Housing Prices: The Infamous Double Dip Is Here!

We’ve been expecting it for a year and hoping we were wrong, but the double dip is here as home prices are plunging again. It seems that last year’s uptick was a result of the Congressional tax credits for home buyers. That pumped some life into the otherwise moribund housing sector, but the air all leaked out this year.

How bad is it? Nationwide, home prices are down 5.1% from last year to levels not seen since 2002. Home prices have now lost an average of 32.7% since the highs reached in 2006. Almost 30% of homes with a mortgage are now underwater and many of the rest are hanging on by their fingernails. Here’s a graph from CNN Money that shows the decline from 2006, the uptick last year and the plunge again this year.

It’s starting to look like Niagara Falls, and it appears poised to get worse. What is actually causing this depressing negativity in real estate? Why can’t the nation and our Golden State seem to pick ourselves up and start all over again?

Causes of the Continuing Decline In Housing

Many factors are contributing to this stubborn stalemate–high unemployment, lack of consumer confidence and spending, outsourcing of jobs–but the major reason is the same as at the beginning of the recession–the big banks.

Most of us now understand that the push for deregulation of the banking industry which culminated in the lifting of the 1930s-era Glass-Steigal Act functioned like a giant gold rush for the so-called financial services industry or, better yet, a red flag to a bull. The Wall St boys almost literally went crazy dreaming up creative ways to make money [for themselves] without much consideration for the consequences.

In those heady days, intoxicated with the freedom from almost all regulation, the banks shoveled out loans. Almost anyone could get a loan. Bad credit scores, no down payment, low or no income–none of it mattered. The bankers had a loan for everyone and raked in the money doing refi after refi as everyone cashed out their new-found equity as the housing  bubble grew.

When it burst, the first to explode were the sub-prime loans. That was back in 2007 and 2008. Those were the really terrible loans with horrendous interest rates given to completely unqualified buyers. That was the first wave of foreclosures and short sales.

Since then we have been dealing with the ARM loans, the adjustable rate loans that so many qualified buyers anxious to get into the hot housing market  were advised by their lenders to undertake “to get into the property.”  At the time lenders pitched these as  “starter loans”  because down the road, when they adjusted, buyers were told, with the rise in equity, you could easily refi when the rates went up.

Now we know better of course. Those ARM loans, so lucrative for lenders five years ago,  are now time bombs exploding all over the place. Here’s another graph showing how all these  3- and 5-year ARMs are now adjusting. Owners can’t refi now due to plunging real estate values. On the other hand, they can’t pay $1500 more a month either. Naturally, the banks aren’t budging–no help for you, partner.

Thanks to Sean Chapman for the graph.

This year, as we can plainly see from the graph, we can expect a huge number of resets for these adjustable mortgages. Since the properties are usually now either underwater or nearly underwater, even those who could pay will quickly determine that it is not in their financial interest to do so. The result will be an even deeper crisis for the housing market as home values plummet ever downwards.

Trying To Keep Above Water: What is a Strategic Short Sale?

Short sales are popular. With literally millions of homeowners hit by the double whammy of adjustable loans and  financial dire straits, it’s no wonder that so many have chosen to avoid foreclosure and short sale their homes. Banks document the hardship and then agree to the sale.

But, homeowners with bad loans or victimized by the economy are not the only ones wanting to get out of their over-priced mortgages and underwater homes. In fact, anyone with the smallest touch of financial acumen has figured out that paying a mortgage double what the property is now worth hardly makes sense. Enter the strategic short sale.

Simply put a strategic short sale is a voluntary short sale that does not necessarily involve a hardship. Increasingly, homeowners are making the financial calculation that not only are their homes and properties underwater but are likely to remain so for the foreseeable future. Even if they can make their payments, homeowners, especially the more financially literate, are determining that it simply is financial suicide to stay in a home, paying on the mortgage when the property has lost half its value. Better to bail. It’s better to keep your head above water than to drown.

For those who feel it’s possibly not “honorable” or “moral” to treat the sacred contract signed with the bank so cavalierly, consider this: according to a recent New York Times article, Morgan Stanley itself made this “strategic” decision to walk away from five office buildings it had bought in San Francisco at the height of the boom. Yet, Henry Paulson, as U. S.  Treasurer, expostulated that homeowners who walk away from their bad deals are nothing more than “speculators’. Oh, right, Mr Paulson, formerly CEO of the now-universally-acknowledged odious Goldman Sachs.

Today in February 2010 about 25% of all mortgages are underwater. 10% of these mortgages are actually delinquent. Whatever you hear from the Pollyannas of real estate, those figures are likely to rise this year. Why? Simple–the unemployment rate is astronomical by our normal standards. Loan mods not only don’t work; they also require the homeowner to have a hardship, but not too much of a hardship since that would mean no money to pay the loan….The refi program isn’t working. All the wonderful ideas about helping homeowners have not helped, at least not enough.

What’s a homeowner to do? Follow the lead of the very banks to which you owe money and do a short sale. Make the calculation and decide if this is the best route for you. Today, if a homeowner is not delinquent, he can short sale his home and buy another at the same time. Increasingly, too, homeowners can get that short sale wiped off their credit reports in record time, especially if they have the money to purchase another home.

People who short sale their homes frequently have lost thousands and often hundreds of thousands of dollars of real money, not paper equity.  It’s not their fault the economy tanked. People operated synergistically with the banks in our economic ecosystem taking on the bad loans that banks offered, both in good faith at the time. Neither is totally at fault for the resulting disaster, though both are suffering, people more than banks, I dare say. In a short sale, banks get something less than the promised amount but usually 35% to  50% more than in a foreclosure.

Short sales, strategic or not, make the best sense for both parties. A classic win-win, if you will, or, more aptly, lose-lose.

What Is Loan Restructuring?

Why Loan Mods Stink

As mentioned in previous posts, loan modifications, as practised by most major banks,  do not offer the results most homeowners had expected. Very few are altering the loan balance, yet millions of mortgages are upside down, many, especially in California, by hundreds of thousands of dollars.

What did we expect? We thought that the huge influx of tax payer money from TARP to keep the banks in business would result in more consumer-friendly lenders.  What were we thinking? We were  massively deluded. When banks have the upper hand as they do when homeowner/consumers are petitioning for a better deal, they will do the obvious. Take all the time in the world for the process, then order up massive amounts of paperwork, then lose the paperwork and finally offer a tentative agreement, possibly with a big cash payment,  diddling  as long as possible before making it permanent.

How Homeowners Can Gain the Upper Hand

What’s the alternative? How can homeowners shuck the petitioner role and instead gain the upper hand? Let’s remember that banks are regulated.  Yes, during the boom years many of the regulators were asleep at the switch and irregularities and downright fraud became business-as-usual. Despite the lack of enforcement, the laws and regulations still exist and did exist even when not well enforced.

Today, specially trained attorneys are seeking to force the banks to restructure the loans done incorrectly, irregularly or even downright illegally. Many avenues of approach exist. Sometimes banks or brokers did not follow regulations in the origination process; sometimes the entire loan itself was a complete fraud. But, federal law does cover these situations. In these cases the law gives homeowners the upper hand.

What Is Loan Restructuring?

Really, this is what happens when regulations and laws are actually enforced. Oversight, we now realize, is key for the financial industry as with so many others.  Loan restructuring can have several possible forms. Complete loan rescission is one possible outcome.  The lender may issue an entirely new loan with a new balance, a new interest rate and even a new investor or any combination of these. Alternatively, the lender may agree to a financial settlement. It all depends upon the specific original loan itself.

Certain types of loans can be restructured; others cannot.  Stated income loans are  prime candidates for restructuring as well as ALT-A, Adjustable-rate loans [ARMs] and ARMs that can negatively amortize [neg-AMs] along with the famous Sub-Prime loans.

If you have one of these types of loans  and have an interest in gaining the upper hand over your bank, contact me. Sorry, but for right now, I can help only those loans on property in California.

For other states, I NOW  have additional resources.  Give me a call at 626-641-0346

Tsunami of Foeclosures Coming

So much for all the “good” news coming out of  D.C. Goldman Sachs, JP Morgan Chase, B of A are all happy campers with their billions in profits, while the rest of us lose our jobs and watch our state sink into bankruptcy. No one ever mentions that, besides the TARP money since repaid,  Goldman Sachs got $12 Billion from AIG to cover hedge fund losses. And, of course, where did AIG get the dough to cover its insurance policies? Why, funny you should ask, that also came from tax payers…So, it’s kind of an endless circle of taxpayer funds creating “wealth” for these jokers while the rest of us starve. That’s capitalism, right?

But, back to real estate…What does all this have to do with real estate. Plenty, as it turns out. Chase and B of A are, of course, banks, now, in fact, the biggest banks in the country. That means they also control a majority of the mortgage loans and how the rising default rate is to be handled. In case you hadn’t heard, default rates are up and rising. Could that have anything to do with the also rising unemployment rate now over 10% in 30 states and 12.6% in California last time I checked. Here, even the “good” state jobs are now at risk and going down the tubes faster than your 5-year-old at Raging Waters.

With no job or prospect of a job, when underemployed or working only part-time or sporadically, home owners can’t cover their mortgage payments. Add to that, the factor of plunging prices. It’s estimated that by now, after more than a year of record foreclosures and drops in home values, 27% of all California home owners are under water, that is, they owe more than their homes are worth. Of course, the smart ones are short selling their homes. It’s hard to give up the old homestead and all the work and money put into it, but once the underwater mark hits 30% loss of equity, it really makes more sense to let it go. It will be years before that equity returns given the numbers involved.

home floating on waves

What about the refi program discussed in a previous post? For some, that might be an option. It’s no help if you’ve lost your job. You won’t qualify.  If you still have a job and can afford the payments, this is an option. Though, notice–you still owe the money your home is no longer worth. You do pobably have a better rate and more managable payments, but, the debt is still there.

What about the loan mod program also discussed in a previous post? Well, there we’re back to these big banks, Chase, B of A, Wells Fargo and all the rest. These banks do most of the loans in the country, so borrowers  have to apply to these banks to get  loan mods.  Obama’s Homeowners’ Stabilization program, announced amidst much hopeful optimism in March, has proved less than effective, shall we say. Chase trumpets that it has modified 138,000 loans since April. That sounds reasonably good, but the program was supposed to modify more than 4 million in 3 years…Not much of a start, so far…

Then, there’s B of A which says it’s done 45,000 loan mods since April. That’s for the ENTIRE COUNTRY.  Think about this: California ALONE had 135,431 notices of default [NODs] send out from January through March of this year. B of A and its newest acquisition, failed California-based Countrywide, probably account for at least 30% of those loans or 40,000 loans. So, B of A is basically DOING NOTHING to help at this time of NATIONAL CRISIS. And, remember 27% of California homeowners are under water and so need to have their loans modified. How many actual borrowers would that be? I don’t know, but we have 35 million people, so that’s got to be in excess of 1 million loans….Nationwide, in the first quarter 1.8 million homeowners fell more than 60 days behind on their loans, 15% more than the prior quarter [Q4 08]. To repeat: this is a NATIONAL CRISIS.

What is going to happen next? Is B of A going to change its corporate culture and start helping homeowners?  Not bloody likely. Digging deeper into the trough of public money is more apt  to be that bank’s continuing attitude.  Just try to do loan mods with Countrywide and B of A or short sales. They take forever–4 months is the minimum; there is no maximum time.  The paperwork demanded is just stunning. B of A NEVER, to my knowledge, forgives even one penny of any under water loan balance as some banks actually are doing.   Its idea of what it owes to the common good is EXACTLY ZILCH, NOTHING, NADA.

So, those foreclosures, kept off the market by useless cycling of paperwork in rejected refis and loan mods, will come onto the market, especially here in California.  Last summer, foreclosure sales statewide hit a high of 26,500 a month.  Before this year is out, we may well beat that record. I am one of many real estate brokers who supply lenders with estimates of value or broker price opinions [bpo] and I can say, anecdotally, that I am very busy, often doing 3, 4 or even 5 every day.  If  I am that busy, so are the others who do this work. That means so many foreclosures looming…

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Bankophobia: Don’t Let the Banks Give You a Bad Deal

Countrywide Financial
Image via Wikipedia

It seems I’ve developed a bad case of bankophobia lately. Clients are screaming about their miserable experiences trying to refi. Experts like William K. Black on Bill Moyer’s Journal, a formner regulator, reveal the Big Bankers are actually fraudsters and they know it. Almost everything I’m reading about the bailout of these pernicius institutions is making steam come out my ears.

Really, I  am a naturally optimistic person.  I rarely think ill of anyone without, of course, proof positive. I do exempt  Bernie Madoff, naturally; he’s pretty clearly nothing but a thief. Then, there’s Ken Lewis, CEO  of Bank of America–he’s a regular snake. Not only does he grab all the dough he can get from the tax payers, but he turns around, giving billions in bonuses to his cronies all the while trying to pull the rug out from regular working Americans who might try to level the playing fied by joining a union. That really steams me! These–hogs is the only term I can think for them–can never have enough for themselves, but they put up every barrier they can think of to prevent others from even having a steady income or a potential retirement. Maybe we should bring back the guillotine…Just kidding.  Then, there’s John Thain, lately CEO of Merrill Lynch, who gave out billions to his cronies with the connivance of Ken Lewis just before B of A took over his company.

This whole affair is sickening. The little that the present administration is doing for actual citizens includes The Making Home Affordable Plan offering 105% refis. These loans are now available and even some in the Southland could take advantage of the now amazingly low rates to do a refi. Don’t bet on it because these very same banks who received bailout money apparently don’t want you to get any advantage whatsoever. Sounds to be like Ken Lewisism gone amok. Here’s just a few examples of how hard they are making it.

First, many banks are applying super-tough appraisal conditions so homes don’t qualify.” Nope–we see your home as worth $310,000, not $312,000 so you don’y qualify. Next.”   Then, there’s the private mortgage insurance premium sticking point. Got PMI? Lenders like Wells Fargo and Countrywide won’t touch your refi. Together, they probably have half the loans in the country. Maybe later…they say.

If you have PMI with MGIC and it’s one of the biggest, if not the biggest PMI company, then you must refi with your current lender. That’s MGIC’s rule, not the program’s. Don’t like your current lender? Tough tiddlywinks to you. MGIC owns you.

Loan fees–be sure to get a GFE–good faith estimate–in writing because some banks are making hay while the sun shines–what else is new?-and charging exorbitant fees. This is a federal law, so if  you can’t or don’t get one right away, walk right on by no matter how good the deal seems. Because–it isn’t. This is one of the oldest tricks in the lending business: promise them everything, but never put it in writing.

Here’s another sticky wicket: HELOCs–equity lines of credit. Either the bank issuing the HELOC refuses to subordinate, though it’s already subordinate, or the new bank says, “Oops, with the new loan combined LTV [loan to value] is too high. Can’t do it.” This is a variation on the appraisal gambit.

Then, there’s credit. You don’t have a 740 FICO? You’re out. And, you better have a job because you will have to qualify and you will have to reveal your entire financial picture. These last are not so bad to mymind. Now, at least we’re returning to sanity and trying to lend only to qualified borrowers. Trouble is Obama’s program is supposed to be helping”potentially troubled”  homeowners stay out of trouble.

Last but not least is the most infuriating and frustrating aspect of the whole process…Actually, this one has two intertwined parts. The first is the incredible voice maze you must navigate to talk to your bank. The unconscionable hold times we are all subject to these days. And, then, after waiting 45 minutes on hold, you get to speak to Joe Moron who tells you all kinds of false and crack-brain stuff–“You must be behind in your mortgage to do a refi”–Huh? “We’ve never heard of Obama’s plan. Making Home Affordable Plan? Never heard of it? We live on Planet Pluto.”  Sometimes you get to chat with a dingbat in the Phillippines or maybe Bangalore–always nice, always out to lunch.

If all else fails–somehow–you get disconnected.

These are a few of the reasons I’ve developed a bad case of bankophobia.

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Fraudsters & Tricksters = Bankers

Scary Clown
Image by elycefeliz via Flickr

Recently, I stumbled across this video of “Bill Moyers‘ Journal” which I had not seen. Wow! This is explosive stuff! William K. Black, bank regulator extraordinaire and author of The Best Way To Rob A Bank Is To Own One, takes the lid off the seamy, scummy world of investment banking. Showing pervasive fraud in almost every aspect of the business, he explains in easy-to-understand language why not only Clinton and Bush, but also Barack Obama along with Timothy Geithner and Henry Paulson are trying to keep the real story from us.

It’s a story of fraud and greed and it continues as long as the failed CEOs and CFOs who stole billions and are continuing to do so, remain at their posts.
This video is half an hour of talking heads, but wow!

http://www.pbs.org/moyers/journal/04032009/watch.html

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

Cover for the first Zombie-Loan manga volume
Image via Wikipedia

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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