WORD: Non-Recourse Loan

And the WORD for Today Is …

Non-Recourse Loan

His bark is worse than his bite. You’re familiar with the expression but who knew that it applied to banks as well. If you are behind on your mortgage—and millions of people are—you have probably been barked at by someone at your bank. It is reasonable that they make an effort to collect the funds which you owe them, but when you are unable to do so, you have conveyed that you are unable to do so, frequently some barking gets started.

A non-recourse loan means the bank has NO BITE. They have no recourse, or option to do anything else to you after they take the house. They cannot seek a deficiency judgment. Without a deficiency judgment there is no way for them to:

1. Attach your pay check (/garnishment/)
2. Pursue any of your other assets
3. This includes any/all retirement accounts

Once they acquire the home/property, whether that is via foreclosure, a deed-in-lieu or by trustee auction when the home was secured by a deed of trust, ALL THAT THEIR BANK CAN EVER GET IS THE HOUSE. There is no legal provision for them to ever come after the borrower for anything else.

The states listed below are generally non-recourse states:

• Alabama (some exceptions apply)
• Alaska
• Arizona
• Arkansas
• California (as long as non-judicial foreclosure is used, which is the most common)
• Colorado
• District of Columbia (Washington DC)
• Georgia
• Hawaii
• Idaho
• Mississippi
• Missouri
• Montana (as long as non-judicial foreclosure is used)
• New Hampshire
• Oregon
• Tennessee
• Texas (but even in a non-judicial foreclosure, the lender can pursue a deficiency judgment)
• Virginia
• Washington (as long as non-judicial foreclosure is used, which is the most common)
• West Virginia

*It is critical that the homeowner do several things:

1. Seek legal counsel to be sure they understand the implications, based the specific mortgage or deed of trust involved
2. Consider the specific financial resources and have clarity on what is at stake
3. Evaluate the total picture,  then make a decision based on a full assessment of  the situation

***This should not be construed to be legal advice.  SEEK COUNSEL.

"Remember, knowledge can be empowering!"

Mildred

Host: Home Ownership Matters Preservation Center, Inc. www.HOMPCI.org

Copyright © 2010. All Rights Reserved. Mildred Wilkins Consulting, Inc.

WORD: Recourse

And the WORD for Today Is...

Recourse – in mortgage banking, recourse represents a loan investor’s right to obtain reimbursement of loan losses from the seller of the loans. The amount of the obligation is recognized as a reduction of the gain on the sale of the loans. By contrast, a mortgage sold without recourse means that the new holder assumes the risk of default.

These are states that also allow non-judicial foreclosure, and/or where non-judicial foreclosure is more common and deficiency judgments can be obtained more easily:

Michigan
Minnesota
North Carolina
Rhode Island (lender can seek deficiency judgment)
South Dakota
Utah (lender can seek deficiency judgment)
Wyoming

Now, because you have a mortgage in one of the above states does not necessarily mean that you have the get out of jail free card. Please review your loan documents and I also strongly recommend you consult an attorney who specializes in real estate law. There are a lot of laws to protect the consumer and educating yourself as to your rights will help you greatly in deciding a course of action. If you have refinanced or have a second mortgage, they are usually recourse loans so your options there are more limited, however not insurmountable. Banks are hurting so badly right now that for those that are in distressful situations (ie you have very little assets), you have some good negotiating leverage. From the banks perspective, something is better than nothing.

"Remember, knowledge can be empowering!"

Mildred

Host: Home Ownership Matters Preservation Center, Inc. www.HOMPCI.org

Copyright © 2010. All Rights Reserved. Mildred Wilkins Consulting, Inc.

Q&A: Strategic Default

Strategic Default

Q. My house is worth considerably less than what my mortgage payoff is currently. My husband and I are still working and can manage the payment but it just does not make sense to keep making a payment every month when we are so upside down. I have heard the phrase ‘strategic default’ which seems to mean the people just decided to walk away and leave the house. Is this something we should consider?

A. The issue of strategic default has not been addressed in this blog at all until it was mentioned recently in the jingle mail blog. First, let’s get some clarity about what is being called a strategic default. As the phrase is being used currently it most often refers to someone who:

1. Has the financial means to keep making the mortgage payment
2. Has determined that the balance is significantly higher than the value of the property to the point that no turnaround is likely in the foreseeable future
3. Has been unsuccessful in getting the lender to renegotiate for a reduced principal balance
4. Has consciously made the decision to forgo additional mortgage payments and let the chips fall where they may (including the most likely outcome being foreclosure)

Now that I have provided clarity on when it might be considered, I will answer that question you asked, which is, should you consider it. My answer is that ONLY you can decide if you are willing to accept the consequences which are likely to occur as a result of a strategic default. I would not presume to try to move you one way nor the other. I will give you a glimpse of possible consequences to help you in the decision.

Possible consequences include:

1. Foreclosure—very likely—almost a given
2. Deficiency judgment—depends on your state foreclosure laws, highly likely where permitted
3. Additional expenses incurred due to vandalism to the property after you abandon and before the lender/guarantor puts the property into their name. Scary thought if they never do. (or if it is six months or a year from now and the value of the home has continued to decrease.)
4. Lender or Guarantor may be successful in going after assets you have to satisfy the deficiency mentioned above
5. Negative impact on the possibility of a future home purchase (kind of like a separation, you left but you can’t marry anybody else until you get the divorce)
6. Possible liability should someone be injured or killed on the property while you are still the title holder and the party responsible for insurance (even though you have not paid it)
7. Possible tax liability for the shortage, once that has been determined
8. I could mention a few more but you get the picture

While there is the compulsion to walk away from this really, really difficult situation you need to weigh the pros and cons carefully...then ask yourself...what is the worst thing that can happen?

Can you live with that, whatever that is? If you can, then move forward knowing that you considered the options and made an informed decision. Best of luck, whatever you decide.

"Remember, knowledge can be empowering!"

Mildred

WORD: Jingle Mail

And the WORD for Today is...

‘Jingle Mail’

Words come into use and then fade from the forefront in the same way that clothes go out of fashion or popular stars fall into obscurity. Then something happens and they appear again. “Jingle mail" is such an expression. It may be a new expression to you but the phrase is being recycled because we are repeating the situation which sparks its use in the first place. Specifically, huge numbers of consumers who are hopelessly upside down on their mortgage, unable to get anything worked out with the lender and finally, in frustration, they simply mail the keys back to the bank. Keys in the mail—hence the phrase 'jingle mail’. Previous recessions—the oil bust in Texas and the dot com craziness immediately come to mind from recent history—left thousands of borrowers feeling so helpless that they eventually totally conceded and simply mailed the keys back to their lender. No workout, no release from further obligation—just I give—you win—take these keys and... You get the picture.

Across the country—and in your neighborhood—jingle mail which used to be an option of last resort is now being used by a new crop of borrowers. An especially interesting twist is that sometimes theses borrowers are NOT behind and sometimes they are behind but choose not to make the mortgage payment because their home is so seriously upside down.

Another new phrase has emerged; strategic default. This concept is gaining widespread acceptance as a reasonable way to deal with an unreasonable situation, especially if that borrower has not been able to get a solution from their lender which they felt was a reasonable one. Strategic defaults are increasing dramatically across the country and creating an intense firestorm over whether it is the ‘right’ thing to do'. I will not debate the ethical or moral side of the issue but will discuss the contractual side in a later post.

Suffice it to say that jingle mail will continue on the upswing since it is frequently used by someone who could not or chose not to get a formal deed-in-lieu completed by the lender. Instead, their solution was to use our reliable postal system to give the bank access to the house without the need to change the locks. Post office + Keys = Jingle mail.

"Remember, Knowledge CAN BE Empowering"

Mildred

If you found this post helpful why not sign up for the direct RSS feed? Or BUZZ this? Or tweet a friend?

Mortgage News: Moratorium on Foreclosures

We interrupt this blog to bring you

Moratorium on Foreclosures

First, let’s discuss what a moratorium is and why you should care, even if you do not live in California.

If you live in California and your principal residence is in default, then last week’s news which halts foreclosure on many homes is welcome news for you. The California Mortgage Foreclosure Prevention Act went into effect on June 15, 2010.

A moratorium means that certain actions will be prohibited for a stated period of time. In this particular case we are talking about the Governor of the State of California declaring that a substantial percentage of the mortgages in the state will be exempt from foreclosure action even though the borrower is in default for the next 90 days. This is awesome news, especially if you happen to be one of those borrowers.

There are criteria which apply, but you would expect no less:

a. Must be the borrower’s principal residence

b. Borrower must not have filed bankruptcy

c. Must be a first mortgage or deed of trust

d. Borrower must not be represented by someone who is engaging in foreclosure stall tactics

e. Applies to loans which were made between January 1, 2003 and January 1, 2008

f. Lender must already have filed a notice of default

The intention of the law is to break the momentum of foreclosures and allow ample time for lenders to work with borrowers on trying to utilize some kind of option (such as a modification) which can avert the foreclosure altogether.

Let’s talk about moratoriums in general. A California consumer called me a couple of days ago and was confused because she thought the moratorium had been put in place by the President for the entire United States. I cleared that misconception up by explaining that a moratorium can be issued by any one of several different individuals or organizations:

a. The President—for a specific area or for the United States, if he chose

b. A Governor—for his state or a portion of his state (or certain specified loans as this one does)

c. A Lender or Bank—for any of the loans they hold or for loans from a particular state, region or classification

d. A Guarantor (HUD, Fannie Mae, Freddie Mac)–for any of the loans they hold or for loans from a particular state, region or classification

e. A Mayor—for his city or for a classification within his city

Any person or entity who has the authority to mandate a moratorium also has the authority to set the perimeters which will apply:

1. How long will the moratorium be in place?

2. What is the purpose of the moratorium?

3. What loans are covered—will it be owner-occupied only? Will it include investment property? Loans from what period of time?

4. What other rules apply?

5. Any such rules as they deem appropriate can be set by the party who puts the moratorium in place.

This is good information for you to become familiar with because there is a strong possibility that other governors or mayors will follow suit. Additionally, as I pointed out, a number of other parties may also decide to give consumers a break in order to stop the backlog of foreclosed properties which is devastating not only the homeowners who lost them but the neighborhoods where those vacant homes now sit.

There is now an overwhelming consensus that if there is any possible way to work something out with the current borrower it is in everyone’s best interest to do so.

Have you checked to see what your lender or your city has been up to lately?

“Remember, knowledge can be empowering!”

Mildred

So, you think you want to become an REO Broker?

Get ‘Em Listed and Roll in the Dough…

It happens every time I teach a class (and I just had an (FIS) class in Charleston last week). Several of my students will get all fired up about becoming a listing agent handling REO’s as the fast track to real estate success. Even though the class is (and is advertised as such) designed to help REALTORS learn how to be successful with options to AVERT foreclosures, someone always attends for the SPECIFIC purpose of meeting me and having me tell them the short cut to becoming a Fannie Mae broker or a representative for some other REO account. Aside from the fact that that is not the purpose of the training, there will always be someone who is persistent in trying to move conversation in that direction.

This article is for you—you know who you are.

Ah-h-h, the Cushy Life of an REO listing agent

I’ve been there, done that, got the T-shirt AND the award. I received the 1st Rising Star Award as Rookie Broker of Year for the United States from Fannie Mae in 2000. They were right on target with their assessment; my star has been rising, (also drifting, getting lost and other mundane contortions) ever since. Oh, but I digress.

The truth is that my Fannie Mae experience was, overall, a really good one. I received excellent training at the Disposition Center in Dallas, and great support from my initial salesperson, Shirley Mastenbrook. I learned how to effectively price property based on a precise analysis of market data and I sold a heck of a lot of Fannie Mae homes. My sales volume and income both increased dramatically. However, my life, as I knew it, completely disappeared. It’s emotionally devastating to process a forceful eviction. To be the person who stands there and officially authorizes someone to be thrown out of their home. Being property manager extraordinaire is an emotionally draining and time-consuming gig.

It’s a New Day

The REO market is booming and in some areas there are more REO’s available than traditional listings. Loss mitigation efforts, including modification and short sale attempts, have slowed the number of completed foreclosures even though the number is still unbelievably high. However, the amount of ‘shadow’ inventory (REO’s being held by guarantors and NOT being placed on the market) is estimated to be a significant amount and must eventually be placed on the open market.

Market dynamics are rapidly evolving. A new mixture of guidelines for disposition changing in response to market conditions and/or government regulations, recommendations or directives and REO owners all serve to make today’s REO broker’s job a very challenging one. The practicalities of good business decisions shaping what will or can be during the time period the REO is under the control of the guarantor or lender is fluid. When you own or manage a few properties you can be almost casual about how you dispose of them. When you own thousands upon thousands, stacked on top of each other, you have to utilize a more systematic, inventive approach in reducing those expenses which revert to you and become vigilant in avoiding any expenses you can. Utilization of a strong contract, with strict adherence to its dictates can mean survival or failure to survive. Whether expenses are moved to listing agents, buyer’s agents or buyers is immaterial; what is important is that anything which can be shifted to someone else, be shifted. The list is growing—now even eviction costs have been added to the list of costs which can be shifted to someone else.

Flies in the Ointment

Nothing messes up a good plan faster than messy details. It should not cause you concern if the dollar amount tied to a detail is a small number, with only two place holders, like $99.00. It gets serious when the numbers are BIG numbers, with 3 or more placeholders, say $475.00 for instance.

Likewise, phrases such as “shall maintain the premises” are not a big deal, unless the premises include a pool or some other high maintenance component. Assuming the responsibility to maintain can keep a person awake at night better than a crying baby. Didn’t they explain that ‘handle utilities’ meant that ‘deposits when required’ would come from your checking account? I suggest you re-check your account balance to be sure you can AFFORD to be an REO listing broker. It’s good business, if you can get it—provided you are sure you understand what you are signing up for.

Re-imbursement is on the Way

**Insignificant detail—To be delivered by deranged carrier pigeon who will be dispatched later this year.

I am not throwing snipes at Fannie Mae. They did an excellent job of processing reimbursements and doing so in a timely fashion based on the criteria they had set for their agents. However, things could be dicey IF you forgot to submit invoices on time. REO sellers are SERIOUS about their deadlines. You miss it; you eat it!!! No equivocating. You agreed and said you understood, this is a business, not a game for newbies who want to play at REO sales. Suck it up, write the check and remember to check due dates more carefully in the future. If you want to depress me, e-mail me and ask about the $15,000.00 I had to shell out after missing a few deadlines—it doesn’t take long for carpet and paint to run into some serious money. BIG numbers, with five place holders—like $15,000.00.

REO’s can be LEASED

Awesome plan! Announced by Freddie Mac in January of ‘09 and Fannie Mae in November of ‘09. This is the deal. Both organizations were (and remain) concerned with the increasingly large inventory of foreclosed properties as well as the public perception that they are not doing all they can to help alleviate the problem. Both have begun lease-back programs so that either the former owner of the property or a tenant placed there by the owner can lease the home back—AFTER foreclosure.

In a nutshell, the Freddie plan is a month-to-month lease, at current market rent. The property will be on the market during that timeframe and the new BUYER assumes responsibility for the eviction process and related costs to get the occupant out of their new home.

The Fannie Mae plan is essentially the same, except that it allows for a one year lease period. If you are the REO broker for either of these guarantors you have the honor of explaining the particulars and the implications to a buyer’s agent. What appears to be a win-win for Fannie or Freddie and the occupant can become a nightmare for the agents involved and a potential purchaser. The magnitude of unintended consequences is enough to make my hair go straight (and I have a very short, curly Afro). I suggest you take a crash course in landlord-tenant law in your state. Additionally, please check to be sure your E&O Insurance premiums are current.

Would I do it again?

The truth is, I might be tempted because of the guaranteed revenue stream. The reality, however, is the same as the prospect of teaching middle school kids: someone has to do it but I am not that hard up yet. Having sold REO’s for 2 ½ years, very successfully, I can see how dramatically the terrain has changed. Today’s REALTOR has a lot more risk, many more potential ‘bosses’, and fewer clear guidelines in an arena which mimics the wild, wild west pretty closely. Training by the companies who select agents is almost non-existent. The entire process is further complicated by the fact that you are stepping into situations like the landlord scenario I mentioned in the paragraph above.

For agents who decide this is still the route you wish to pursue, I’d like to share some thoughts on making an informed decision.

The Five Star Conference, complete with training institute, offers just what you need—but the entire cost for that training will be at your own expense. The timing of the annual event may not coincide with when you want to get started and there are numerous other challenges to concern yourself with as well. Learn how to perform a professional BPO (www.fanniemaebpo.com) so that you are really good at determining property value PRIOR to the listing. Additionally, it might be beneficial for you to read the actual contract used by the guarantor you think you want to represent. I am suggesting that you read both the listing agency contract (which you and your broker will need to sign) and the contract which you will provide to buyers/buyer’s agents. You can learn a lot about the firm you will be working for by studying the documents which will bind you to them.

REO sellers do not all require the same level of service

It is important that you pre-determine what type of REO listing agent you want to be: an agent who only lists properties (such as HUD homes) without an obligation to handle utilities, etc – or does property management to a degree (Fannie Mae or Freddie Mac) or offers an even broader range of services such as rehab, keeping utilities in your name and a full menu of other services. Then only seek or accept listings from an REO seller whose needs mesh with those services which you are willing to perform.

I would caution you to avoid seeing the REO business as something you will just ‘tack on’ to the rest of your business. Most REO sellers are very demanding. Their volume is growing faster than mushrooms and a huge quantity of ‘shadow’ inventory is just waiting to be released. It would be wise to see this as a major part of your business and to make a decision based on whether you were prepared or willing to shift and become primarily an REO seller’s agent if this is the path you chose. If you do well, the volume will definitely follow. If you do poorly because you cannot handle unexpected volume, they will drop you like a hot potato and never speak to you again. They take “failure to perform” very seriously.

I would encourage you to talk to some agents who have listed REO’s within the past 18 months. Sit down with them over dinner (your treat) and ask for an honest analysis of those things which they see as problematic.

Your final question to them should be: “What is the worst thing that could happen?” Consider their answer. If you can live with the worst thing that could happen, then go for it.

Best of luck in the REO world.

Happy to be a “Former Fannie Mae Broker”

Copyright © 2009, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Escrow Account

And the WORD for Today is...

Escrow Account – is an account established by the lender at the time of the closing on your home so they will have the funds needed to pay your insurance and taxes when they come due. You can see this as a “forced” savings account with an amount in each of your mortgage payments added for insurance and taxes. This is common practice and many people (including me) see it as a good thing since it avoids the likelihood that you will not have saved enough money when these expenses come due if they were not included in escrow.

Copyright © 2009, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Q&A: Smoke & Mirrors

Q. I am extremely frustrated trying to getting my lender to work with me on getting a modification of my loan. I have already received notice that they have started foreclosure but I have also received a couple of letters which says they are willing to work with me on trying to keep my home. The problem is that the letters I have received do not have a name so I don’t know who to speak to. Every time I call I get a different person who gives me different instructions on what I need to do. Why don’t they provide a name so I can talk to the same individual and get something worked out?

A. The problem you are experiencing is a common one. It is amazing that lenders/servicers who claim to be doing everything they can to work with borrowers can’t provide a name for a contact or REAL numbers so you are not going through a series of numbers and extensions which frequently lead you nowhere. Most folks would assume if you got an unsigned letter that the sender was not serious about having you reach them.

Lenders and Servicers are under a great deal of pressure:

a. Pressure from the GUARANTOR who will ultimately absorb any loss via an insurance claim after an acquisition (foreclosure or deed-in-lieu)

b. Pressure from the government (whether or not they received TARP funds) to try to avoid foreclosures

c. Pressure from any investor who has purchased the underlying mortgage to collect and forward payments on a monthly basis, in a timely manner (or cover them themselves)

d. Pressure created by the INHERENT CONFLICT because the lender/bank needs to look out for their own best interest which is NOT best served by a lengthy loan workout and the guarantor whose BEST interest is not served by an acquisition. Essentially, the lender and their servicing partner have the responsibility for looking out for the guarantor which conflicts with their personal best interest. It’s kind of like a kid who has to appear to be compliant with a parent’s instructions since blatant defiance is totally unacceptable. S-o-o-o-o, you get surface compliance but lack of depth and sincerity. So consumers get telephone numbers which deadend nowhere and letters which say reach out and call me, but fail to say who sent them.

SMOKE & MIRRORS

There is the strong possibility that the failure to make it easy be in touch and get clarity for a workout could be a smokescreen. IF there is a foreclosure, the lender/bank closes the file and submits a claim for the amount of the shortage. End of their pain.

The behavior of SOME borrowers has become the anticipated response from all borrowers. As a consequence, practices at the servicer centers tend to demonstrate, by and large, an expectation that the home is going to foreclosure so why should they waste time and effort on genuine workout attempts.

If they work at doing a workout there is the aggravation of trying to work with a defaulted borrower who might not be totally committed to the process and either does not understand or for other reasons does not provide all the materials requested or does not do so in a timely fashion. Dragging the pre-foreclosure period out for months WHILE THE INVESTOR IS DEMANDING MONTHLY PAYMENTS can be a drag on the lender’s bottom line.

Consumers play into this mentality by not doing ALL that they can do to comply but the larger responsibility falls on the lender/servicer as the LEADER and PACESETTER for a workout to be completed. The lender/servicers could start by having a person’s name in the signature box of a letter saying call me, I can help.

IS THAT TOO MUCH TO ASK?

Copyright © 2009, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Highest and Best Offer

And the WORD for Today Is...

“Highest and Best” Offer – is a term generally associated with the purchase of bank owned property. When more than one offer has been submitted to the guarantor/seller, the buyer’s agent may be asked to submit the buyer’s “highest and best” offer. They may choose to increase the offer in the hopes of being selected from multiple offers held by the lender, withdraw their offer altogether or hold steady at the amount and with terms previously submitted. Highest and best offers should always be written and the notification from the listing agent should clearly indicate the time frame for response.

Copyright © 2009, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Multiple Offer

And the WORD for Today Is...

Multiple Offers – are likely to be submitted when the property is either listed as a pre-foreclosure sale or is already foreclosed. Lenders encourage multiple offers since they are looking to get the highest amount they can for the property and pitting potential purchasers against each other is a way to accomplish that. It is perfectly legal. A buyer in such a situation should request written notice that the lender is holding multiple offers and if there is a designated time when all offers will be read and considered.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Q&A: Highest and Best

I am sure that the person who submitted the question below will have made a decision before they have a chance to get my answer. In any case, the answer could be helpful to anyone who has or might write an offer on an REO property so I am including it on the website.

Q. My wife and I wrote an offer a week ago on a bank-owned house and today our agent told us that the bank has another offer in addition to ours and gave us an opportunity to change the offer if we want to and give them our ‘highest and best’ offer by 5 p.m. tomorrow. Is this common? How should we respond?

A. First, just as a point of clarity, we are talking about a fairly common practice when you are trying to purchase an REO (real estate owned) property. The process of purchasing such a property is significantly different. The guarantor or lender who is selling such a property is interested ONLY in the highest net dollar amount. One way to increase the net is to encourage competing buyers to make offers on the same property (creating a multiple offer situation). Once the agent who represents such a seller is holding more than one offer, the strategy is then to have them compete against each other which results in a higher amount being offered for the home.

This process has rules. All potential buyers should be given the same time frame to respond and either increase their offer amount or re-affirm the amount they offered before is, in fact, their ‘highest and best’ offer. This option should be provided to the buyer’s agent (via fax) and provide for a signature so that the buyer’s agent can confirm that they have received the notification that the buyer needs to respond by a specific time.

The time frame for response varies but it is not uncommon for it to be 24-48 hours. A buyer has the option of withdrawing their offer if they decide they do not wish to participate in the bidding war. A buyer who is still interested and wants to increase their bid should be certain that their agent gets their revised offer in prior to the expiration of the required time frame. A follow-up phone call would be appropriate since the seller is going to make a decision based on the offers they receive during the stated response time.

Copyright © 2009, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Modification Myth

MYTH—It is a widespread myth that borrowers who are in default have no money and therefore no way to pay for help with addressing their default situation. The argument is frequently the logic for non-profits who insist that it is somehow immoral for a borrower to be asked to contribute to the service which they need. While I support non-profits, I have never bought into this false thinking. I believe that most folks appreciate more what they have contributed to and think that non-profits could offer more services to more people if they adopted a sliding scale which allowed clients to pay according to income level with a provision for totally FREE service in situations which clearly warranted such.

REALITY—many borrowers do have money—SOME money. No matter what circumstance caused the default, many borrowers not only have some money but are both willing and anxious to find someone whom they feel can help them with their mortgage mess and are both able and expect to pay for that service. This is especially true of middle to upper income borrowers who are used to paying for any service they get and are more likely to be suspicious of service offered for FREE. As an example, the borrower in a $500,000 house who has been laid off is likely to have resources to make the mortgage payment for a while before savings, retirement and/or other accounts are depleted. This individual is looking for an attorney or similar professional with knowledge of the foreclosure process, possible impact on his taxes, etc to help with the tough decisions which have to be made. Additionally, this same borrower, while highly competent at his/her job is acutely aware that they are unprepared to negotiate for themselves in this arena. To my point, I recently personally coached a highly skilled attorney through the loan modification process and the mandatory meeting with the Lender shop which has been instituted by law in the state of Indiana. The attorney was able to do what I told her to do but she did not know WHAT to do or WHY certain things were important because this is not her area of expertise. She needed professional coaching to deal with the bank world. She is one of several consumers whom I have personally coached through the process and helped them to be able to represent themselves since I am not in a position to do so.

SOLUTION—Trained, competent foreclosure intervention counselors—who work for a fee, to represent those who cannot get representation at HUD approved or other such agencies. There is room in the market place for both. There are consumers at both ends of the spectrum who need appropriate, professional help. Recently I was asked by an upper income borrower what exactly I do other than the training for REALTORS. I explained that I am a consumer advocate and try to reach borrowers for whom I can provide FREE workshops or materials to in order to help make a difference in their situation. His question then was ”Why are you discriminating against people who have money?” The question caught me off guard and caused me pause. The truth is that I come from a background of poverty and I have a commitment to make as much of a difference as I can for those who are struggling. Does that mean I should not share my knowledge with those who can afford to pay for it?

It struck me as a novel concept. It resulted in a paradigm shift.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Assessing HAMP a year later

H A M P—Home Affordable Loan Modification Program was discussed in detail yesterday. If you missed it, it would be valuable to read it before you read today's blog.

First, let’s analyze what has been accomplished under the program. The program was projected to reach over 4 million homeowners with much needed help to sustain home ownership. The end of the year report indicates that fewer than 100,000 have, in fact, been granted permanent (5 year permanent) mortgage modifications since the program was implemented in March, 2009. For those 100,000 or so, they see it as a success (even if they do feel 20 years older because of the process). I feel pretty sure that the other 3,900,000 would consider it a failure. The horror stories of run-arounds, and lost paperwork and so on and so forth defies explanation and even the most mild-mannered person can be pushed too far.

Why Has HAMP failed?

The simple reasons are that it was created without a clear understanding of how the bank world works (the role of the guarantor behind the loan) and some other critical components were just overlooked.

Capacity—The dilluge of consumers instantaneously seeking help totally overwhelmed servicing shops who were already stretched past capacity because of defaults. Without funding for the hiring and training for substantial increases in staff to handle the flood of requests for help, the plan was doomed to be as ineffective as history has shown it to be. Individual lenders have sent PR teams across the country to talk about the way they handle modifications, but I am talking about a massive, organized, on-going effort to train the staff within the lender shops what was expected from the government and how the program was to be implemented. For a simple look at the capacity issue—I have folks tell me all the time, “You should be offering this and you should be doing that and why aren’t you answering questions online from individual borrowers?” I look at them like they’re crazy. HOM is a small company with 3 employees and the company’s income is generated almost exclusively from speaker fees. You want production equilvalent to a large company but you are not offering any funding or staffing just creating more jobs. The NEED for something does not translate into the CAPACITY to provide it without resources which include funding and personnel. HAMP did not adequately address the capacity to get the job done.

Resources—The expectation that only HUD approved housing agencies or similar non-profits should be the ONLY endorsed sources for help totally belies the fact that the program was designed for borrowers with mortgage balances up to $725,000 and non-profits primarily restrict their services to folks who earn less than middle income. Hence, no provision for a referral to anyone if you are not at the lowest end of the income spectrum. Worse, a condemnation (by our President no less) of any organization which offers help for a fee (to middle and upper income borrowers who are looking for such help). This major oversight means there were no guidelines, training, or criteria established for this needed service and YES, some vultures stepped in to fill the gap. California now has some pretty strong anti-vulture legislation which pushed most of the loan modification businesses there out of business, and not a day too soon for many of borrowers who have found that un-trained and un-regulated help can lead to a diastrous outcome.

Non-Profit Push Back

I understand that I am inviting non-profits to yell at me but before you start yelling to defend your position as the only people who care—What is your current back log? How many more people could you see? Is your staff already maxed out? Have all of your counselors received substantial modification and foreclosure law education in your state? Do you offer a sliding scale so any homeowner, any income level has access to your services? What is your success rate with completed modifications? Are borrowers re-defaulting within a few months? If the answer to any of those questions is yes, this indicate you are already serving your maximum capacity (and I am informed enough to know that most are). Stop arguing that help should ONLY be available to those whom you serve and embrace the idea that all borrowers, all income levels deserve to have representation to help them with the crazy world of banking. Businesses which have trained staff, operated ethically, with sufficient government regulations and appropriate bonds in place could go a long way to easing the foreclosure problem which continues to plague this county and will for the next several years. The time has come for the creation of Foreclosure Intervention Services—For Hire, as respectable businesses, listed in the phone book right next to non-profits as a resource for struggling borrowers. Repeat after me—Prohibition did not stop folks from getting alcohol—it just made the bootleg market prosper. When are we going to learn? Where there is a need—a provider will emerge.

Program Lacked Basic Understanding of the Bank World

It was a VOLUNTARY program. Lenders were not required to participate. In fact, they could NOT be forced to participate. It is not possible to force someone to alter the terms of a contractual agreement AFTER the fact. It doesn’t matter that the entity trying to compel cooperation was the US government. Mortgages are legally binding contracts. Lenders already had not only the contract with the borrower, but contracts with the investor, the guarantor, the hedge fund, and so on. The performance of one contract impacted several other contracts and therefore made it nearly impossible to make a significant change to the original contract (the mortgage) because of the cascading impact on all the other contracts which had grown out of the securitization of the underlying contract. Formulating a plan without a clearcut understanding of the securitization process was a major misstep in trying to implement HAMP.

Motivation Insufficient

Beyond the securitization problem, the issue of sufficient motivation to modify made the challenge almost insurmountable. While many would argue that the lenders were paid for their cooperation, that argument fails to address what they would receive by NOT cooperating. Now lenders are going to be mad when I state emphatically that they receive MORE to foreclose than they do to modify. How could that be you ask. Lenders lose money DURING the default process: they must pay the investor as agreed, incur expenses associated with the servicing of the loan, work to avoid having a lien placed against the property for failure to pay homeowners’ association dues, cover the cost of insurance to avoid an uninsured loss, etc, etc. All of these are out-of-pocket expenses—UNTIL a foreclosure is completed. Then, on ALL insured loans, which is MOST of them, the lender recoups many of the expenses which they have put out and collect the amount of the insurance on the loan. It is true that they will seldom get back the missed payments (that remains a loss to them) but the other expenses are usually reimbursable expenses. If you’ve wondered why it seems that the lender is not really trying to work with you, simply consider they need the process to be over, so a claim can be filed.

HAFA—A New Program announced on November 30, 2009 will be addressed next week.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Press Release: HOM Announces Loan Modification Specialist (LMS) Certification in Las Vegas

NEWS RELEASE

FOR IMMEDIATE RELEASE – January 15, 2010

Contact: Mildred Wilkins at 1 (866) 507-5105 mildredwilkins@HomeOwnershipMatters.com

Home Ownership Matters Training Institute

Offers Loan Modification Specialist Certification in Las Vegas

Indianapolis, IN, January 15, 2010—National speaker and foreclosure intervention trainer Mildred Wilkins is pleased to announce that the (LMS), Loan Modification Specialist certification program for real estate professionals seeking to help borrowers modify their home mortgage loan will be offered in Las Vegas, Nevada March 11-13, 2010. The program has previously been offered only in Florida. Nevada has the dubious honor of being one of the hardest hit states with borrowers losing their homes to foreclosure. Many are seeking the help they need to avoid it.

With a number of loan modification businesses already in operation in the state, it makes sense to offer high quality training to those looking to provide consumers with an option when they face the challenge of trying to cope with the overwhelming task of preparing to deal with the lender’s shop. Professional training coupled with certification from a nationally recognized trainer and former Fannie Mae Broker-Specialist could give you the edge you need in the development of your business.

As the national news continues to report; the Administrations’ modification program implemented last spring has failed woefully in reaching even a fraction of the borrowers who qualify for help. There are some clear cut reasons why that is true, and those reasons will be discussed with clarity during this course.

Wilkins has been a foreclosure prevention trainer for several years, and has offered a 5 day training (FIS) Foreclosure Intervention Specialist certification for REALTORS® since 2005. The (LMS) certification program was developed in 2009 to meet the need for professionals who understand the process and are familiar with the ‘bank game’ to specifically focus on ONLY loan modification business development. Consumers deserve skilled representation to have at least a fighting chance at getting a modification when one is warranted. The program is designed for experienced professionals, whether attorneys, loan officers or real estate agents who already understand the mortgage process and are familiar with typical closing documents. (LMS) training will provide attendees with the tools to provide a high level of professional service while avoiding many of the pitfalls in this rapidly expanding arena.

The housing crisis has increased dramatically creating a need for a new field of knowledge—a new type of expert. Foreclosure is frequently avoidable but unfortunately consumers have limited opportunities to learn what options are available. Nor is there a way for consumers to identify professionals who have the ability to help them rather than perpetuate yet another injustice. (LMS) addresses that need by empowering real estate professionals to be prepared to handle borrowers in default with increased knowledge and the tools to be effective in working with lender shops to effect a successful modification or other retention option.

Ms. Wilkins sold foreclosed properties for Fannie Mae’s disposition department out of Dallas, Texas for 2 ½ years. She has received loss mitigation training from NeighborWorks America, Fannie Mae and HUD and Legal Services. Since founding HOM in 2002, she has been quoted in the New York Times, BusinessWeek and the Huffington Post. She has appeared on MSNBC and NPR. In addition, foreclosure related articles she has written have been published in BAS and REALTOR® magazines around the country.

Wilkins has taught for Graduate REALTOR Institute (GRI). She is also a member of the faculty of NeighborWorks America as a trainer in Foreclosure Intervention. She is regularly a speaker or trainer at numerous state/regional conferences on foreclosure intervention, predatory lending, loss mitigation and/or mortgage fraud. She is widely recognized as a leading expert on these subjects. HOM has been certified as a continuing education provider for real estate professionals in Colorado, Nebraska, Kansas, Ohio, Indiana, Kentucky, Tennessee, Oklahoma, Iowa and Alabama. Wilkins is an approved instructor for attorneys in Indiana and Ohio.

Today’s challenges require more expanded knowledge than ever before. Get the edge you need! Register today!

www.HomeOwnershipMatters.com for registration/information.

Email: MildredWilkins@HomeOwnershipMatters.com

Q&A: Money in the Bank

Q: If I want to do a short sale and I have money in the bank (let’s say $10,000) can my lender take that money from me?

A: I have some good news and some bad news.

Good news: No, a lender cannot force you to withdraw money from your personal accounts to give them if your home is upside down. Nor can they withdraw money from your accounts if you are in default. Their hands are tied in relationship to other assets you may have, they only have control of your house.

Bad news: You can’t force them nor compel them to approve a short sale IF YOU HAVE $10,000 IN THE BANK. But they do have control of your HOUSE. They can—and will—refuse to allow the short sale to close unless you have demonstrated that you have no resources with which to cover even part of the shortage.

So, I expect your question then becomes, “How would they know what I have in the bank?” And the answer is: you have to tell them. In order to even be considered for a short sale you must provide details of your finances through an extensive hardship package. They will usually ask for the last 2 years’s tax returns, most recent 3 months’ bank statements, savings accounts, etc. (You should keep in mind that your loan application detailed what accounts you had). You will also be required to sign stating that you are telling the truth.

The servicer has an obligation, imposed by the guarantor, to be sure that you DON’T have resources to offset the anticipated loss before they agree to let you close. It’s that catch 22 thing again, you ain’t got enough money, but you are blocked because you do have money.

Likely outcome: They will most likely agree to a short sale provided you cough up the $10K. I said they can’t just take it, which is different than refusing to play ball until you fork it over.

I encourage you to watch INtro #5 “What’s a Hardship Package Anyway?” It’s available, FREE, at www.HOMwebinar.com

Good luck!

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Q&A: Offer Doesn't Cover Loan

Q: A common question over the past year has been: “What happens if I am trying to sell my house and I am not able to get a new buyer who will pay as much as my outstanding loan?” “What are my options then?”

A: The questions you raise are faced by many borrowers across the country and the answers to your questions vary somewhat depending on several factors:

a. Your circumstances, including your reason for default

b. Your guarantor, meaning who ultimately is holding the loan and stands to lose the amount NOT being offered by the new buyer

c. Your resources, ie. Money in savings, retirement account, etc.

d. Current restrictions or requirements from external forces such as the TREASURY

Ordinarily, to sell your home, you need to get an offer which will cover all the costs associated with the transfer AND cover the full amount due to the lender to pay off your mortgage in full. In today’s climate frequently the value of the home has fallen and that is not possible, creating what is now commonly called a ‘short sale’. The lender may require one of more of the following options:

1. You sign an unsecured note for the difference (or an amount you negotiate which is less than the difference but will satisfy the guarantor).

2. You bring a check to closing for the difference between the offer and the amount owed.

3. Someone other than you (the real estate agent, the purchaser) pay the difference or a negotiated, compromised amount in order to allow the closing to move forward

HOW do you handle a potential sale when you are not likely to get all that you owe from a new buyer?

Select a REALTOR® who is experienced in handling short sales in your area and work closely with them in providing everything your lender/servicer is requesting in order to get them to accept an amount which is consistent with the current value of the home.

IF you cannot negotiate a compromise for less than the full amount owed: THEN foreclosure is frequently the outcome.

Best of luck with your attempt to move your home in today’s market. With market savvy and determination, it can be done!

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Assumable Mortgage (With Approval / No Approval)

And the WORD for Today Is...

Assumable Mortgage – is a mortgage which has a clause; which means the lender is willing to let a new borrower assume the loan. If the lender approves the assumption then the old borrower has no more liability for the payments. However, if the mortgage holder and the new buyer make an agreement WITHOUT THE APPROVAL OF THE LENDER and the assumption has not been recorded then the original borrower still has the responsibility for the payment. A release of liability would have protected the original borrower in case the new buyer does not continue to make payments in a timely fashion. Protect yourself; get a release signed.

a. Assumable-No Approval

b. Assumable-With Approval

Assumable Mortgage-No Approval – means the lender will not do a credit check on the purchaser and the two parties may make the agreement between themselves.

Assumable Mortgage-With Approval – means the lender will require that the new buyer apply for a mortgage and go through the regular application process before the lender allows the assumption to be processed.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Assumption of Mortgage

And the WORD for Today Is...

Assumption of Mortgage – refers to an agreement by a new buyer to take over, or assume, an existing note, which is secured by a mortgage or deed of trust. It is also called simply ‘an assumption’. The transaction usually requires lender approval of the new borrower in order to release the seller from further liability.

Assumption of mortgage means a new buyer agrees to take over or assume the financial liability under an existing note which is secured by a mortgage or deed of trust. Most notes in force today do not have a provision for an assumption. If the lender does agree to allow an assumption they will almost always insist on the submission and processing of full credit application on the new borrower. The assumption cannot be completed without the lender’s approval. The granting of the approval to assume does NOT release the original borrower from their financial obligation unless the lender also signs a release of liability. A consultation with your attorney is advisable.

It is crucial that a borrower who decides to consider an assumption be aware of the assumption clause which basically states that while they allowed another borrower to take over payments on the mortgage, they have not released the original mortgage holder from their obligation. A consultation with an attorney is strongly advised prior to the completion of an assumption, even with lender approval.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)