HAMP Loan Modifications – Preventing Foreclosures, Or Causing Them?

As I once heard brilliant financial guru Steve Forbes say (paraphrase) “. . . we had a chance to fix the mortgage crisis back in ’07;  if we had just let it crash, it would have been painful, but we would have recovered in 6 months.”  A free economy tends to correct itself, but it’s just not the nature of government(s) to leave things alone.  That’s why we have to endure this mess for years instead of months, and why we have new government programs every time another one fails.  Whatever it takes to prevent economy from it’s natural course: stretch the band, kick the can down the road, etc.

Since 2008, when foreclosures finally got the nation’s attention, congress and the administration has been trying everything they can think of to keep the economy off its inevitable course.  So every few months we get another program:  TARP, Cash-For-Clunkers, HAFA, etc.  Not only are none of these programs working, they seem to be making the problem worse, and like all government programs are easy targets for fraud.

It gets even more frightening when you can’t tell if the fraud is intentional.  Case in point is HAMP, the Home Affordable Modification Program.  The evidence is pretty clear that one way or another, most loan mods fail.  So along comes the government (again) with another program trying to revive a dead animal.  Is it intended to assist borrowers, or abuse them?

“What people entering the HAMP modification process don’t understand, until they are out on the street, is that it wasn’t designed to limit foreclosures; it was intended to expedite them”  (Geroge W. Mantor, RISMedia 8/17/2010).

Sound incredible?  Check out these two links:

(1)  More And Better Predatory Loan Servicing Fraud.

(2)  Are Loan Modifications Causing Foreclosures?

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Homebuyer Tax Credit For Inmates Serving Life Sentences

Remember the First-Time Homebuyer Tax Credit?   It was perhaps the only effective or successful federal economic program in the past five+ years.  Well, Even those rare government programs that actually work are fraught with fraud.  Go figure.

As early as last October, there were reports of fraud schemes and suspicious claims as the tax credit was set to expire and was being considered for extension (see DSNews 10/20/09).   That’s not so surprising, I guess.

What’s shocking is the recent report that prison inmates were able “to apply for and receive $9.1 million in homebuyer tax credits” (see DSNews 6/24/10).  This article refers to a Treasury audit report that further shows that 241 inmates serving life sentences received a combined $1.7 million in tax credits.

This sort of begs the question: what kind of income tax liability can you earn serving a life sentence behind bars?  Is there even any point in a federal tax credit?

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The same Treasury audit also indicates that $17.6 million in claims were allowed for homes purchased before the tax credit program.  It gets better, though, with the reports of post-refund claims resulting in investigation, $785 million, or post-refund claims resulting in denial, $438 million.  The IRS seems to be catching a whole lot more fraud than they miss, but still . . .

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Are Foreclosures On The Decline In California?

We were recently asked this question while being interviewed by the local ABC TV news station.  What prompted the interview was an article and statistical survey published by RealtyTrac: “Forelcosure Sales Account for 31 Percent Of All Residential Sales In First Quarter.”

According to RealtyTrac, “California posted the second highest percentage, with foreclosure sales accounting for 51 percent of all sales there in the first quarter — up slightly from 50 percent in the previous quarter but down from 70 percent of all sales in the first quarter of 2009.”  Wow!  Over half of all sales were foreclosures, and that’s an improvement from the previous year.  The highest percentages were in the San Joaquin Valley, San Bernardino and Riverside areas.  Santa Clara County was relatively low by comparison.

So, are foreclosures on the decline in California? Hardly.  According to the LA Timesbanks foreclosed on almost 200,000 homes in California last year, and this year’s toll is expected to be even higher”.

Sometimes the news is confusing, which is to be expected because the media seems to be generally confused.  It’s easy to misunderstand the facts.  On one hand, foreclosure activity was down in May, but bank repossessions hit a record high (CNBC, June 10).  What . . . foreclosures down, repossessions up?  Aren’t foreclosures and repos the same thing?  It depends on how the terms are used.

Foreclosure activity” generally refers to the beginning of the process, and “bank repossessions” refers to homes that have already been foreclosed, or REO (see our earlier post).

Why did the percentage of foreclosure sales decline since a year ago?  It’s not because there were fewer foreclosed properties, it’s because fewer of them were for sale.  Doesn’t make sense, does it?   If there are more bank-owned properties, there should more of them for sale.  But according to Rick Sharga, senior VP of RealtyTrac:  “they’re managing inventory to prevent a free fall in home prices.”  See our earlier post: The Shadow Inventory.

We still have a long way to go.

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Get The Right Home Loan First

This is the first step in shopping for a home, and maybe the most important. If you have the right loan, it will save you untold frustration after you have your offer accepted.  If you wait until after you’re in contract, there’s too much pressure and not enough time to make a thoughtful choice.

I just finished reading this article in the LA Times, recently summarized by the California Association of Realtors:

“After shopping for a home, tired buyers often make poor mortgage choices” http://www.latimes.com/business/la-fi-lew-20100606,0,1809394.story

This is so true.  Not all loans are equal, neither are they always what they seem. You should question everything, and everyone, relentlessly, and take your time. You would do as much if you were buying a car.  When you buy a home, you’re really buying a loan.  Do your homework.  Choose your loan carefully, and choose your lender carefully.

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Talk to more than one lender.  Ask them to help you figure out what you can afford, and for the two best loans they recommend for your situation.  If you get the same answer from two or more lenders, then you’re getting close.  Again, question everything.  Understand your loan completely. Avoid surprise and frustration.

Finally, work with a lender that you resonate with, one that is crystal clear and easy to understand.  This is important, too. Most stressful moments in a transaction come in the last few days before close of escrow, and my experience is that these moments almost always things that were communicated poorly, or not at all.  You don’t want to find out at the last minute that you need another $10K for mortgage insurance, or that your rate is actually 5.375 instead of 5, or that your origination fee is 4% instead of 1.5%.  You need to be able to communicate clearly with your lender during escrow.

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Beware The Craigslist Rent Scam

Regretfully, all is not what it seems on CraigslistOn a recent REO listing we received numerous calls inquiring whether the property was for rent or for sale.   Shortly after we posted the home on the multiple listing service someone posted a Craigslist ad offering the property for rent at a ridiculously low price.  The ad actually copied our MLS headline and verbiage word-for-word.  This was an upscale property in remarkably good condition for an REO.  We expected a lot of inquiries, but not from renters.

Some of the callers had driven by the property, noticed our lawn sign, figured the spoof and called to tip us off.  One of the parties answered the ad and received a response from an “absentee owner” with elaborate instructions regarding deposit, credit check, keys, etc.

This isn’t the first time someone rent-spoofed one of our REO listings. The last time we got tipped off, one of my staff posed as a prospective renter and carried on a clever reverse spoof with the scammer by email. She filled out a long application under a celebrity name, answered by a request for a photo.  She sent a photo of another celebrity, answered by a request for a money order for the deposit.   The scammer explained how they really wanted someone who would take good care of their home while they were overseas, how they would take time out of their busy schedule to fly home and deliver the keys once the deposit had cleared.

Game on. The scammer fell for the spoof, apparently not picking up on the celebrity name or photo.  This is where it got interesting.  My assistant crafted a passable, but obviously mocked-up money order and sent it.  After a couple of days, the scammer responded furiously, all upset that the money order was a fake, going on and on about how someone would take advantage of him that way. Finally I weighed in and emailed the fellow explaining the spoof, how much fun we had, and the implications of the fraud he was attempting.  He wrote me back telling me to “go and die.”

Although we’ve been tipped off to only a couple of instances over the last three years, it’s probable that this goes on all the time. The sad part is, like all internet scams, they must work sometimes.  If people didn’t fall for them, they would stop.  Beware the Craigslist rent scam, and warn everybody you know:  don’t pay for anything you can’t verify! If you are even slightly suspicious, consult a professional.

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The Ethical Dilemma of Strategic Walk-Aways

Owners that can actually make their loan payments, but choose to walk away, accounted for 1 in 4, or 25% of all foreclosures as of June 2009.   That was over six months ago, and the numbers have probably gone up since the initial studies (these data can be easily verified via a quick Google search).  Strategic default is an ethical dilemma, and the discussion is burning up cyberspace. On one hand, there is a moral obligation to honor your contract.  If you owe more than your house is worth, one way or other you gambled on your equity and came up short.  Maybe you bought at the top of the market, or took out an equity line of credit and bought some stuff; a car or TV, or maybe even another house.  Regardless, it’s not your lender’s fault that your property value went down.  After all, if your property went up in value you wouldn’t turn around and give the bank extra, right?  If you buy gold, and it loses value, you don’t get your money back, you wait it out. If you loan money to a friend, and he loses it all, you would still expect him to pay you back, especially if he can afford it.  The value of a promise doesn’t flex due to circumstances, or whether you are the giver or the receiver.  If you can make your house payments, it’s the right thing to do. On the other hand, are the banks responsible for some of this mess?  Should they share the burden? Didn’t they sort of tease us into all these high-risk loans and credit cards?  In the first few years of the Y2K decade, the FED, major lenders, and real estate professionals convinced us that everybody in America could buy a home.  They made you feel foolish if you didn’t.  It was like manifest destiny,your birthright, your duty. You could get a home loan if you had a pulse.  You could qualify just because you said so, no matter if you could actually afford one. Lenders didn’t seem to care if you were truthful in your loan application.  Certainly they knew they were making questionable loans, gambling on equity just like us.  Aren’t the financial institutions culpable, too?  Didn’t they practically beg us into this? The survival of our economy depends on everybody doing the right thing.  Imagine the consequences if all borrowers that owe more than their house is worth but can afford the payments choose to walk away, or if all the lenders call in all the notes on properties that won’t appraise for the full amount.

So, who gets the free morality pass?  Who gets to choose what’s fair? Is personal credibility negotiable?   Is the golden rule irrelevant?  Do we just step off when times get tough? Is this the new American paradigm? Not surprisingly, real estate professionals are leading the charge in advising people to walk away.   Not ironically, real estate professionals were leading the charge 4-6 years ago advising people take on these same loans.  Whatever it takes to earn a fee.  Maybe it’s time for an industry gut check.

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Is There Really A Shadow REO Inventory? Part Two

No doubt there is a shadow inventory.  In fact, our sources indicate a substantial, almost incredible number of foreclosed homes in the national bottleneck.  Our original post on this topic was “Shadow Inventory, yes.  Banks holding back, not likely”. As indicated, this was posted in rebuttal to the referenced WSJ article, last July.

Of course a lot can change in 6 months.  Since then we have come to believe that Fannie Mae is, in fact, deliberately holding back inventory, a probable attempt to stabilize or stimulate values, another ill-fated artificial manipulation of the marketplace.  Only government-sponsored enterprises (GSE) can get away with holding non-performing debt rather than having to liquidate it.  Apparently the recent near collapse of Fannie and Freddie did little to cure their attitude.  How can you hold onto to non-performing debt and survive?  Obviously you can’t.

The fallout of this strategy of the GSEs is that the major banks like Wells and BofA now have to follow suit, whether they want to, or whether it makes good business sense, or not.

It’s amazing how resilient and patient these guys are.  First they absorb all the bankrupt competition and all the non-performing debt.  Then, the government traps then into partnership through TARP and forces them to take bailout money they don’t want.  Then, moratoriums and intervention handcuff them and prevent them from doing any sensible business at all.  In the meantime, the media vilifies them and the public hates them.

But these guys are the only hope.  They are the only survivors amongst dozens of bankrupt banks.  They survive through fiscal responsibility and good management, two concepts that seem to elude all federal agencies.

Fannie Mae and Freddie Mac were saved from bankruptcy by bailout from the federal government, the largest debtor in the world. The only reason the federal government isn’t not bankrupt already is because they can print money (see our blog “What Is The FED?, Part Two” 10/3/09).  These are proven fiscally irresponsible agencies.  They maintain the illusion of being in control of our economy.  They are manipulating national housing, foreclosure and lending laws, with no consistent vision or policy.  This is a disaster.

The irony in San Jose and Silicon Valley is that Fannie and Freddie haven’t been much of a player here.  For the past 10-12 years our average values were above FNMA limits.  All these ’05 loans that are foreclosed are from non-GSEs, yet our marketplace is captive to their manipulations.

So, we wait.  In the meantime it’s a warzone: lots of buyers, no inventory.  It’s all in the bottle.  Heck of a recovery strategy.  Let it out!  We can sell it! NOW!

If the federal government, the Federal Reserve, Fannie Mae and Freddie Mac would get out of the way, maybe we can get out of this mess. Maybe we wouldn’t have gotten into it in the first place.  Let the banks do their job.

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Did You Really Squeeze Super-glue Into The Keyhole?

Unbelievable.  The old adage is true: “if you come to the ballpark every day, you’ll see something you’ve never seen before.”  Agent behavior never ceases to disappoint me, like vandalizing listings.  Have you heard the one about agents that steal keys from lockboxes to discourage competing offers on hot listings?  Well, today my Realty World colleague, Derek Miller, told me a real whopper.  This takes the prize (to date, anyway) for the most classless act I’ve ever heard of.  To my shame, it made me belly-laugh.

Derek took some clients to look at an aggressively priced bank-owned listing and couldn’t get the key to work, only to discover that someone had squeezed super-glue into the keyhole! So, of course, Derek and his clients couldn’t get in to view the property.  Neither can anyone else, which I guess was the intention. Obviously we can’t say for sure that it was an agent, but . . . what would be the point how of something like that be for an ordinary prankster or delinquent?  If it quacks like a duck . . .

From the window Derek could easily see that there had already been a lot of agents showing the house.  Even though the listing was only a few days old, given the lack of inventory, there are bound to be numerous offers anyway.  So why bother vandalizing the lockset?

Can we really be so desperate to win that we’re reduced to vandalism and stealing?  C’mon already.  Further disappointing is my anticipation that my posting a blog about this will actually contribute to the problem, because it will give the idea to someone else.

What Is The FED?, Part Two, or The Wolf Is In The Henhouse

The Federal Reserve Board controls the Federal Reserve system: an elaborate depository chain which guarantees the value of money, determines the cost of money, and controls the flow of money.  Natural economy is based on supply and demand of goods and services.  Contrarily, the American economy is based on the supply and demand of money, controlled entirely by the FED.  Basically, the FED, a private organization; autonomous and accountable to no one, controls and manipulates the American economy.

Why?  Profit.  Private profit.  As long as money is moving, or changing hands, bankers make a profit. When the money stops moving, they get busy and reverse the flow.  The money starts moving the other way, and the FED still makes a profit.

This sequence is known as inflation.  Inflation is not natural, rather it is a result of manipulation.  There was no real, sustained inflation in US history until the FED was established in the early 20th century, but it has been out of control ever since.

Inflation, deflation, it doesn’t matter, as long as the money keeps moving.  That’s the whole point of the Federal Reserve System. Our government doesn’t determine economic policy; it only reacts to it.

To review our earlier post from July 09, the FED loans money to the Federal Government, at an interest rate that the FED controls, paid by your income tax.  This is a debt that will never be paid. You, the taxpayer are hopelessly trapped.  The government keeps borrowing more money, and the national debt just spreads out and expands, and the dollar grows ever weaker.

The Federal Reserve can print money when they need it, simply declare to it have value, then charge interest on it, and it works because we believe them.  It’s basically endorsed counterfeiting.

The Federal Reserve is the faceless puppet master behind the default crisis.   Now they have maneuvered themselves into control of some of the larger private banks, too. More on that later, in the meantime, keep an eye on your credit card statements and read them carefully.

For more information about the history of US Banking and the Federal Reserve, check out this informative website: End the FED!

Whatever Happened To Common Courtesy?

What is it with real estate agents who don’t return phone calls, reply to email, or respond to inquiries?  It’s like an epidemic, especially with REO or short sale agents.  Look, we all know you’re busy, but how about a little common courtesy? You’re giving us all a bad rap.

If I leave you a voice mail, have someone call me back, for crying out loud. How difficult is that?  If you’re so busy that you can’t handle the volume of calls, you can afford to hire a staff to do it for you.  If not, you should change your outgoing message from: “Your call is very important to us,” to: “Sorry you called.  We’re too busy to acknowledge you, so don’t leave a message because we won’t call you back.”

I’d guess you don’t ignore your REO clients, asset managers or short sale negotiators.  You wouldn’t leave them in voice jail; you probably respond immediately.  Why should buyer agents be treated any differently?

Buyers and their agents have a right to expect a timely response to inquiries, and especially to offers.  Maybe it’s just a simple question about the availability or status of a listing, whether it’s worth the time and effort to draw up an offer.  Maybe I just want to know if you actually received my offer.  I don’t know how many offers I’ve submitted which were never even acknowledged, even after numerous calls and email.  Eventually I discover the pending sale on the MLS.  That’s more than discourteous; it’s a professional slap-in-the-face.

We have more communication devices than ever before. It should be easier than ever to respond to each other.  We’re so connected that it’s nearly impossible to disengage.  So, why can’t you call me back? Or send a text?  Or something?  Isn’t that what your blackberry or iPhone is for?

Imagine if your doctor suspected you had a brain tumor, but after a series of tests he didn’t return your calls.  Would that cause you some anxiety?

Buyers are in a battle zone right now, getting beat up by multiple offers, and buyer agents are getting worn out.  Give ‘em a break and show a little courtesy. Call them back.  That’s the least you can do.

Being an REO broker, I know how busy the phones and email can get.  Still, I believe that we have a professional obligation to be as responsive and timely as possible.  If you call my office during regular business hours you should get a response within 60 minutes; if after hours, by the next business day.  If not, please email me directly.