The recent Obama Administration mortgage program to help homeowners refinance was initially established for homeowners that were no more than 105% of debt to current market value.  To all of us in the industry this was frankly laughable.  It was common knowledge that the deflationary spiral down in real estate nationwide has left many people 40-50% upside down with their properties relative to equity.  The program recently just received a nice modification whereby it will allow homeowners to refinance up to 125% of debt over current market value.  The administration also recently endorsed the Real Estate Short Sale as another free market means of solving a mortgage problem by adding small financial incentives for borrowers and lenders to participate. What does this mean for you?

 

This means that the policies are becoming realistic and we can put the news media hype and requests for urgent governmental initiatives as a means of calming the public aside.  Now is a time for a long drawn out healing process that will include significant deleveraging.  This is the only way people are going to be able to get their arms around their debt and get there personal financial house in order.

 

The change to the mortgage assistance program is primarily for FNMA & Freddie Mac existing mortgages and it does have qualification provisions.  Certainly you must have a job and you must clearly be in a position to afford the repayment of the new loan.  The government wants to facilitate the lowering of the national private citizens’ debt service but it does not want to assume a massive new wave of default liability.

 

Having said this, where does 125% of debt to market value peg the needle in the mind of most people?  In my opinion, this change along with the incentive for short sales are two of the most realistic and truly valuable moves to help distressed homeowners since the crisis began.  My reasoning is that these initiatives are realistic and grounded based on human psychology. 

 

If you are gainfully employed and your family is settled in a home and your children are enrolled in the local schools, do you really want to bail on a home and dump the problem on your lender if the government will help you lower your monthly mortgage cost significantly thereby making it affordable to stay put?  Realistically the answer is for you to stay put and lower your rates from the 6-8% range to somewhere between 4.5-5.5% range.  When you work through the numbers the benefits far outweigh the personal hell you must face if you were to choose to leave the property. This positions the Obama program move toward a stabilizing factor then the previous unrealistic false hope before the change.  This now makes the program a constructive option for those within the program parameters were as before the change the program was unavailable to the majority of those in need.

 

The short sale incentives also point the distressed people in the right direction.  The government does not want the burden of backing homeowners that are in excess or 125% of value.  Why?  Clearly in the minds of all us when we see a bridge to recovery that is so far that we cannot see to the other side we look to take evasion and often panic actions to get out of a bad decision.  This means default, foreclosure, or the more constructive short sale solution for you and your lender.  The 125% threshold is a good fit for the administrations program to constructively address today’s problem where people in the 150% debt to equity area need to accept responsibility for their own solution.  This is the area where the market simply needs to clear itself through the process of foreclosure or short sale.  The government can help but can not afford to indirectly assume responsibility for everyone problems.  At the end of the day you own your own mortgage problem. The lender did not lend you the money with the contingency that the economy would be good and your house would never deflate in value.

 

At the end of the day it is very interesting to see all the hype from the government programs beginning with the Barney Frank program that was initially announced in April of 2008.  There was so much hype and false hope to calm the markets while the government quietly worked toward its primary motive to save the free markets from the abyss.  The free markets have been saved and the healing process is upon us.  It is going to take some real time.  I say real because we are accustomed to V shaped recoveries.  I think this one is going to take a couple more years until things get back to normal. The real positive is that the programs and initiatives are becoming realistic as they focus on human nature and realistic incentives to help people fix their own problems.  No more bailout headlines and that is good for everyone.

 

Lastly, I would like to comment on an article in Barrons today that outlined the success and failure of Loan Modifications.  Pick up a copy of Barrons if you are remotely considering a Loan Modification.  Look a the re-default rates and think through the cost you will have to bear to achieve an affordable Loan Modification from your existing lender. I would use the comparison of opting to get on an airplane to flyer from Alaska to New York for a cost of 10-20K in forbearance and payments and you only have a 20% chance of reaching your destination.  That means you spend the money and go through the personal hell over many months and your plane crashes in the mountains.  Good luck if you are convinced your lender loves you enough to give you a loan modification.  You have much better odds with the changes to the new government refinance program or the short sale solution.

 

The Real Estate Short Sale is once again the reigning champion of the free market solution.  It is almost impossible to fight the free market solution to find a better alternative. For those of you wanting to learn more about the Short Sale as a means of avoiding foreclosure we welcome you to join our Free Trial at www.thenegotiatedsolution.com.  It is free and will only cost you two hours of your time.  You have probably spent months worrying and losing sleep not to mention the assets you have dissipated in the interim.  Its time to learn about the short sale and its benefits.

 

Blogging from the front line of the housing crisis.  GHunter

The Mortgage Cramdown movement really starts with changes to the Bankruptcy laws to allow Bankruptcy judges to modify interest and payment rates.  Does this mean you are going to have all your miserable residual mortgage above market value forgiven?   I have the answer but I want to wait and let you find out for yourself.  To help you understand the most realistic vision of what is to come I would like to share with you the comments from a prominent member of Congress just last Friday evening.

 

When asked by the press if the Mortgage Cramdown Legislation was going to forgive debt here is what the Congressman had to say.  He said the program was designed to incentivize lenders to reduce interest rates and payments in an effort to avoid foreclosure and bolster negotiation.  Put a different way that means to help stabilize housing and once again address saving the free market.  He further went on to say that there would be virtually no forgiven mortgage debt. 

 

He explained that only in very extreme circumstances would there be any forgiven mortgage debt.  The program has been designed to pressure more lenders to the negotiation table with the threat of bankruptcy.  Whether it works is one thing but the real question you must ask yourself as a homeowner or investor is completely another thing. Tomorrow is a big day.  Many people are waiting for the details on more legislation with the expectations that the Obama Administration will be sending out checks for thousands to millions of distressed homeowners that made bad decisions.  The issuance of handouts in the form of checks is not real, but the expectations of saving people that currently find themselves in an upside down equity predicament with a property is real to them, and is the same as a check from Uncle Sam.  I am telling you for the record that there are people in trouble with their primary residences, second homes, investment properties, and many people significantly overexposed with multiple investment properties.  Thousands upon thousands of people have high hope and expectations for mercy and bailout. Dependent on what category you fall into, do you feel worthy of a bailout, and can you handle the scrutiny and rejection if you clearly are not eligible?

 

Are you planning to go to bankruptcy to essentially achieve a rotten loan modification?  You can’t lie or hide assets in Bankruptcy.  Uncle Sam frowns upon this.  If you are considering Bankruptcy as a solution are you aware of the overall credit and financial ramifications of this declaration.  Even if you file and decide not to go through with Bankruptcy you will be hurt severely.  Before you choose such a radical move you should understand all your options.

 

The only real way you can literally take advantage of the macro environment and be eligible for significant forgiven debt without breaking any federal laws or subjecting your self to incrimination is a Short Sale.  I stifle at the though and expectation of all the people in trouble that expect debt forgiveness with no sacrifice or solution to the lender.  Does anyone have any conceptual opinion of contract law?  All of the mortgages that are tied to the collateral, your problem homes, have investors and they have binding investment contracts.  Obama may have charisma and be a smooth talker at speech time but he does not have the money to make everyone whole or take on capitalism and the contact law that binds it into a machine.  You, me, Obama, and the commander of the mighty Sixth Fleet can not sustain the death knell to capitalism and our country without free markets and private capital.

 

Private capital has a life of its own.  If you take away the incentive of gain or pull the rug out from under the platform that supports it then private capital chooses not to participate.  We all say what happed to liquidity and markets worldwide after the demise of Lehman.

 

Now I ask you the question once again.  Is the mortgage Cramdown legislation and all the bells and whistles Obama throws at us tomorrow going to save all the distressed homeowners with the nirvana of forgiven mortgage debt?  I don’t definitively have the answer.  Knowing the client profiles, and the money and jobs most have, I would venture to say the many will simply not be eligible for any of the programs.  This is exactly what we have seen to date over the past year.  Where does that leave the vast majority of you? 

 

Frankly it leaves you with the financial incentive to investigate a Real Estate Short Sale to get out of a bad situation with any property.  Whether you truly have an affordability issue, or you are just an over exposed investor, please do not waffle around and go broke by taking no action or initiating any investigation.  I am going to give you an absolutely free opportunity to learn and help yourself and your family.

 

Today we are offering a 7 Day Free Trial of our online video program The Negotiated Solution available at www.thenegotiatedsolution.com The free part is the very intense and informative two hour video portion.  Obviously if you want unlimited access and all the other information you will have to upgrade and pay some money. However, I am offering you a credible presentation of the Real Estate Short Sale Solution with No Risk and No Credit card.  I want people to understand their options.  I give you my personal guarantee that the program will be well worth your time.  I would like everyone to be part of their own solution and so we can let the government take care of the real desperate folks and eventually get our country and economy back on track.

 

Let’s face it, this is America, but when you look at the stocks and companies that have virtually gone to nothing there is little to be proud of.  I beg for normalcy and I would like to see everyone win but that is not realistic.  There will be winners and there will be unfortunate circumstances with many more foreclosures and hardships to come.  I want you to be a winner. 

 

Blogging from the front line of the housing crisis.

 

GHunter

If you have not already taken the opportunity to check out the link on CNBC with Rick Santelli going ballistic on the septic nonsense the White House has produced in its latest effort to stabilize housing, I recommend you do so in my previous blog.

 

I want to help people see through the lines and noise of the media and misinformation that is plaguing us all.  Lets look at the tid bits of the new housing plan that we know and lets then take a real look at reality as it is presented in today’s real estate market.

 

The plan calls for people that are gainfully employed to be able to refinance to a low market rate of interest as long as their loan value is not more than 105% above the new mortgage value.  The main focus will be with existing FNMA and Freddie Mac loans but I am sure other lenders will also qualify.

 

Ok, this sounds great, but what is wrong with this picture?  We are in a deflationary environment and many people are underwater on their homes by $100-300K.  These are many of the people that are considering walking away from their homes and dumping their problem on their lenders resulting in FORECLOSURE.  I don’t see the final bill sending out hundreds of thousands of dollars to make everyone’s bad investment decision a good one.  A mere 5% does very little to get at the root of the real problem.  Given this, the Real Estate Short Sale is once again front and center as the best and most effective tool for the distressed homeowner or over exposed real estate investor.

 

Now let’s look at the loan modification part of the plan.  Reflecting back on past blogs you know that in order to be eligible for any type of loan modification you must have a job.  I believe the plan will issue subsidies to incentivize the lenders to make loan modifications where they normally wouldn’t but don’t count on forgiven mortgage debt.  Keep in mind investors own this paper and they have the right to decide and sue.  If you think smooth talking Obama is going to turn contract law over with the stroke of a pen and undermine the foundation of capitalism, I am telling you I wouldn’t bet on it.  Free markets and capitalism must survive or Obama runs out of money. 

 

If you take the last two paragraphs and merge them together you come up with lots of people that will want loan modifications or refinancing that are underwater on their homes by a significant margin.  I hate to introduce reality but this is the view from my window every day.  Are you going to be happy with a loan modification that takes you down to 31% of monthly gross income when you know you owe another 200K and there are stings attached?  This is my question to you.  I know people are suffering.  Why not plan to move within a couple football fields of your current home and rent for something you can afford while you simultaneously pursue a Short Sale and get all the debt forgiven?  I am not crazy.  This is a real option.  It’s not easy but I suggest you at least consider a short sale because it is the only free market option available to you where you hold the reins.

 

Here are my final thoughts on whatever the final Obama Lunchcapades of Housing produces.  I am happy to see that they are coming out with something. I am not as made or vocal as Rick Santelli of CNBC because I know that anything that comes out as free lunch will only be a band aid until the economy begins to recover.  Once all the programs an stimulus kick in and really begin to gain traction it will be back to free market business as usual.  What does this mean for you?  If you are in trouble you will fail and the steam roller of capitalism will move you over like a daisy.  Lenders will foreclose on you with complete ambivalence.  Your home will be sold to someone new, you will become a statistic, and the process of renewal will move ahead in an orderly fashion.

 

Please do not think the government gives a crap about you, they don’t.  They care about the free market that is it.  If they cared about you the programs from last year would have come to everyone’s rescue and the politicians, corporate CEO’s, Treasury Secretary, etc would not have been allow to lie through their teeth on television.  Do you not remember that “everything was fine” at Bear Sterns, FNMA, Freddie Mac, AIG, Lehman Bothers.  I have had about enough of the deception and lies.  Take the reins in your own hands and rise to ultimate solution to Avoid Foreclosure with The Real Estate Short Sale.  We will show you how to do it the right way at www.thenegotiatedsolution.com and get the debt forgiven.

 

Blogging from the front line of the housing crisis. 

 

GHunter

I have nothing but respect for Rick Santelli.  Why should someone get a free ride when the majority of Americans (92% approximately) are making their mortgage payments even if it’s difficult to do so in the current environment.  It’s all about social responsibility.  My hat goes off to Rick for standing up and shaking the White House Tree.  He really pissed people off in the administration to a point where they came out and went on the attack on television.  Freedom of speech baby, suck it up and take your lumps White House because this isn’t over by a long shot.

 

Give em hell Rick, American was not built on handouts and rewarding failure.  Failure and renewal must occur if the free markets are to function and allow our country to recover from this nasty recession.  More on this and the Obama Lunchcapades plan and how it affects you in my next blog.

 

Here is a link to the video if you are interested. 

 

Santelli’s Tea Party

CNBC’s Rick Santelli and the traders on the floor of the CME Group express outrage over the notion they may have to pay their neighbor’s mortgage, particularly if they bought far more house than they could actually afford, with Jason Roney, Sharmac Capital.

 

http://www.cnbc.com/id/15840232?video=1039849853

 

Blogging from the front line of the housing crisis and www.thenegotiatedsolution.com

 

GHunter

Well we have all had just about enough from Congress. Congress and the regulatory houses did not just make a few mistakes. They were absent and its time for you to make them accountable at the polls. What am I talking about?

Remember Fannie Mae, Freddie Mac, Bear Sterns, and Lehman Brothers? Great American institutions and everything is going to be just fine until it isn’t. There are people in office and at the Securities Exchange Commission (SEC) that represent that they will look after the markets and ensure that it is fair for the little guy.

Fannie and Freddie were fine and about a month later they weren’t fine and had to be nationalized. Oh come on, conservatorship means insufficient capital as far as the eye can see and if you were a stockholder it means “toast”.

Bear Sterns is really what I am itching to talk about. Both Bear and Lehman were fine on a given Monday. Their CEO’s said they were adequately capitalized and they would be fine. What a pack of lies. The most recent statement came from Dick Fuld of Lehman Brothers. I am sure that Dick didn’t know about the 45 to 1 leverage, or that no one in God’s creation wanted to buy them, or that the leveraged residential and commercial mortgage paper was no good. His parents knew long ago and that is why they named him appropriately “Dick”. How does it feel to be a Lehman Brothers stockholder? I would like to see guys like this go to jail. Where the hell is Sarbanes Oxley?

This brings me to Bear Sterns. Bear was a similar situation and in my opinion based on personal experience more of a culprit than Lehman. Based on what I am about to share with you Bear should be out of business and Lehman should have been saved. Although who am I to make all this stuff up? It must have just been a dream. I had a dream that we were selling significant qualities of mortgage paper to Bear Sterns. Under the cover of the insurance agencies and their backhanded triple A rated deals the mortgage paper was garbage and the regulators were blind to what was taking place. In 06 & 07 Bear Sterns was pushing the financing envelope beyond anyone’s imagination. No one was coherent or even present to question it.

Enter the “Straw Buyer”. If you can sell anything in a pool of mortgages on Wall Street and the government doesn’t care then why should you? Bear Sterns did exactly this, at least as far as my dream goes.

The Straw Buyer is a person with good credit and a job that joins an investor group and writes a contract for the purchase of a property. This person has no money but they do have good credit and a job. To Bear Sterns this was an opportunity to find a way to give this person a loan. Why worry about underwriting guidelines like “reserves” or “skin in the game”. Let’s let the people find somebody else’s money and we will give them a loan. Let me clarify, not just any loan, how about a loan up to $1,000,000 with no income verification and only four credit trades with a 12 month history. You only need guidelines if you have to convince the market that is buying the paper that it is good paper. If there is no threshold to raise the money then do what ever you please. Wow!

How did the straw buyer get the loan if they had no money of their own? What lender would create a mortgage program that would allow this under any type of protective underwriting guidelines? Bear Sterns wanted to fill more pools of securitizations to Wall Street so they allowed loans to straw buyers who were members of investor clubs. The investor clubs would have a couple accounts with a couple hundred thousand dollars in them. These account statements would be shared with multiples of borrowers accompanied by a letter from the investment club that stated the buyer was a member and had the rights to the funds. Wow again!. The straw buyer would buy the house and the investor club would make the payments as long as the real estate market continued to go up. Properties were sold and the club and the straw buyer shared the profit. If the real estate market cracked and the club got caught with the property the straw buyer agreed to take the foreclosure and stick the problem to the lender. That is exactly what happened.

This was a great gig for the straw buyers and the investment clubs. Well now that the party ended and the wave of delinquencies and foreclosures has hit us, everyone is blaming the homeowners. The homeowners must just be stupid or is there something else that nobody wants to talk about. Bear Sterns never should have allowed any perspective buyer to obtain a mortgage without their own money. This is pure unadulterated greed and they got away with it while the regulators were literally asleep at the wheel.

What a dream that was. I wouldn’t want to claim it to be more than fiction because it may really look bad and interfere with all the photo ops Congress likes to enjoy. Heaven forbid that anyone at the SEC should have to actually earn their paychecks. Showing up for work and cashing them is more in line with reality.

When you vote you should know the extent that our country’s leadership was absent. This was despicable. Let’s vote these idiots out of office and bring accountability and prudent underwriting guidelines back. I am voting for experience and strong track records that can be validated. Go forward on November 4th and make your vote count.

What do you think? This is America and I am tired of this crap.

GHunter