAR and the media compared May of 2009 numbers to April of 2009. If one references the source of these numbers, the U.S. Census Bureau <a href="http://www.census.gov/const/newresconst_200905.pdf">website</a>, the May numbers for 2009 when compared to 2008 are actually down – by 45.2% for Housing Starts and 47.0% for Building Permits. How does that qualify as good news?<br /><br />Yesterday it was also reported by NAR that May home sales were up 2.4% over April. Yet again, when compared to May of 2008, sales were actually off 3.6%. Not really good news as it doesn’t show we’ve reached a bottom yet.<br /><br />THE REAL STORY<br />Looking at the big picture, it’s obvious that the housing market is not out of the woods yet.<br /><br />The FNMA/FHLMC foreclosure moratorium from Thanksgiving through March (waiting for Obama’s housing plan) created an artificial shortage of foreclosed properties on the market. Not surprisingly, April foreclosure filings set a record.<br /><br />Last week, California announced its own 90 day moratorium on foreclosures which will further hide the true extent of the housing problems in that state. Michigan recently passed legislation that will have a similar, albeit more limited, effect. Several other states have passed or are considering doing the same.<br /><br />All the Adjustable Rate Mortgages (ARM) that borrowers took out at the peak of the housing market so they could afford to buy or cashout of their homes, are starting to reset in record numbers and will continue to do so for the next two years. The ugliest situation is for those with “Option ARMS” also known as “Pick a Payment” plans, but technically called “Negative Amortizing” ARMs. Anything with the word “negative” in it is usually not good. In the case of these products, they were originally designed for sophisticated borrowers that understood how they worked and the inherent dangers. Only two lenders, WAMU and World Savings, initially offered them. At the height of the housing boom, many more banks jumped on the bandwagon to offer them and pushed mortgage brokers to sell them to their clients by offering insane commissions. Of course, many unscrupulous brokers, few understanding the product themselves, pushed these loans onto borrowers that didn’t take the time to understand anything but the artificially low payment. Now, many of these borrowers will see their payments increase by 50% or even double. Many won’t be able to afford the payment shock and will eventually be added to the foreclose statistics.<br /><br />There’s also the issue of a “Shadow Inventory” of homes. How many of you see vacant homes in your neighborhoods that aren’t for sale? Many of these are foreclosures where the lender is just sitting on the home instead of trying to sell it at a loss. There’s also the inventory of homes where owners aren’t making payments, but haven’t been foreclosed on yet, despite being well past the point where they should’ve been. Several sources have estimated this shadow inventory at 600,000 homes. Now do you understand why banks were forced to take TARP funds?<br /><br />Real estate investors are also contributing to the problem. I know of many that are struggling with rentals where the rents don’t cover their payments. Many of them will eventually throw in the towel as their reserves run dry or the value of the rental falls to where it just doesn’t make sense to keep throwing good money after bad.<br /><br />Finally, we have the unemployment situation. May’s unemployment figure hit 9.4%, the highest since 1983. June’s number is expected to hit 9.6%. Since the recession begin in December 2007, we’ve lost 6 million jobs. These numbers are bad, but actually are worse if you include all the workers that have had to settle for part-time jobs or are making less than half of what they used to. Housing won’t stabilize until unemployment does. Even then, there’ll be a lagging effect as households paydown debt, replenish reserves and proceed cautiously.<br /><br /><br /><strong>PUTTING IT ALL IN PERSPECTIVE</strong><br /><br />The highly touted, and over referenced, Case-Shiller Index predicted that housing prices would fall 10-20% this year. As of May, the median price of a home is off 16.8% from last year.<br /><br />Faced with these numbers and all this information, what would you do if you were in charge of our government?<br /><br />Would you let housing free-fall and probably put the country into a Great Depression II?<br /><br />Or would you use every financial tool at your disposal to soften the landing, wherever that may be?<br /><br />Obviously, the current administration has chosen the soft-landing option and is pulling out all the stops to make it happen:<br /><br />The real reason for the Thanksgiving to March foreclosure moratorium was to come up with a plan to force banks to modify mortgages and slow the flow of foreclosures hitting the market and driving down prices. Obama’s administration had to do something dramatic after the disaster of Bush’s “Hope for Homeowners” plan that resulted in only 50 or so homeowners being helped. TARP funds were probably used as “bribes” to get banks to go along with the new plan.<br /><br />Ben Bernanke is doing his best to keep mortgage rates low. Not only does this encourage home buying, it also encourages people to refinance to lower their payments and not let them go to foreclosure. After a brief spike to 6%, when Wall Street bluffed the Fed, rates are back to the mid 5’s, still historically low.<br /><br />FNMA/FHLMC, now under government control, currently allow homeowners to refinance up to 105% of their home’s value so they can lower their monthly payment. Again, this was done to keep people in their homes through lower monthly payments. I expect to see the 105% increased to at least 115%, or done away with altogether, as housing prices have fallen faster than expected and the number of homeowners qualifying for a 105% refinance are much lower than the original target.<br /><br />The $8,000 tax credit to buy a home has generated quite a bit of home buying activity as intended. I predicted a couple of months ago that the tax credit program would probably be extended past its December 2009 deadline. There’s now talk in Congress about not only extending the program, but increasing the tax credit to $15,000 and opening it up to anyone that buys a home. It’ll be interesting to see what they do with the income restrictions as the current plan has propped up the lower end of the housing market, but left the rest of the market struggling.<br /><br /><br /><strong>PREDICTIONS</strong> </div><div><br />So far, the housing market is down over 30% from its 2006 highs.<br /><br />The government is doing its best to prop up our housing market, but it’s expected to fall further. How far is anyone’s guess, as one can’t predict it any better than one can predict where the stock market is going.<br /><br />I don’t think we’ll see housing bottom until late 2010 at the earliest. That being said, I think the pace of the decrease will slow after this winter.<br /><br />I also think that we won’t see a rebound for quite some time and it won’t be the rebound that many are hoping for. We won’t see double digit appreciation of housing for decades, if ever again. Nationally, we’ll see very slow anemic appreciation as homebuyers will be extremely cautious after this crisis.<br /><br />There will be a rebound bounce in areas where prices dropped ridiculously low. Detroit immediately comes to mind. The median price of a home in Detroit (the actual city) stands at $6,000 as of today. As long as one buys in a decent area of the city, that price could easily double, triple, even quadruple once unemployment improves. A house at $24,000 is still quite a bargain, especially when it would cost at least $80,000 to build a new one. The southern Florida condo market is another place that might have a double digit rebound as prices there are quite low due to over building. Understand that any double digit rebound in areas like these will be a quick, one-time thing as values bounce back from their oversold positions. Then they’ll follow the national trend of anemic appreciation.<br /><br />It could take a generation (25 years) for nationwide home values to return to the peaks of this decade.<br /><br /><br /><strong>THE HOUSING REVOLUTION</strong> </div><div><br />We’re also going to see residual effects from this crisis, much the same as we saw after the Great Depression. People that lived through the scarcity of those years tended to be savers and hoarders, not throwing anything away. Going forward, I think we’ll see a large increase in the number of people that never buy another home. After going through the trauma of getting foreclosed on or watching their parents, family, neighbors and/or friends go through it, they’ll choose to be lifetime renters. That’s good news for real estate investors as many of these people will still want to raise their families in houses, not apartments.<br /><br />I also think we’re seeing the end of the “McMansions” and sprawling suburbia. Inland California was overbuilt, in the middle of nowhere (that’s why it was cheap to develop) and is now turning out near vacant ghost towns due to all the foreclosures. Values have already dropped over 50% in many of these areas and show no signs of slowing yet. Why? It’s too far to commute to work. Eventually population growth will fill these towns back up, but that could take a decade or more.<br /><br />Millennial’s, those born after 1980, are flocking to urban landscapes and smaller homes. They don’t want to be house poor or commute more than minutes to work, preferably via mass transit. As gas and energy prices rise when the world economy recovers, more of us will be forced to address these same issues. This will eventually be good news for decaying urban areas and those that invest there ahead of the curve.<br /><br />People will also stop looking at their homes as a source of wealth. Homes will be seen less as “castles” and more as just places to live. Europe and Asia are already like this. People there don’t socialize in their homes as much as we do (most are too small), they meet at cafes, restaurants, parks, etc.<br /><br /><br /><strong>SHOULD YOU BUY NOW?<br /></strong><br />No one can predict the bottom of the housing market. So, if you’re in the market for a home, you should buy something that fits your budget, that you think is a good deal, when you think you’re ready for the monthly liability. Notice I didn’t say a great deal or a steal of a deal. Too many people still fall into the trap of following the herd lining up for the sensationalism the media peddles to get our attention. They want to hit the jackpot with the deal of a lifetime on a home. Well, keep in mind that very few hit the jackpot in Las Vegas and even fewer win the lottery. It’s usually better to play it safe and follow you head than gamble your future away by listening to others.<br /><br />Buy a home you can afford now that fits your lifestyle. Don’t stretch to afford something and put yourself in a tenuous financial situation. You also don’t need to be keeping up with the Jones’ and getting in over your head by doing so.<br /><br />Homes should be bought that fit one’s monthly budget. I can’t believe all the homebuyers I talk to that have never sat down and put together a monthly budget to figure out what they can afford for a monthly housing payment. They expect ME to tell THEM what they can afford! I’d be very appreciative if this was because they trusted me, but it’s actually due to laziness. Don’t they realize that they’re looking at buying a foreclosure where the previous owner probably made this same mistake?<br /><br />Consider how long you plan to live in a home before deciding whether to buy it. Don’t count on buying something and being able to break even if you sell it 2 years from now. You’ll probably need 5 years or so to be able to do that.<br /><br />Overall, homes are now more affordable than they’ve been in over a decade. Foreclosures have created unique opportunities for many to get solid deals on homes. Throw in the current $8,000 tax credit (with talk of it going to $15k soon) and this could be the time for many to buy a home. Not for everyone, but for many.<br /><br />If all of this is a bit much to take in and analyze, find professionals that can assist you. Run from those that are pushy. They should ask a lot of questions and rarely tell you what to do, but rather help you find your own answers. </div>Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com2tag:blogger.com,1999:blog-6295084548093377051.post-40262339697820384812009-06-07T16:02:00.001-04:002009-06-07T16:08:42.573-04:00Fed Losing Battle to keep Mortgage Rates Low?<div><div><div><div><span style="color:#ff0000;">Mortgage rates spike almost 1% in just over two weeks, what’s going on?</span><br /><br />June 6, 2009 -- DETROIT, MI – One of the government’s stated goals this year is to stabilize the housing market. The thinking is that a long as home values continue to fall, homeowners will lack confidence in the economy and in response, won’t spend money.<br /><br />To stop home values from falling, the number of foreclosures must be curtailed. One of the ways the government has been trying to curtail foreclosures is by keeping mortgage rates low. Low rates allows homeowners to refinance and lower their payments, so they don’t let their homes go to foreclosure and makes buying homes more affordable, so it increases homes sales to absorb the homes that have been foreclosed on.<br /><br />Recent events might have put a damper on those plans. The chart below shows the price of Mortgage Backed Securities (MBS) over the last three months. Keep in mind that the price is the opposite, or inverse, of interest rates. The higher the price of the MBS, the lower the corresponding interest rate. To keep it simple, “green” is a good day for mortgage rates on the chart and “red” is a bad day. (MBS are sold by FNMA and FHLMC to fund their purchases of mortgages from banks and brokers)<br /></div>Starting May 21st the chart shows four bad days in a row, culminating in one of the worst days for mortgage rates ever on May 26th. Intermixed with attempts to rally, mortgage rates have continued to worsen since then. Rates haven’t been this high since late November 2008.<br /><br /><img id="BLOGGER_PHOTO_ID_5344679103965779426" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 283px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEifmRUw3Ws5DY1JFUUsfeFST8DA0kigvKPIqglvtkO01DBTEDAKS9Sqo3Exn2gV5gEmH_VcZKAcBfPP9RhxdZvc6qo8wKh-Qi25MIB5NSGvV2Cxvqi_siAcEz7sP6DZ3VU5MXPQ7u-Sibg/s400/MMG+Chart+2009-06-05.jpg" border="0" /><br />What caused the sudden spike in mortgage rates?<br /><br />To answer that, we have to go back a bit to look at why they were so low to begin with.<br /><br />At the end of 2008, there was a lot of doom and gloom on Wall Street about the economy due to the bankruptcy of Lehman Brothers, the forced sale of Merrill Lynch, and the federal bailouts of AIG, Goldman Sachs, Morgan Stanley and a slew of banks deemed too big to fail.<br /><br />In response, money flowed away from high-risk to low-risk investments. U.S. Treasuries and MBS are considered fairly low-risk, so prices on them were bid up, lowering interest rates.<br /><br />On top of that, the Federal Reserve announced in early December that it was buying up to $500 billion in MBS over the next several months to lower mortgage rates even further. In mid March this figure was increased to $1.25 trillion.<br /><br />The result of these two factors was the lowest mortgage rates in over 50 years.<br /><br /><br /><strong>Nothing Lasts Forever</strong><br /><br />Recent positive news on the economy now has Wall Street investors thinking that the worst recession in memory, may be ending. Over the last two weeks, economic reports are showing signs that unemployment, housing and consumer confidence may be stabilizing. The key word there is, “may”. The stock markets though, have responded to this news by increasing, pulling money away from the MBS market and causing rates to rise.<br /><br />So, has the government’s stimulus working to lift us out of the recession? Will a turn around in the economy lead to lower unemployment, higher wages and housing prices, making rising mortgage rates a minor issue?<br /><br />The chart below compares several recessions to our current one. The chart shows that historically, recessions tend to last around 30 months, a tad longer than the 20 months we’ve experienced in the current one.<br /><br /><img id="BLOGGER_PHOTO_ID_5344679546363533010" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 293px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCjXRVsNQ3ZJ-PvqfoPr77Mpk7xVxjUvCUcHtSKPy-XrX7HE-h4vZk9X9PdVTZWSq_mwN0TwXa0bELU9X3rJONdtak08HoxxiPSCagVlHexkynnd0skaM6G7pU5Ys5SutayXJX4jkK0io/s400/four-bears-large.jpg" border="0" /><br />The term, “Bear Market Rally, is used on Wall Street to describe a false rally in the stock markets, that’s followed by further downturn. The chart below shows that during the Great Depression, there were six bear market rally’s that were followed by the market dropping to new lows.<br /><br /><img id="BLOGGER_PHOTO_ID_5344679719162031170" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 345px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg1QHEVqjdZPJmbxm2URvV9E8k14fYwjBfOGh-p-Ar9pbScgDWLSW_w94kyTq4Z78Cz8oznSiz2WSZUufvhIAtfRgGzRjDHiaQAndy_qSPE0hspZU5an9UUOz4eATwYLHmQm8KwIYwYgic/s400/DJIA+1929-1932.jpg" border="0" /><br />Is the current stock market rally something similar and we have several months to go until we see a true end to the recession?<br /><br />What about the Fed’s $1.25 trillion allocated to buy MBS to keep mortgage rates low? So far, they’ve only used about $370 billion of that total, so there’s a lot left that could be used to attempt to drive mortgage rates back down. The problem is, that may not work much longer.<br /><br />The game only works to lower mortgage rates when Wall Street investors play along. There’s growing concern on Wall Street that the amount of borrowing by the federal government to fund all the economic plans, including the Federal Reserve, is simply becoming a game of “borrowing from Peter to pay Paul” and vice versa.<br /><br />Figure 2 shows that when the federal government borrowers too much to fund its stimulus packages, the effect of the stimulus funds loses steam. So, throwing more money at the economy doesn’t help.<br /><br /><img id="BLOGGER_PHOTO_ID_5344679954014825474" style="DISPLAY: block; MARGIN: 0px auto 10px; WIDTH: 400px; CURSOR: hand; HEIGHT: 209px; TEXT-ALIGN: center" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjuSXYNgTDX-yzU52ZfHBxtkjowPDA61SZcbHGnuTqoy1JJwy7Mhg3cDmuPhxVHkZO3qBzy9ytvndSr95FbyEkF-hNQZuBG55XiFnyrv5_sXQ_mElOu6u_hQvyYOhpS1Rh4Pse09k-Ba8c/s400/Decreasing+Impact+of+Fiscal+Stimulus.jpg" border="0" /><br />Our concern is that the same rules may apply to the Federal Reserve’s game on mortgage rates. The markets may have arrived at the point where even if the Federal Reserve increases its purchases of MBS, mortgage rates may not respond and go lower.<br /><br /><br /><strong>Summary </strong><br /><br />I wish I had a crystal ball and could accurately predict what mortgage rates are going to do. We’re in this economic mess because people way smarter than I, thought they had a good grasp on the financial markets.<br /><br />It is my opinion (only) that we’ll soon find out if this is all a bear market rally or not. If it is, we’ll see the stock market drop and rates will improve. I don’t think we’ll see the same recent lows though, unless there’s major bad news on the horizon.<br /><br />On the other hand, if this is the end of the current recession, than better days are ahead for the economy and all of us. Higher interest rates won’t be that big of an issue when sanity returns to the housing market and unemployment drops.</div></div></div>Drew Sygithttp://www.blogger.com/profile/18001992426038787015noreply@blogger.com3