I am wishing everyone a very Happy New Year and a little bit of humor to end the year.  2008 will go down as the worst year financially in our lifetimes.  When we survey the damage to our portfolios and real estate market clearly a “Polished Turd” is the most positive spin we can muster at this juncture.  However, we must look to the future and take heed in the prognostications of the great visionaries that manifest themselves in the communist block.

 

A Russian professor took time out from playing with his Lego set to exclaim that the United States of America will self destruct in the year 2010.  According to this great visionary, the US will be split into six separate states by civil war and the unrest of our financial markets and our overindulgence on debt and a general reckless abandonment for responsibility will doom us.  It is said that the Mexicans, the Canadians, and the Chinese will each rule a portion of the US. 

 

My fellow Americans, I am afraid.  Such a prognostication for a professor that probably helped build the nuclear sub the Kirsh must be taken seriously if the US is to survive another 11 months.  The last time I checked Russia was run by the mob.  Their submarines sink to the bottom of the Arctic and blow up.  Their currency has limited convertibility.  Their oil & gas production, that they rely on as their sole economic resource, is declining due to lack of infrastructure investment.  I think you get the picture.  Is it time for us all to move to Russia? 

 

What a bunch of losers.  I think the Russians are just jealous that our women are hot and we have real freedom.  Are you expecting me to believe that Mexico is going to be in charge of a portion of the new establishment?  I have trouble with the Mexicans that cut my lawn.  Don’t get me wrong I like them very much, however, I have a sprinkler system that comes on automatically and I have asked them over the years to show up around noon so their mowers don’t get stuck in the yard.  It’s become an annual ritchual. I don’t get mad anymore.  Every season I watch six of them argue as they rock a mower back and forth in a desperate attempt to free if from the side yard.  After my wife and I are done laughing the leader just drops by with a 50LB bag of grass seed and smiles.  Thanks fellas, I will take care of it and reseed the yard.  Now you are telling me these guys are going to control one of the six new US territories? 

 

I won’t even get on a rant about the Chinese.  Let’s face it, the world has more dysfunction in it then we can handle.  It’s truly a comedians dream for material. 

 

On a more serious note, the housing/mortgage crisis is a real problem but we will get through it and prevail.  Freedom, Capitalism and the Entrepreneurial spirit of our country is a flame too bright to be extinguished.  Do you remember all the idiots that proclaimed that the world has decoupled from the US and that as the US economy went into the tank the emerging economies would eventually take over?  Well I never believed that for a moment.  Once again, it appears that was just another farce and that the US is the world’s predominant engine of growth and financial clearing house.  Just look at the carnage in China and Russia and other countries around the world.  It is laughable that they are so dependent on our country. 

 

Do yourself a favor. Turn on the Smithsonian or the Military Channel and check out “Carrier Group Enterprise”.   I have a friend named Don that is an F-18 Super Hornet squadron commander on one of our nuclear aircraft carriers.  Let me tell you my friends, if you are worried about the US being divided up by tyrants and left for dead, spend an hour having a couple beers with Don and you will sleep like a baby every night.  The only thing that is going to happen to the United States in 2010 is that we are going to be once again stuck herding sheep as the rest of the world tries to get their act together.

 

I love this country and I love the free comedy all the assholes and morons from China to Russian to Venezuela provide us.  Hey, does anybody want to rent a couple tanks and go run some students over on TV?   Let’s put 2008 “The Year of the Polished Turd” to bed and never look back.  Blogging from the front line of the housing crisis www.thenegotiatedsolution.com .

 

GHunter

The day before Christmas I caught a short blurb on Fox Business News regarding the state of the mortgage market.  An industry representative was adamantly demanding that people do something about their mortgage problems.  She said, and I quote, “Don’t let you lender mess with your grocery money”.  It was a short blip on the screen and it clearly caught my attention.  Was this fear mongering on the part of a mortgage industry guest on Fox or was this lady whole heartedly trying to communicate solid advice to the viewers?  I think this is an excellent topic to elaborate on.

 

If anyone without mortgage industry knowledge or familiarity with judgments and garnishments were to hear this on television they might immediately think that it is just another scare tactic on the part of some random guest of the mainstream media.  However, this lady had a very good point to make and I wish she had been more than a short blip on the newswire.  The primary topic related to all the delinquent or soon to be delinquent homeowners facing imminent foreclosure.

 

Here is what she was trying to explain but clearly did not have enough time on Fox to elaborate on her point.  If you are a distressed homeowner in jeopardy of losing your home to foreclosure you need to attempt to do something about it so you can avoid a deficiency judgment that will follow from you lender.  A deficiency judgment is allowed in many states and is no different from any other judgment.  When your home is foreclosed upon by the lender, the lender will follow state law and present before the judge or magistrate the deficiency.  When the amount is approved the court will grant the lender the right to a judgment that will be placed on your credit report. 

 

The problem with any judgment that is deemed worth collecting is that the lender can garnish your wages and really make your life a living hell in the process. This is what the lady was referring to when she said “don’t let the lender come between you and your grocery money”.  Once a judgment has been issued the lender can now take action to obtain a garnishment. A garnishment of wages is mandated by the state and your employer automatically must comply and divert your after tax money out of your pay check.  This is an involuntary action and it could be your grocery money.

 

This is a fact and not fiction.  This is also a scary thought so I am going to help you out with a little context to put you at ease.  It can happen and it does happen but only if you let it.  That is the beauty of the situation.  Lenders are overwhelmed and you have the opportunity to negotiate a short sale or loan modification.  The only people that are going to have to deal with a potential garnishment or other legal seizures of assets are those with assets to lose and those that just dumped their problem on their lender and never attempted a solution.  Also, the garnishments don’t happen immediately in this type of environment.  The lenders will obtain the judgments from the courts and try to collect them much later when the markets settle down much like they did in the years after the savings and loan crisis of the early 90’s. 

 

What does this mean for you?  Investigate if a real estate short sale is for you.  Does the benefit merit the time and effort you need to invest to succeed?  These are very important questions.  I am promoting my own book when I say check it out at www.thenegotiatedsolution.com , but I don’t want you to think I am participating in the fear mongering.  You are only at risk if your lender wants to pursue you.  Many of you in an upside down housing situation have money to lose.  How do I know?  We have hundreds of clients and 85% of them have no skin in the game and want a way out but they have money.  You would think the majority of people would be financially strapped and somewhat desperate.  This is simply not the case.  There are many people that participated in the real estate game that have good jobs and a lot to lose.  You know who you are.  Whether you have money now or expect to recover in the future I think it is best to settle with your lender or lenders and avoid the potential of any kind of judgment haunting you in the future.  Protect your bounty while the getting is good is another way to put it. 

 

Now, did I ever go after judgments when I was a lender?  The answer is no. I am referring to my team and my bank.  We chose to write the loss off against income and move on.  However, we were a small operation compared to the goliaths that may hold your mortgage.  We didn’t feel like dealing with the headaches and we were profitable.  Today’s environment is different.  Very few lenders are profitable and they want their money back.  The best advice I can give you is to take the risk off the table.  Don’t let anyone mess with your grocery money.  Avoid the foreclosure mess and walk away from an abundance of residual unpaid mortgage debt with a Real Estate Short Sale.  Blogging from the front line of the housing crisis!

 

GHunter 

 

 

 

I took two weeks off.  It’s time to get on a roll again so please humor me.

 

Sorry, but the false hope is getting agonizing.  Today the talk of the town is a new plan to help save half of the expected 5 million homeowners facing foreclosure.  Oh boy, college professors have Obama’s ear.  The plan is basically outlined as a loan modification with some principle reduction and a “silent second trust” for appreciation recapture by the lender in the future.  I don’t want to conger the displeasure of the crowd, but wasn’t Barney Frank sucking on that pop-sickle with his July 2007 save the world legislation?  Here it is, just another rendition.

 

A ‘targeted” distressed homeowner will have their loan modified and up to 20% of the principle eliminated so they can afford to stay in their home.  This means that the terms of the remaining 80% would have to genuinely be affordable so the homeowner could actually stay in their home. I am hopeful the college professors have defined how long the homeowners will be able to stay in their homes.  An additional day, a week, or maybe we will get lucky and it will be a truly long term solution so we can help the people. The jury is still out on this.  I just can’t wait to see the outcome.  

 

Here is the fundamental problem.  The real people in charge of lending (Jamie Diamond, CEO JPM Chase, etc) in our economy don’t like the plan because it incentivizes delinquency.  Why should they agree to write down principle?  That is their position and I think it is a good one.  Most of the people that would require a principle write down won’t have enough income to qualify for the proposed affordable solution on the remaining 80%.  How can I make such a statement?  I see it every day at our company.  People that have lost their jobs, their savings, and face owing the lender in many cases twice as much as the home is currently worth are in a state of panic.  Do we really want to convince ourselves that a government blank check or another fancy bailout with university professors on board will save these people?  In addition to saving these people, let’s also add in save the housing market and the whole world.  Let’s just throw money at people and create an economy where nobody can lose. Sorry, not realistic in my book. 

 

People in this situation need to let the property go to foreclosure and walk away or do something much more constructive and learn how they can benefit with a Short Sale.  The lenders can recycle the deadbeats with a foreclosure proceeding.  Everyone also has the right to investigate a real estate short sale solution to see if the rewards of providing the lender a solution have real merit.  What is wrong with fixing your own problem without the government and renting for a year or two? 

 

Wait until January.  If you think your lender is a patsy you better think again.  Get on board with a short sale and provide your lender a solution.  In January the race car has fresh rubber and it will be full throttle to foreclosure on the part of the big lenders.  Just watch.  They are going to hit the accelerator and kick the machine into high gear foreclosing on homes. 

 

The “Machine” made billions in the good times and collectively they are going to plow through the rubble (you) now with the government billions shoring up their capital.  What does that mean for you?  Whether you are overexposed, made a bad decision and just want out, or really have an affordability issue, this is your chance to learn about a Short Sale.

 

Why do I constantly preach the Real Estate Short Sale Solution?  Simply because people thank me personally every week.  It’s a wonderful free market solution. 

 

Take a moment out and read the blog on loan modifications.  Specifically look for my client that got the shaft last summer from his lender and shaken down for 10K only to have his payment raised from $4500 to $5500.  Now that was hard love.  Guess what?  I told him to shut the hell up and get on board.  Literally, after three weeks of griping I had to get his attention.  I made it clear to him that he needed to constructively focus on a solution and get off his rants and anger.  It’s a happy ending and revenge is at hand.  This gentleman and his family walked away from $210,000 last Friday.  The house is sold and someone else has a new home to be proud of.  There are no strings attached.  The residual mortgage debt was forgiven.  It wasn’t easy, although it took a complete four months, but that is what we do.  If you are in trouble get on board and educate yourself.  That is all I ask.  Avoid foreclosure with the Real Estate Short Sale Solution and The Negotiated Solution.  Go for the Free Market Solution where both you and your lender win and lose false hope and government baloney. Do it for yourself and your family.  Battle against the “Machine” and win! Blogging from the front line of the housing crisis.

 

GHunter

It is now headline news that 56% of past Loan Modifications are in “re-default”. I am not even sure that is a proper word. Can you imagine more than half of all Loan Modifications are going into default again and the homeowner is once again facing affordability issues and foreclosure? Now, lets all be honest. If this was sixth grade and the lenders were to get a report card for achievement they would all be getting an “F” for complete failure. Of course, I am sure in a perfect world the lenders would be asking to be graded on a curve against other lenders so they don’t appear to be a bunch of complete losers. The lenders have failed miserably. Should we call Congress for another bill or should we seek a free market solution?

The fact of the matter is that Loan Modifications and general workouts are by design established to keep homeowners in their homes so the lender can then avoid the costly burden of a foreclosure. Foreclosures cost lender lots of money. The lenders have not felt enough pain if they are not willing to modify eligible loans to a point of affordability that will provide the homeowner a long term solution. Why tell someone you are going to reduce their payment $300 per month after the arm loan just took it up $1200 per month? This makes absolutely no sense.

Loan Modifications are simple and could be rationed out in scale if the lenders would determine who is categorically eligible and establish the new payments based on a pre-determined level of gross income. As an example, your new PITI payment for you house is now reset to 35% of your gross income for the next three years and it will adjust 8.0% per year for two consecutive years after that. You can make this stuff up. Just make it possible for the person that owes 100-300K+ more on their home, and wants to stay, to actually stay. The alternative is a Short Sale or Foreclosure or more lies and sleepless nights begging your lender for help. I don’t like the word beggar because it sound so helpless. I prefer the word “taker”.

As a ‘taker”, I am an advocate of the free market solution with a Short Sale. We will charge you much more money if you force us to help you with a Loan Modification. The Short Sale exposes the incentives for your lender to cooperation and the disincentives if they don’t. It effectively levels the playing field so both parties can win. The problem with a Short Sale is you! You are the whole problem. You got yourself into a bad situation or a bad decision and you have to continue making payments you clearly cannot afford and your ego is on the line. Every single day of the week I hear the nonsense over why my lender just won’t forgive 200-300K and let me stay in the home. It doesn’t work that way dummy! Most of you have great jobs and made stupid decisions. Without the free market solution you are stuck. If you want to be a sucker then go to sleep thinking your lender has your best interest at heart. I am sure they will modify your loan so you are happy.

The statistics don’t lie. 56% are in “re-default” and guess what…90% of Loan Modifications don’t provide affordable loan term solutions for homeowners. Do you still want a Loan Modification? Call up Sheila Blair, Head of the FDIC. Ask her what she thinks of modifications and how conscientious the lenders have been to the people. If anyone knows it is certainly the Head of the FDIC. Also ask her how many calls she is getting on behalf of “The Negotiated Solution” complaining about homeowners unhappy with the free market solution. That phone has been the quiet one.

The sooner you wake up and realize you have to find a fair way to negotiate with your lender, and that you owe all the money, the sooner you will find your way to the Short Sale. You can get out of the bad situation, get the debt forgiven, and move to the house across the street for half the money in the majority of scenarios. Now that is what I can a Modification. You have to have a plan to succeed. Capitalism does not reward failure. Why are you allowing your lender to hold all the cards as miserably as they have performed? Just a thought.

In my opinion, the best Short Sale clients are those that have already been beaten by there lenders. These people are frankly indifferent. They know the cunning niceties from the collection department were just part of the game. You lender does love you and they will take every nickel from you as long as you let them. Once you catch on, well…, then you will have to deal with your lender’s B team and they are not so nice. The answer is the free market solution of a Short Sale to Stop Foreclosure, Avoid it altogether and to address significant affordability issues.

GHunter

Recently I had blogged about a 4.0% solution to help stabilize housing. It appears the powers in our government have made the ultimate determination that, regardless of what new program has been created, that nothing will be fixed until housing has been stabilized. As you are well aware many of the programs created by the Fed and the Treasury have succeeded in unlocking the seizure of the credit markets. This was a critical first series of steps to restore order and some confidence to the financial markets. Now the focus is to address the systemic root of the problem and that is the cause of the housing market imbalances.

The housing market is still in a deflationary spiral down. Demand has been eliminated by the disappearance of credit for many people due to lack of qualification and a major contraction in credit for the rest of the population that can qualify. This, in conjunction with record foreclosures that have to find their way back to market, is causing the supply of housing to grow disproportionately. It is so bad that is it adding to the deflationary push downward in the prices of housing nationwide.

If natural demand can be restored then equilibrium in housing can be forecasted, and the deflationary spiral down in housing prices can be slowed, and the market can return to its proper function. It’s a complex problem when you amass it in with all the other issues we are currently facing. However, if you just focus on housing and the 4.0% solution it becomes much less complicated.

Here is how it will work. Recently the ultra conservative 30 year fixed rate mortgage for a new perspective homeowner was approximately 6.50%. Today with the mention of initiatives subsidizing 30 year mortgages with legislation the yield is now closer to 5.0%. Soon you should expect the implementation of a program that will yield 30 year fixed rate mortgages to the general public in the 4.5% range. You do the math. 6.50% down to 4.5% is just shy of an immediate 31% reduction in available credit for new mortgages. When credit is made available and the cost significantly reduced it has a direct affect on affordability and also injects confidence back into the market. Just like equities, when rates are lower, the value of the earnings stream of a company are higher and reflected in a stocks expanded price to earnings ratio. It’s the same basic relationship with housing. The cheap available credit will create an air cushion under the deflationary forces of housing and slow the decent. Natural demand from those that desire a roof over their head will begin to work on the inventory levels of housing.

I believe the nasty spat of deflation in all asset classes will subside once we finally address the housing supply demand issue. The problem does not have to be solved for our markets to recover. There only needs to be a perception of a pending solution that is in place and the ability to forecast equilibrium and we will see stability. The 4.0% solution is probably the government’s most powerful weapon to directly address this issue at this stage of the crisis.

Having said that, please do not be naive and assume that everyone will be able to get a new 4.5% mortgage. There is no question that any perspective borrowers will have to fully qualify under current credit guidelines for the loan. Specifically, I am talking about full documentation requirements that will require two years of tax returns, W2’s and recent paystubs. There will be no fancy handouts from lending institutions to entice demand so don’t expect them. The program will focus on natural housing demand with well qualified and gainfully employed individuals as the only beneficiaries. I wouldn’t be surprised if this new financing is married with a tax incentive for a period to encourage the purchase of a new home.

All other home owners that are stuck in situations where they don’t qualify or where they are upside down with negative home equity will not benefit. These people will have to find an alternative solution such as a Real Estate Short Sale, Hybrid Refinance, or a Loan Modification. You can now see the moment of truth is arriving for all the homeowners that are currently stuck and hoping the government is going to bail them out. I gave you a guarantee in September on the blog. I told you the government was going to save the free market and capitalism would not die. Please watch and witness the power of capitalism and keep a close eye on the people that are stuck. It happened in the early 90’s during the Savings & Loan crisis. If you are stuck with affordability or any other issue with housing, it’s time to get constructive and get moving on a solution for your problem. Being so direct is not always fun, but if I can get you to focus on a solution vs. doing nothing, I may save you from getting into real financial trouble. The 4.0% solution that the government is going to create out of thin air is going to help many people but not everyone

Some people will call this socialism and criticize the government of meddling in the free markets. Don’t be fooled. Look at history over the past 100 years. This is why we have government and its institutions like the Fed and Treasury. Capitalism is great but it is also very destructive. When the wheel comes off the cart history has shown that the government has to put it back on and straighten things out before its influence can recede and markets can return to normal. Blogging from the front line of the current housing crisis.

GHunter