Many people owe more on their homes than they are currently worth before estimated selling expenses.  The common theme is that maybe the market will radically recover and everything will be alright.  Sounds great to me but let’s look at a couple statistics and see if we can gain some more clarity on the situation.

 

The Federal Reserve has been buying MBS pools or otherwise termed Mortgage Backed Securities in the open market over the past year.  By the end of March the Fed will be on target to own 1.25 Trillion in MBS pools on their balance sheet.  This program is targeted to end with the Fed no longer making such purchases on March 31^st 2010.  According to PIMCO Alliance, The Monster Bond Manager of the decade, the Fed’s holding represent 25% of the total MBS market.  The objective of the Feds MBS program was to stabilize the market and pull the spreads in so rates would stay low and support the housing market.  This program has been successful but one must also understand that this has manipulated a market that was designed to be free floating.  The natural forces of supply and demand must reassert themselves.   With the absence of the Fed as a major buyer of MBS securities this will happen at some point and rates for home mortgages to the consumer will likely rise. 

 

An additional point to focus on will be not just the current lot of MBS securities on the Feds balance sheet but what will happen when the fed actually decides to dispose of them to natural buyers in the MBS market.  This will again point to supply and demand and rates will be reflected accordingly. The MBS program has been a successful program for the government that was administered by the Federal Reserve.

 

Let’s drill down on rates and how they affect your house price.  Supply is the amount of housing inventory in the market. This figure also includes the so called “shadow inventory” that I will touch on in a moment.  Demand encompasses prospective buyers of the inventory that can actually obtain financing or a means of buying the properties.  As the back drop in mortgage rates lose the artificial support from the Fed MBS program, the Federal tax incentives due to expire in April, and other housing programs, what happens?  Rates go up and less of the demand pool of perspective buyers can afford houses.  Let’s hold this thought for a minute to talk more about the inventory issue.

 

The inventory issue is also being artificially manipulated in the current environment.  It is estimated that currently there are 645,800 housing units nationwide at some point in the default process with lenders.  This figure has recently been rising up 4.6% since January and is expected to approach 733,000 units by April.  Lenders have been holding back the flow of these properties on the market so as not to over load and already fragile market.  At some point the flood gates will have to open.  Lenders will need to either recover these properties through Foreclosure or cooperate with Short Sales Solutions.  Statistically the figure of this so called “Shadow Inventory” represents 1 in 5 homes nationally.  Put a different way, of the 8 million people currently late on their mortgages or foreclosure, this represents 15% of all people with mortgages.  Ask yourself this question.  How many people own homes that are significantly underwater on a debt to equity basis that are not delinquent and reflected in the current statistics?  Now you see the direction of home prices with a bit more clarity.

 

Now I don’t know how accurate these statistics are but I do know that the trend does not support a vibrant housing market that will suddenly reverse and put the masses of people significantly underwater on their homes back to even.  Having said this, where is your home value going.  The answer is definitively “DOWN”.

 

Let’s look at the government radar screen and see how well they play the game.  The government’s job is to promote stability and preach that all is well.  Remember the movie “Animal House” when the town was being wrecked by the frat boys and the one dressed as a policeman said “be calm, all is well”.  Excuse the humor but that is where I see the governments roll at this time. 

 

The Obama Administration needs to pump the people with hope and the prophecy of better times ahead.  They are doing a great job.  There is talk of a sixth government program to once again promote Short Sale cooperation among lenders.  This is something I am going to blog on separately that was noted in the Washington Post last week.  My question to you is why didn’t the first five programs work?  They were all failure to a large degree but that is ok.  They were failures for you but they were big winners for your government.  All the government has to do is drag out the problem on the linear time line so the markets can recover.  Whatever it takes to stretch this crisis out over the next several years thereby allowing the banks to mitigate their losses the people controlling the levers win.  Who loses?

 

The people that lose are the ones that owe the debt to the lenders and have not taken up a solution to their own problem.  You need to be wary of the Loan Modification process.  Lenders are targeting people in this process.  It’s a great means of legal recovery for the lenders.  They are taking people to the cleaners.  It’s also great for the government because it drags out the problem so all the people in trouble don’t impact the fragile real estate market all at once. 

 

With all of this in mind let me give you a real life sample of reality.  Example:  Yes you recently spoke with me as a customer and you told me about your lovely townhouse in Vienna Virginia.  You owe 800K to the lenders but the home is only worth 700K.  In addition your failed loan modification has you still paying $6,000 per month to the lender but yet your neighbor is renting the unit literally next door for $2,850 per month.  Who is stuck here?  This customer was actually a repeat customer where we successfully negotiated three separate investment property Short Sales since the first quarter of 2008.  Over 1 million dollars was forgiven with no further recourse and that was terrific but the customer never thought they would be in this position with their primary residence.  Additionally the customer thought things would get better.  Where are you today?  The advice in 2009 was for this customer to Short Sale the townhouse and move across the street and rent.  This is what they again face today.  It’s clearly a personal choice and we don’t ever want to talk someone out of their house.  However, $6,000 in monthly payments is killing this family so a choice now has to be made or they will be foreclosed on in 2010

 

If you question what I am saying please don’t take my word for it.  Do some research into all the failed government programs since the summer of 2007.  Also ask yourself why we are going on program number six.  What are you going to be thinking when we are trumping up how great program number eleven is going to be?  This is hard love to say the least.  Your house value is going to continue to decline and the government is artificially supporting the real estate market so BEWARE.

 

What you should be doing right now is assessing your personal situation and weighing your options.  Go to our site at www.thenegotiatedsolution.com and sign up for our free video to investigate the Real Estate Short Sale.  If you are looking for help we are here to serve. We are not “Paper Pushers”.  We are two Warlocks driven by Passion and a small Band of Brothers working to help the family unit get the most out of a Short Sale and keep it Fair.  We are Aggressive and at times Reckless, but we have an awesome team that represents you.  Address your problem sooner rather than later.  Doing nothing is not a solution.  When in doubt rage against the machine!

 

Blogging from the front line of the housing crisis.

 

GHunter

What a great question.  Recently a lender pushed a distressed homeowner a bit too far and it appears the negotiations strayed off course.  At first glance it appears a homeowner was having problems with his lender and related problems with the taxing authority that was also jeopardizing his business.  It also appears that the lender was using the taxing authority issue to further leverage their position.  At the end of the day the homeowner couldn’t take anymore, so after he failed trying to constructively work through the issues regarding his home with his lender, he destructively solved the issue quite contently with a bulldozer.  The headline should have been “Homeowner Round 3 delivers astounding TKO to lender”

 

Here are the links:

 

http://www.myfoxla.com/dpps/news/dpgoh-man-bulldozes-home-to-send-bank-message-fc-20100222_6196364

 

video:

http://www.youtube.com/watch?v=R2_5y79gOaM&feature=player_embedded

<http://www.youtube.com/watch?v=R2_5y79gOaM&feature=player_embedded>

 

 

Wow!  What would Thomas Jefferson have made of this?  Wasn’t he one of our founding fathers that help write our Constitution?  After all, our country is built on freedom and the freewill of men.  This is a great moment if you are in tune with what is really going on between lenders and homeowners in the midst of this housing crisis.  Lenders in many cases are preying on homeowners and pushing them to limits that can cause them to break.  I don’t want to get into all the negatives we have seen but I do want to shout out to the lenders the message of this incident.

 

It’s all about “Respect”.  If you come into the equation and forget the primary premise of your business model you put yourself at extreme risk.  What is immediately factored into a lenders business model?  The model assumes that the business will be conducted in a fair and equitable manner.  The model incorporates risk but does not provide allowances for extreme risk that is provoked.  This is what we have here with the homeowner taking matters into his own hands and leveling the house.

 

The homeowner tried constructively to negotiate and even provide a solution for the property in the form of a short sale with a real buyer for his home.  The lender took the position that they held all the cards and demanded that the homeowner conform to their demands.  The lender clearly pushed the homeowner too far.  When the homeowner threatened to level the house that should have been a clear indication that they needed to adjust their tactics and regroup. This could have been avoided without question.  The lender was ignorant and they forgot about respect.

 

Trust me from experience on this one.  If you’re a lender and you lend $100 with the expectation of gaining 5-6 dollars in interest each year on your principle, with a couple discount points up front and a targeted net interest margin, you have not factored in the bulldozer effect.  There are enough errors and normal losses running a lending operation that the last thing you want is to push a borrower to rent a bulldozer and make good on such a threat.

 

If you’re a lender reading this we have to be fair and ask another question.  Are the homeowners solely to blame for the housing crisis?  If you think it was just the fault of the homeowners you weren’t seeing what I was seeing first hand.  Let’s face it, the lenders and the Pigs on Wall Street made a killing as real estate ran up.  They helped create a monster that with the aid of the current deflation is trapping homeowners significantly underwater with oceans of legacy debt from a cycle that ran out of control. Now the lenders want to recover as much money as they can on the way down.  They clearly do not care about the homeowners in many instances.  They just want to maximize recovery.  They have forgotten about the customer relationship and respect.  Do you want further proof of this?  The government just announced a significant extension to yet another housing program. The government is artificially supporting the housing market. The longer we can drag out the problem the easier it will be for the lenders to recover and for the overall economy to also bounce back.  The thing that is most unfortunate is that in the interim the lenders are preying on distressed homeowners with a multitude of practices.  The government has saved the free markets and the financial system.  The lenders have recapitalized with TARP and private capital.  It’s now game on for maximum recovery. Do you think Obama is worried about the homeowners or more about where he is going to get his next cheese burger and fries?

 

This is why the lender pushed the homeowner in the bulldozer example when they rejected his 170K contract to solve his housing problem.  They got greedy and took the position that he must conform to their wishes.  This action, although not openly condoned by the masses, places this homeowner in the hero category for many that suffer in despair with failed loan modifications etc.

 

What are the lenders saying to prevent such action?  They say things, and I quote, like this: “I hear that they are criminally prosecuting people that do such things”.  Now I thought that the guy that bulldozed his house was a bit extreme but that is not what got me irritated.  The quote from the lender is what pissed me off.  I have a client issue with a lender that occurred recently and it came down to an unfair incident and the question of what a particular client may be capable of if we don’t constructively work through the issues.  A key representative at the lender made that exact quote.  To me this is cowardly.  This is a way to intimidate conformance when you as the lender have forgotten how to respect the borrowers and mitigate through a recovery cycle in real estate.  Why not just scare the people so we can take their money, kick them out, blame them for the housing crisis, and get the collateral back in pristine condition. 

 

Sorry fellows but that is not the way it works.  Here is how I see it with the bulldozer or the sledge hammer or flooding the house etc.  As long as you do not light the house on fire or do anything that would endanger the welfare of others, in my opinion, there is no criminality.  It’s all civil baby. That means lender you better treat the borrowers with respect and avoid such extreme outcomes or you are going to be spending legal dollars with your henchmen and hit the wall with zero recovery when they laugh their way to the protection of bankruptcy.

 

Am I as an ex-lender being fair to the poor lenders?  Your listening to a guy who created and then ran a forty state wholesale mortgage division.  It wasn’t about delivering the loans to Wall Street and getting paid with no strings attached.  We had all kinds of problems.  I remember one where a guy openly admitted to mortgage fraud when we confronted him through our servicing department.  He knew he was at risk depending on how our bank wanted to pursue the issue.  He arranged a family member to buy the property and our servicing department told him to get lost.  He found his way back to me with a solution that mitigated the majority of the loss we were forecasting so I gave it the green light.  I didn’t want to be the boss man and disrespect a guy who was trying to do the right thing.  It’s all about cooperation and respect.  In the end the lender loses much less and we move on as a business.  I just don’t understand where respect got lost in the equation, but it has.

 

How would I have handled the bulldozer situation after negotiations had failed?  First for the record, I do want to say that I love Caterpillar.  I personally would have rented a much bigger Kitty Cat and had a news crew on the schedule.  I would have also not told the lender.  If I were to a point where they were taking my house, putting my belongings on the curb, and tying up my livelihood with my business, I would have gone out of my way to be more polite.  I would have gone to the local Hallmark store and gotten a nice card for the bank president.  I would have then taken a picture of the house after I flattened it with the mighty American made Caterpillar and then scripted the following note for personal delivery:

 

Dear Mr. Bank President,

 

I have tried to do my best to constructively solve the situation that I am currently immersed in and I have failed.  I wish I could have done more to solve this problem in a mutually beneficial manner and conform to your wishes, but respectfully your persistence and demands were more than I was able to handle.  I am now also faced with losing my livelihood.  As a last request I am asking for a little compassion in the form of a small advance.  I need enough money to buy a couple gallons of Elmers Glue.  Since you wouldn’t work with me and I am losing my business too I thought it would be a good idea if I focused my ambition on a new trade.  I would like to use this situation and the time you have graciously granted me as a positive opportunity to become a puzzle master.  I have enclosed a picture of my house that I just bulldozed so you can encourage me.  After you made it clear you were large, in charge, and completely inflexible with the negotiations I decided I had no other choice but to conform to your demands.  Between now and the time you foreclose on the property I am going to work diligently on putting each splinter of the house back together with the glue.  I want you to know that I am a novice at this puzzle master stuff but I thought it would make your day.  Enjoy the picture.  Sincerely, Your Loyal Customer.

 

With all the housing issues up in the air, who is keeping an eye on the homeowner to see if they are being treated fairly?  Nobody, the government will slap the lenders on the hand just like they did with the failed 75 billion dollar loan modification program. Three percent of the homeowners or 30,000 out of a projected one million applicants got a short term to intermediate term loan modification fix.  Oh well, they got a slap on the hand in the media and it’s on to another program we are going to come up with.  Burry it and pump out the false hope has been the strategy.  What should you do?  Educate yourself for free at www.thenegotiatedsolution.com on a Real Estate Short Sale Solution.  It’s free and if nothing else you need to know your options and understand what is going on so you don’t get caught up with the crooks or beat down by the lenders.  Good luck and if all else fails please humor me and remember to rent the biggest bulldozer.

 

GHunter

 

Blogging from the front line of the housing crisis.