Q&A: Flood Insurance

Q. We closed on a house more than two months ago and just received a letter from the lender telling us we have to have flood insurance on the property. Shouldn’t the title company have done a survey and determined whether or not flood insurance was needed BEFORE they allowed us to close? How can they force us to take on this extra expense now?

A. It would be highly unlikely that a title company would close without a survey which stipulated whether or not the property was in a flood zone, therefore requiring flood insurance. The closing also should have included a “flood insurance certification” which would have declared that all parties were aware that no flood insurance was required.

However, mistakes do happen occasionally. It might have been missed or it might reflect a change in the flood map or very likely it means there was a situation where part of the neighborhood is in a flood zone and part of it is not. Your home might have ‘appeared’ to be exempt from the flood insurance requirement when, in fact, it was required.

Commitment to Cooperate

In the event there had been a recent change in the flood zone maps (or they just plain made a mistake) which means the property must be covered with flood insurance you no doubt signed a document at closing which states you would cooperate with all parties (Lender, title company or REALTORS®) if they needed you to help them with correcting forms, etc from closing.

Compliance Disclosure

Almost all closings also include a document which states you specifically agree to add flood coverage IF it becomes a requirement AFTER you have closed. Lenders have the right to have the collateral protected from risks such as floods and therefore the stipulation that flood insurance can be added , when deemed necessary.

I’m afraid you must continue the coverage. Flood insurance is pretty expensive and I know that can cut a good sized hole in your budget when you were not expecting it. But the real beneficiaries—You and Your Family.

Better to have it and not need it, then to need it and not have it.

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: Insured Mortgage

And the WORD for Today Is...

Insured Mortgage – is a mortgage which is insured against loss to the lender in the event the borrower defaults and the ultimate sale of the property does not net as much as the outstanding loan, plus the cost of the foreclosure. Such insurance may be provided by FHA, VA or an independent mortgage insurance company.

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 atwww.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.)

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.)

WORD: Mortgage, Continued

The WORDS for Today are:

Mortgage Broker-The mortgage broker is a “middle man” who brings together a lender and a consumer who wants a loan. The broker is not an agent for the consumer and therefore has no fiduciary responsibility towards them.

Mortgage Servicer-May be a bank, mortgage company or a similar business that communicates with borrowers concerning their mortgage loan. A servicer usually works for another company that owns the loan. The responsibilities of a servicer include: accepting and recording payments, handling default issues including various workout options, and supervising the foreclosure process if that becomes necessary. In the event the servicer handling these details has changed, then the lender has the responsibility of notifying the borrower of that change. A servicer may have been hired and given servicing rights only or they may have a broader contract, which includes servicing rights with assigns.

Mortgage Servicing-refers to the handling of the necessary duties of a mortgagee, including collecting payments and making sure taxes and insurance are paid when scheduled. Servicing may be done by the lender or a company that charges a fee to provide these services on behalf of the lender. A servicer who has been granted servicing rights with assigns may initiate foreclosure action just as the lender who owns the loan might do. Releasing a lien after a mortgage has been paid in full is also function of loan servicing.

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.)

Q&A: Crisis Budget

Q. We have been in our house for several years and did not refinance or get a second mortgage like so many people seem to have done over the past few years. We have managed to make our payments on time and things were fine until they cut back my hours at work six months ago. We struggled but we were still getting by until my husband was laid off two months ago. He cannot find a job even though he is trying really hard. We have already talked to the bank about trying to work with us on the mortgage but they can’t with the little bit of income we have. I don’t even care about the house any more. What can we do to try to keep food in the house until we have to move? We need help just to survive. Can you make any suggestions? We will try anything.

A. For many people today the truth is that they, like you, are in survival mode. I will not address any possibilities for saving your home since your focus is survival of your family. First, you should be applauded for looking at the survival issues as being more urgent than your housing issue.

I would encourage you to immediately adapt a crisis or survival budget. I will cover a whole list of things to do, some I am sure you’ve already thought of but some which you might not have considered. Here goes.

1. Household necessities—food and medicine

• Cook at home—no fast food
• Switch to store brands, minimize food purchases when possible by using simpler dishes (spaghetti instead of lasagna)
• Use coupons and watch for store specials
• Check again to see if you NOW qualify for food stamps
• See if the “Angel Food Ministries” is available in your area
• Look for short dated meats which are dramatically reduced (use immediately or freeze)
• For prescriptions—switch to generics and/or ask your doctor for samples

2. Car expenses

• Can you switch to a lower car payment? Use public transportation?
• Get rid of a second car? Carpool?
• Reduce the number of miles you drive, saving on gas
• Increase the deductible on your insurance to get a lower monthly premium
• Barter for an oil change but DO NOT delay when one is needed

3. Minimize household expenses

• Get rid of cable and minimize the expenses with a land line if you also have a cell phone
• Go to a minimal package with your cell phone company
• Reduce personal care expenses for haircuts, nails (can you barter for the hair or do it at home?)
• Change entertainment to free park or other community events instead of movies, bowling etc
• Cut out playing the lottery or other gambling
• Give up cigarettes or drinking (big saving on 1 or both of these)

4. Look for ways to generate income such as:

• Selling items on eBay
• Holding a garage sale
• Taking items to a consignment shop
• Take in a roommate—be upfront with them about your mortgage situation
• Sell items you don’t need at a flea market
• Look at your skills to see if anyone will pay you for a skill you have (mowing lawns, painting, childcare, fixing items, any one of 50 things)
• Do you have a hobby which could generate income (cake decorating, sewing)

5. Other possibilities

• If the car is paid off, reduce the insurance coverage to liability only
• Change the number of dependents on your W-2’s
• Use conservation methods to reduce your utility bills

6. Housing

• Apply for government subsidized housing (Section 8), even if there is a long waiting list
• Consider moving in with someone (family/friend) for a period of time
• Use techniques for “buying TIME” to stall foreclosure until your situation improves

This is typically called a crisis budget, you can get the definition, and more information, here.

Please share any suggestions you are already using which are not included in the list above. We’ll use them in a future blog and you can help someone else to make it over the hump. We really are all in this together. (You can either leave a comment here, or send an email to Heather at homeownershipmatters@gmail.com).

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.)

Your Real Estate Advisor: Avoiding Loan Sharks

Happy Valentine's Day, readers!!
Today, we bring you:

Avoiding Loan Sharks

Twenty five or thirty years ago, we called them loan sharks. Everyone knew exactly who “they” were and what practices were being described. Loan sharks have not only survived, but thrived because they serve a need. Then, as now, there were a substantial number of consumers who needed money for the everyday necessities, who could not qualify for a loan with reasonable terms from one of the traditional prime lenders. These prime lenders did not make loans to people unless they had unblemished credit, stable and substantial employment and a savings account. It was frequently stated (and frequently true) that you couldn’t qualify for a loan unless you didn’t need the money.

That was then and this is now. Now we have email, internet, and predatory lenders. The name is so fancy that most people don’t realize it’s the modern name for an old practice: loan sharking. The approach today is ultra modern, offering the ultimate in direct marketing and customer service. For an added touch, many add the spectra of religion, either by their name or the off-quoted “God wants us to prosper.” They conveniently drop the rest of that verse which states, “As our souls prosper.” We can sometimes identify who the modern day “loan sharks” are, but unfortunately, many times we cannot. Many of them have on business suits or business dresses. They all have business cards. Many of them have very nice offices. In a modern twist, the company name will sometimes be a subsidiary of a prime lender whose name you recognize and know has been in business for a long time. An increasingly large number of prime lenders have created sub-prime lending affiliates who participate in modern loan sharking a.k.a. predatory lending. They are very savvy business entities. They have attorneys and lobbyists; they contribute lots of money to political campaigns. They have survived and thrived at the expense of consumers who did not understand the loan terms they agreed to, frequently did not realize they stood to lose their home.

There are the direct victims; they took out the loan. At the least their finances are now more stretched than before; at the worst, they lose their house to foreclosure. There are thousands of these victims in any state. A much larger group of people are the indirect victims; they just happen to live in a neighborhood with increased foreclosure rates and resulting vacant houses. These indirect victims are left to deal with rate, roaches, and higher incidences of vandalism and violence. Most homeowners have experienced increased costs in their homeowner’s policies because of losses incurred by the insurance companies.

Increased numbers of foreclosures directly translate into lower property values for home in the immediate vicinity. Equity is eroding while frustration increases when homes stay on the market for extended periods of time.

Buyer BEWARE!
“We’re really in this thing together”

Copyright © 2009, HOM, 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.)

From the Desk Of..."Mama Said"

“There’d be days like this...”

They try to warn us and still we are surprised. After all, they’re old and tired and out of the loop. How could they possibly have known? Perhaps they ‘remember’ more than we have yet to learn.

REALTORS...“Invisible” Casualties

They are not documented in the statistics, these self-employed (independent contractors) who call themselves REALTORS. They cannot draw unemployment nor is there a plan to cover their non-existent medical insurance premiums. They don’t garner a lot of sympathy in a lot of circles either. And to add injury to insult, they are sometimes blamed for participating in creating the crisis which has engulfed them as well. On a regular basis they call or email me wanting some advice on what can be done to save their personal residence. With increasing regularity attendees in short sale classes were motivated to attend by a need to save their own home. It is a sign of the times.

How Did We End Up Here?

I went on record as early as 2002 stating we were likely to dance dangerously close to a repeat of 1929 if we did not immediately halt the outlandish predatory lending, the crazy new construction financing and the whole speculative silliness on our coasts. After selling real estate for several years and keeping a close eye on the escalating foreclosures moving through the pipelines at Fannie Mae, I could see where we were headed.

My ex-husband and I purchased our first home in 1979 at 16% interest (with excellent credit I’ll have you know) so I had some familiarity with the housing drama of the mid-70’s and into the 80’s. But that was a housing crisis; this is a full-blown economic crisis. That was regional, this is international. I am only 58 and while I could see the tip of a nasty iceberg, I could not see, nor truly imagine, how much of the iceberg was underwater. (No pun intended). A housing problem which is restricted to one industry, or one region or demographic group, cannot create the kind of havoc which we are experiencing as an economic tsunami. The economic crisis which is crippling our country, and the world, will not improve dramatically in the short term; so it behooves all of us to “adjust as necessary”.

Life’s Lessons

The purpose of lessons is to get us prepared for the test. However, as adults, all too often we act as though we have forgotten that tests are a part of life, show up when and where you least expect them and are administered whether you are prepared or not. Welcome to the classroom for the test on “Living Large” or it might be called “Analysis of the Aftermath of an Unattended Bubble”.

I Was at a Crossroad

After a particularly difficult period following my divorce in the fall of 1991, I eventually emerged from an extended fog where I had felt overwhelmed and unable to cope. I had been summarily thrown off the “middle-class, stay-at-home mom, PTO president, Girl Scout leader” train into a new life as a divorcee. The house had been lost to foreclosure and the beautiful Celebrity station wagon (the ultimate status symbol) had been towed away during dinner. I was left to raise two wonderful children, sans child support.

Early Preparation Comes in Handy

In the wee hours of the morning I had a life altering revelation. I called Mama at 6 a.m. (she was already up) to tell her my great news. With a new sense of feeling empowered and ready to take on the world, I happily reported, “I am so glad that I was born poor and Black, in the south.” Her concerned reply was “Girl, are you alright?” I was better than alright, I was ecstatic. I had suddenly realized that I had within me the capacity to over-come things much more challenging and with a lot less maturity and preparation. I was healthy, college-educated (a testament to perseverance) with marketable skills as an interior designer and seamstress. I could figure it out.

Personal Inventory

A long held personal commitment to never giving up took that option off the table. Going home (back to Alabama) was also not an acceptable option for me, even though I strongly encourage others to consider it. What marketable skills could produce enough income to support us in the new apartment? I dabbled with interior design; I could expand it. As an excellent seamstress with strong referrals, I sought and was successful in getting my name added to the list of recommended seamstresses at a bridal shop and 3 home decorations shops. Mildred’s Speciality Fashions had been my hobby; it now became my dominant source of income (you see there was a downturn in the economy, and folks who previously would have called DECORATING DEN now called me instead). I also decided to supplement that income with house cleaning (a day job) which allowed me to continue to be available to the children and work into the night on the design and sewing. I let all my customers know that I needed more work and requested referrals. I expanded my cake decorating hobby and created a business card for that as well.

Long term planning

My income was sufficient as long as I worked 16-18 hours a day, 7 days a week. I needed to plan to cover college costs so I decided to plan for and become a REALTOR. (I know, better hours right?) January 1993 I joined the F.C. Tucker Company full-time, continued to work my evening gigs for 2 years and moved to six figures within 6 years at an average sales price of $150,000. In Indiana. The plan worked, I evolved, my needs and my life shifted and I founded HOM in 2002 because I saw this coming.

Are you where you need to be?

The most important question should not be whether or not you can survive. You CAN if you CHOOSE to do so. The deeper question is whether it is time for you to make a move...

a. Within the real estate industry

b. Into a fresh industry

c. Step back and expand a hobby or long held dream

Silver Linings in Unexpected Places

What looks and feels like a crisis can frequently be the catalyst which moves us to a long overdue change. Take some time and reflect on what is really important to you...family, friends, leisure time, personal development, spiritual growth or something I failed to include. Is there a chance that the upheaval in your real estate career is providing an opportunity to re-align yourself more closely with deeper values? Is this a chance to shed some undesirable aspect of your present life? Are you enjoying managing your rentals? Are you really seeing any gain from them? Could a smaller house, or even an apartment, relieve some pressure and make you life more pleasant? Have you really considered how you want the next stage of your real estate career to go, or are you foolishly grabbing any straw you see floating—hoping it will turn into a lifejacket?

Methinks the REALTOR needs a doctor

As a real estate professional it’s time you had a check-up. I would recommend you be tested for:

• Financial stability (or lack thereof)
  
• Emotional duress and mental stability
  
• Viable game plan
  
• Analysis of both short and long term goals
  
• Prognosis for longevity
  

There are not a lot of clinics which offer the services you need but I can offer you some helpful reading which can be found on this blog, specifically these two entries:

• “Realtor at the Crossroads” on January 25, 2009
• Surviving Debt on May 6

I feel pretty confident you’ll find some other entries which are helpful as well.

You would also benefit immensely from attendance at a “Buying TIME” and “Short Sale: Not Your typical Transaction” class. Both could be scheduled locally, by your real estate board. It is no small thing that funding for these courses might be provided by NAR as part of their Foreclosure Intervention and Prevention Response program. Talk to your local board today about scheduling one, or both, of these classes.

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.)