Obama’s Housing Plan: Problems for California

Obama’s recently announced Housing Stabilization Plan is good as far as it goes, and it goes $25 billion worth. California will get a good chunk of that taxpayer dough, but many homeowners here will not be able to benefit from the plan.

Refinancing becomes an option for some because Obama’s plan allows for refis up to 105% of equity. Say you owe $300,000 on your home. You could borrow up to$315,000. That’s a better deal than the normal 80% of equity allowed for a refi, but it’s hardly going to help much in California where prices have tumbled 25% to 50% or even 70%, depending on the area,   in a bit over a year.   Plus, of course, anyone who refinances must have the income to qualify.

Then, there’s the loan modification option, also sweetened considerably by Obama’s plan. For one, borrowers who have struggled to stay current are now eligible for loan mods as well as those who have missed payments. Here’s the problem, though, if you want a loan mod, you need to show income and unemployment is not acceptable. With California’s zooming unemployment rate, many who need loan mods won’t be able to get them for lack of income. Across the country, nearly 12% of homeowners are in arrears on their mortgages or already in foreclosure. This is a disaster not only for the homeowners, but for all of us . In California, the latest figures show 13% in arrears or in foreclosure as compared to, say, Florida where 20% are in that position. .

Besides job loss, another huge factor is loss of value. Estimates of homes  with  negative equity vary, but it’s around  12 million homeowners, about 25% of all homeowners in the U.S. either now owe more than their homes are worth or are within 5% of being so. Almost 2 million Californians are in that unfortunate situation with about 300,000 in the L. A. area. A research firm, First American CoreLogic, estimates that 723,000 California mortgages are in “severe” negative equity with loan amounts 125% or more of the home’s value. That’s about one-third of the country’s 2.2 million such loans.

house-in-watersmall

Other states have greater percentages of loans in trouble, but smaller populations and so fewer loans. Nevada, for instance, has 330,000 underwater loans, very similar to the L.A. area, but that represents an astounding 55.1% of all loans in Nevada. Michigan, economically sick for a long time, has 459,000 such loans or 40% of all loans in the state. Arizona has 31% of its loans underwater or 407,000. Florida, far more populous, has 30% of its loans in negative territory, but that’s 1, 284,000 loans. California, as mentioned, has 1, 900,000 or 29.5% of its loans underwater. Thus  the Big Four which  account for almost half of all the foreclosures in the nation. Rounding out the top ten are Georgia [23%, 335,000], Ohio [23%, 435,000] Colorado [21.5%, 225,000], New Hampshire [20%, 33,560] and Virginia [19.6%, 219,282].

Obama’s plan will help California, but, clearly, with our gigantic population so many cannot be allowed to go under. Obama and company need to come up with more creative ways to help California’s underwater homeowners.

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Loan Restructuring v. Loan Modification: What’s the Difference?

Cover for the first Zombie-Loan manga volume
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Mortgages and foreclosures, never popular topics, are dominating the news lately. Gradually, we are learning ways to halt or at least slow this onslaught of foreclosures ravaging neighborhoods and ruining lives.  One stop-loss method is loan modification. Typically, loan mods are for homeowners who are behind in their payments and are facing  foreclosure. In fact, I’ve even done a previous post about Loan Mod Myths.

Yet, loan mods do work. Here’s who will benefit from a loan mod:

Loan Modification Eligibility

  • Minimum of 12 months elapsed since loan origination date.

  • The mortgagor [homeowner]  most be delinquent (3 full payments due and unpaid) or more.

  • Default due to a verifiable loss of income or increase in living expenses.

  • The Loan Modification mortgage must remain in the first lien position.

  • Loan may not be in foreclosure when executed.

  • Owner occupant, committed to occupy property as primary residence.

  • Mortgagor has stabilized surplus income sufficient to support the Loan Modification mortgage.

  • Does not have another FHAinsured mortgage.

In some cases, the banks today will modify loans for those who are less than three months late. And, banks will modify investor-owned or non-owner occupied. Banks do require financial information, such as pay stubs and tax returns, but credit scores are not an issue.

What this all means is that you must have enough income to support the new payment. Banks will not modify your loan if you cannot show you have the income to sustain the new, lower, payment.

If you can’t show the income, then the best option for you is probably a short sale which will do less damage to your credit than a foreclosure and allow you to purchase another home within 2 years, provided, of course, you’ve paid your debts during these years and you can qualify for a loan.

What about those who are not behind in their payments?

For those current in their payments, Loan Restructuring , may be the answer. If you have not missed payments or perhaps find yourself owing more than your home is worth, you may be able to  redo your  loans without having to bear the cost of refinancing.

How is this possible?  Who is eligible for loan restructuring? Essentially, if you do not fall into any of the loan mod categories, then you may be eligible for a loan restructuring.

Loan Restructuring Criteria

  • Homeowner may be current in mortgage payments or  have missed a payment or two
  • Mortgagor does not have to reside in the property; investment property qualifies.
  • Mortgagor may receive a reduction in principal, interest and a cash refund.
  • No “Hardship” letter is required.
  • Existing income, debt, credit scores  do not matter.

A loan restructuring may enable you to reduce your principal, especially in areas where property values have fallen drastically and many owners are thinking of “walking away.” How exactly can this happen?

In seeking to restructure a loan, the homeowner re-examines the loan at the point when it was originated.  Attorneys or real estate brokers, like myself, working with attorneys search the documentation of the loan to see if it was  predatory in nature or, if not, if it  did not fully comply with federal Real Estate Settlement Procedures Act [RESPA] requirements. If a flaw is found,  the original loan is voided and restructured (not modified). This allows the homeowner or his representative  to negotiate with the lender from a position of strength. If the loan was “bad” from the beginning, why modify a loan to the advantage of the lender? Restructuring is clearly the best option for the homeowner.

If the loan is found to be predatory or in violation of RESPA, the homeowner may also be eligible for a refund of all or part of the original closing costs.


As we have all heard, banks packaged our mortgage loans into so-called “exotic” financial instruments and sold them all over the world. It’s these mortgage-backed securities and credit default swaps which are the original cause of our Current Recession. In their bottomless greed, banks sold and resold mortgages, slicing and dicing them into parts which they cannot now put back together. It is these mortgages which are great candidates for restructuring.

If you think you might qualify for a restructuring, call or email me and for a small fee we can find out. If your loan is not eligible for restructuring, the fee will be returned.

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