Foreclosure update for 2012

The number of new foreclosures in 2011 dropped nearly 40 percent, according to year-end numbers just released by Lender Processing Services; there is, however, little cause for celebration. The fall is largely due to moratoria and process reviews stemming from the so-called “robo-signing” foreclosure paperwork scandal. Mortgage delinquency rates were largely unchanged from last year, which means all that distress will be pushed forward to 2012 and beyond.

To give you an idea of just how much the “robo” scandal is toying with the numbers, LPS compared states that require foreclosures to go through the courts versus states that don’t (judicial versus non-judicial) and found the following:

- 50 percent of loans in foreclosure in judicial states have not made a payment in two years, as opposed to 28 percent in non-judicial states.

- Foreclosure sale rates in non-judicial states are about four times those in judicial states. (judicial means they must go thru the court process to foreclose)

“Nationally, foreclosure pipelines remain at historic highs, but they are clearing at very different rates depending upon state procedures,” says Herb Blecher of LPS Applied Analytics. With the nation essentially split between judicial and non-judicial foreclosure states, it’s safe to say the foreclosure crisis will linger longer than anyone expected, especially with negotiations for a settlement between big banks and state attorneys general hitting yet another roadblock.

Additionally: Foreclosure homes sold for 34 percent less than the average price of a non-distressed home during the third quarter of 2011, according to new data released byRealtyTrac Thursday. The average sales price of homes in the process of foreclosure or bank-owned was $165,322 over the July-to-September period last year. RealtyTrac says third parties purchased a total of 221,536 residential properties classified as foreclosures or REO during the third quarter of 2011, representing just 20 percent of all residential sales during that timeframe. The third-quarter share of distressed sales activity is down from 22 percent in the second quarter and down from 30 percent of all sales in the third quarter of 2010. At that time, a year earlier, the discount on a home in foreclosure or REO was averaging 37 percent.

“While foreclosures continue to represent an excellent bargain-buying opportunity for many buyers and investors, foreclosure sales accounted for a smaller share of the total market in the third quarter,” commented Brandon Moore, RealtyTrac’s CEO. Mr. Moore says he’s not too surprised by the numbers, given the ambiguity surrounding foreclosure procedures and how they differ by state.

Good News: There are still bargains out there if you do your homework and have cash to buy quickly.

Bad News: It appears, at least for now that 2012 will unfold in a similar fashion as 2011.

Investor money going under the mattress’

Jeff Cox a senior writer at CNBC’s research center shows that investors have been running from stocks and even bonds as fast as their feet can take them, putting their cash instead in accounts that earn practically nothing but provide shelter from turbulent times. Over the first 11 months of 2011, plain-vanilla savings and checking accounts attracted eight times the money as stock and bond mutual and exchange-traded funds, according to data from market research firm TrimTabs.

The pace accelerated to nearly 13 times from September to November, the most recent month for which data is available. After contending with factors as ominous as the European debt crisis and as frustrating as Washington gridlock, investors have decided that the world looks best from the sidelines, despite historic efforts from the Federal Reserve to tempt more risk taking. ”The real money these days is going straight under the mattress,” said TrimTabs CEO Charles Biderman. “The Fed is doing almost everything in its power to entice investors to speculate in overpriced asset markets. Yet investors — particularly on the retail side — are mostly refusing to take the bait.”

From January to November, $889 billion poured into savings and checking, while stock and bond funds drew just $109 billion. More money went into bank accounts even at times when the market rallied.

Most recently, investors took $9.35 billion out of equity funds — including more than $7 billion of U.S.-based funds — for the week ended Jan. 4. Stock-based funds haven’t had a winning month since April of 2011, and cash in money market funds is just over $2.7 trillion, the highest level since June 22, according to the Investment Company Institute, which tracks fund flows for the government.

Biderman attributes the reluctance of retail investors to commit money to three factors: 1) an increase in baby-boomer retirees who are becoming more risk-averse in their later years; 2) an economy getting better but still struggling, and 3) worries that the Fed is running out of ammunition to stimulate the economy. The #1 has been a talking point for me and my clients for years. I’ve been asking the question: “What’s going to happen to the markets when 70 million baby boomers begin to pull their money out of investments?” The reality is not good, but the bigger concern many of you should have is timing. As history has shown us, if you are in the market, and you wait, you can lose a bundle quick. I suspect this is why it’s going under the mattress.

“Investors are very skittish. The last decade has really eroded American optimism,” said David Kelly, chief market strategist at JPMorgan Funds. “The problem is they look at the day-to-day volatility and they just can’t take it.”

Kelly believes that “economic momentum” — in better unemployment numbers, housing improvement and manufacturing gains — ought to be pushing investors away from zero-earning instruments and toward risk. The most recent of the closely watched fund managers surveys from Bank of America Merrill Lynch showed bullish sentiment as well, with cash levels at their lowest point since July. Overweight ratings on U.S. stocks are at a net 28 percent, up from 23 percent in December.

Mary Ann Bartels, technical research analyst at BofAML, had been forecasting the possibility of the Standard & Poor’s 500 testing as low as 935 in the coming weeks. But Bartels said Monday that positive market signs have pushed her to take that possibility off the table, though she still sees problems ahead. After all, the fears that have accompanied the pullback into the safety of checking and savings accounts aren’t going away anytime soon. So without a positive spark, it will take some convincing to get investors to commit their money again.

Case Study 4 – December 2011

Client J had several obligations with Chase. This client was of the mind that everything should be with one bank. “It’s easier to keep track and manage”, he said. For the reasons forthcoming, you will soon see that this is not true. Client J was not the average American due to his large portfolio but you will see that his holdings only increased his risk. It took us 11 months but it was worth saving him $300k.

1. $994,000 first mortgage – Chase Mortgage ( monthly payment $4400 )
2. $95,000 second mortgage – Chase Mortgage ( monthly payment $980 )
3. $279,000 variable mortgage for his rental investment property with Chase Mortgage
4. *$134,000 land loan on a parcel of land – secured by his (6) Chase savings account
5. $225,000 liquid in various mutual funds with Chase Brokerage account
6. $209,000 in savings account with Chase

*notice how Chase had him use money he had in savings to “secure” the land loan. Chase knows that land is the first thing to lose value in tough economic times. How convenient they used his cash to secure the land instead of giving him a land loan. As the land lost value, Chase doesn’t lose anything, they still have it secured by his cash at 100% value. 

Client J loved his home. He paid $1,400,000 for it in 2004 and at that time he was earning $600,000 per year. In 2007 his income dropped to $350,000, and then by 2009 below $200,000. In 2010 he needed to re-negotiate the mortgage on his primary home because the payment was so high he had to draw money from savings each month just to pay is monthly obligations. He called his broker friend for help. Months of calls and requests to modify his loan went without action. No one at Chase would help him. This person had over $400,000 in liquid assets with Chase and they would not help him at all. Client J could not understand why his long time bank, the ones he had trusted with all his finances would not help him. This is a common dilemma. The fact is that when you have money, banks will not help you. Banks are in business for one reason, to use your money and make a profit.

After months of attempts he was referred to 360 Group. We discussed the entire picture in detail as I went over each item on his portfolio. The forensic audit showed all the risk. I explained that he had to move money from Chase in order to get them to act. This was hard for him to realize, but in time he got it. Eventually he took action and did the following.

1. Sold his land in North Phoenix as the value had gone down to less than what he paid. Chase would not approve a short sale so he had to part with $7,000 cash to close the deal. So now (4) above, the $134k is gone.* had he gotten a loan on the land he would have lose $0.
2. Refinanced his variable mortgage on the investment property with another lender, so the loan (3) above is now at a better rate, a fixed loan for 30 years PITI equaling less than what he gets in rent so he is positive each month.
3. Submitted him for a modification on the primary, at this time the value had gone down to $850k on the home. The next 6 months we continued to submit financials to Chase showing that he only earned $60,000 a year, but that he had enough liquid funds to cover the loan if they would modify him. The danger is that when you make too little money the banks don’t want to modify as they see it as a risk that you will default eventually, so they typically decline the mod. I explained this to him up front and he wanted to try anyway. We had a 50/50 shot. After 6 months Chase was about to issue an internal mod as the high loan balance didn’t qualify for any government programs. Chase would not do a principal reduction (they are quite rare) but they would lower the rate to 2% for the first 5 years, then step the rate up 1% each year until 4% would stay for the balance of the loan. Not a bad mod. The value had gone down to $800k and I asked him, with a loan of $994k and $95k ( 1 & 2 above ) do you really want to attempt to pay this loan back? You will be upside down for the next 15 years or more. I explained that cash-flow is the most important thing right now and to preserve what cash he had left rather than throw it at this depreciating asset. I asked him a question. “Is this magnificent 4,000 sq ft home really worth you going broke over? The light finally went on as I stated at the beginning of this case study, and he told me that he really just wanted to get out of debt and re-group.
4. He liquidated $434,000 ( 5 & 6 above ) from Chase and three months later we short sold his home successfully with no deficiency risk and both loans ( 1 & 2 above ) equaling $1,089,000 are gone from his credit. Due to the large second mortgage, he had to come in with $10,000 cash to close the short sale. But that was a gift not to have any deficiency and to also know the bank agreed in writing that all was forgiven.

Now his income is in-line with his debts. He no longer has to dig into his liquid cash each month to live, reducing stress, and he has never felt lighter and freer. Imagine having to draw $7,000 a month from your savings just to break even each month. Now client J is happy and we’re blessed to have been able to help him.

Fannie & Freddie free from oversight

California Attorney General Kamala Harris is asking the court to force Fannie Mae and Freddie Mac to turn over information about their servicing, foreclosure, property leasing, and mortgage securitization activities in the state. Harris issued subpoenas to each of the GSEs last month, which according to the Los Angeles Times, outlined 51 questions the attorney general wanted answered – just one facet of Harris’ investigation to ascertain the extent to which mortgage lenders and servicers contributed to the state’s foreclosure and housing crisis. According to multiple media reports, Harris’ lawsuits against the two GSEs, filed Tuesday in California Superior Court in San Francisco, claim Fannie and Freddie have refused to comply with the subpoenas.

 

Harris maintains the GSEs are “frustrating the Attorney General’s efforts to investigate and combat crime, blight and other threats to the health and safety of Californians.” Fannie and Freddie’s regulator, the Federal Housing Finance Agency (FHFA), had reportedly instructed the two mortgage financiers not to respond to Harris’ initial subpoenas on the grounds that states do not have the authority to take such action against the federally controlled GSEs.

 

This was the same position the banking commissioners held when Countrywide Mortgage was being investigated by Elliott Spitzer back in 2007 before the mortgage crisis hit. It should be clear to all Americans that these institutions will never be held accountable. It’s big business as usual even after everything that’s happened since 2008.

 

Attorneys for FHFA described Harris’ request for information as “frequently vague and ambiguous” and one that would place a burden “nothing short of staggering” on the GSEs in order to gather the details she’s demanding, according to the Associated Press. Harris wants Fannie and Freddie to identify all the California homes on which they foreclosed, as well as whether or not any were used for drug dealing or prostitution and the impact such activity had on the property’s value.

The attorney general’s office also plans to look into the history of tax payment on the properties, evictions involving military families, and the GSEs’ actions related to the purchasing, packaging, and re-selling of so-called toxic mortgages.

 

While California Attorney General Kamala Harris is asking for a lot and obviously difficult data to gather, it still shows that these organizations operate with no guidelines and all Americans need to be aware of it. There are extremists who are ready to stop paying their mortgage and defend their home by gunpoint until the corporate crime in the country stops…I used to think they were crazy, but now I’m not so sure. Draw your own conclusions people.

Homes in the shadows

The number of distressed properties not currently listed for sale on multiple listing services (MLSs) stood at 1.6 million as of October 2011, according to CoreLogic. This shadow inventory is approximately half of the industry’s visible inventory of homes available for sale, CoreLogic says. Thus, for every two homes available for sale, there is one home in the “shadows.”

The latest shadow inventory assessment represents a supply of five months and is down from October 2010, when shadow inventory stood at 1.9 million units, or 7-months’ supply. CoreLogic estimates the current stock of properties in the shadow inventory, also known as pending supply, by calculating the number of distressed properties not currently listed on MLSs that are seriously delinquent (90 days or more), in foreclosure, and real estate owned (REO) by lenders.

Of the 1.6 million properties currently in the shadow inventory, 770,000 units are seriously delinquent, 430,000 are in foreclosure, and 370,000 are REO, according to the report. Despite 3 million distressed sales since January 2009, a period when home prices were declining at their fastest rate, the shadow inventory in October 2011 is at the same level as January 2009 telling us that we’re not out of the woods yet. We may not be at the “real” bottom until late 2012 to mid 2013.

Growth in the shadow supply, though, has been reined in by the fact that the flow of new seriously delinquent loans into the shadow inventory has been offset by a roughly equal flow of distressed REO and short sale transactions, the company explained. Still, the shadow inventory is approximately four times higher than its low point (380,000 properties) at the peak of the housing bubble in mid-2006, CoreLogic says.

The company contends that a healthy housing market should have less than one-month’s supply of shadow inventory, which would be an easily absorbed stock of distressed assets with little or no discernable impact on house prices, unless the inventory was geographically concentrated.

Currently, Florida, California, and Illinois account for more than a third of the shadow inventory, CoreLogic reports. The top six states, which would also include New York, Texas, and New Jersey, are home to half of the shadow inventory.

Occupy movement targets foreclosed homes, stops auctions

 

NEW YORK (CNNMoney) — In more than two dozens cities across the nation Tuesday, an offshoot of the Occupy Wall Street movement took on the housing crisis by re-occupying foreclosed homes, disrupting bank auctions and blocking evictions.

 

Occupy Our Homes said it’s embarking on a “national day of action” to protest the mistreatment of homeowners by big banks, who they say made billions of dollars off of the housing bubble by offering predatory loans and indulging in practices that took advantage of consumers.

 

 

 

In Atlanta, Occupy Our Homes activists went to the courthouses in three of the area’s largest counties, DeKalb, Gwinnett and Fulton, Tuesday morning to disrupt the foreclosure auctions happening there. ”We’re using our voices, whistles and other noise. The auctioneers don’t know what to do and some of the buyers left,” said Tim Franzen, an Occupy Atlanta spokesman. The group is demanding an immediate moratorium on all foreclosures, he said.

 

Hundreds of demonstrators slogged through the rainy streets of East New York, Brooklyn, stopping at the foreclosed homes that are littered throughout the low-income community and covering the “For Sale” signs with Occupy police tape. Their message, as spelled out on protest signs: “Bail Out Workers, not the Banks.” The protesters’ ultimate destination was a home that has been vacant ever since it was repossessed by the bank a couple of years ago. The plan was to take it over permanently and give it to a homeless family to live in.

 

 

In Minneapolis, protesters are trying to block the evictions of several area owners who fell behind on their mortgages because of illness or income loss.

 

One homeowner they’re trying to help is Bobby Hull, an ex-marine and a master plasterer and contractor who has lived in his home since 1968. Hull still has income and access to financial help from family members, just not enough to pay his bloated mortgage principal.

 

“I can afford $800 or $900 a month; I can’t afford $1,200 to $1,500,” said Hull.

 

Foreclosure in his case made no sense, said Anthony Newby of Neighborhoods Organizing for Change. His mortgage balance was $275,000 but the auction of his home only fetched $80,000, less than one-third of the amount he owed. Everybody, including the bank, would have been better off reducing his balance to an affordable level, said Newby.

 

“The bank should have come up with some solution that would have kept him in the home,” he said.

 

A spokeswoman for Bank of America said the lender tried to help. ”We have worked with Mr. Hull for the past two years to help identify a home retention solution,” she said. “During that time, we offered him a modification and later reviewed him for HAMP, but unfortunately he did not meet the guidelines for the program.”

 

Protesters converged on Hull’s home Tuesday, where they pitched tents and put up signs. The plan is to prevent his eviction, which is scheduled for February, by using a crowd of several hundred people to block an eviction order from being served.

There have been hundreds of people with real solutions to the housing crisis and none of them (including me) have never had the chance to provide it to the decision makers in the country. Big business is making the decisions to benefit big business and everyone is just tired of it. It is our God given right to protest things we believe are unconstitutional. Power to the People.

The first of the month means a lot, to many.

We have a serious economic crisis on our hands and the media simply fails to acknowledge it.  You might be waking up to the first of the month thinking the wheels of the economy are fine.  Yet silently, millions of Americans drive into mega supercenters like Wal-Mart only to wait for their monthly allotments of food assistance so they can pay for basic groceries.  This trend is so prevalent that certain Wal-Mart centers are fully staffed at midnight since a large part of our society is waiting for that first day of the month to purchase food for their family.  46 million Americans are now receiving food assistance.  How is this issue swept under the rug?  We also have many more Americans losing their unemployment benefits because of the long-term employment issues.  The statistics show this number decreasing simply because people are falling off of their maximum number of months that they can receive benefits.  Sadly, the country is entering into a low wage environment where the working and middle class have limited employment security yet financial institutions have all the protection from the Federal Reserve even when they operate in a system of graft and irresponsibility.

How can the above even be construed as a positive for our economy?  The percentage of Americans on food assistance has never been so high.  We have more people on food assistance than the entire state of California.  The only reason the markets rallied this week was because the Federal Reserve promised that they will bailout their crony banking buddies around the world.  How does that address the above?  To the contrary, this inflationary push will make the items the working class require even more expensive.

Think about this when you consider spending your money on something you may not need. First get out of debt and then, begin to save for a very rainy day which is certainly coming.

Case Study 3

CASE STUDY 3 – Don’t Play All Your Cards

Ms. S is recently divorced with a teenage son in high school. She wants to keep her house but the payment will be adjusting soon and she knows when it does, she won’t be able to make the payment.

Her goal is to get the loan re-negotiated to a lower “fixed” payment that she can afford. Her recent divorce indicated that her husband was to quit claim her onto title “alone” and he would be removed. She felt as though this would give her control over the home. Her portfolio is as follows:

1. 317,000 adjustable first mortgage with Pentagon Federal Credit Union
2. Payment of $2,086 per month including PITI
3. Loan will adjust in October 2012 and then adjust annually based on index
4. Child support of $800/m will be ending in just 6 months

Ms. S has no credit card debt, her automobile is almost paid off and her son is graduating in 2012. She called the Credit Union to see if they would modify her loan and she was told to go to the website and complete the hardship package. The package asked for all the typical information for income, assets and expenses. Pen Fed also asked to see her Divorce Decree. After months of going back and forth, the credit union told her that she didn’t qualify for the modification because she earned too much money, but they would offer her a refinance. The refi was another adjustable loan, fixed for only 5 years at 4.5% and amortized for 40 years. The refinance seemed pretty good to her, but a friend told her to call 360 Group to have us evaluate it for free.

If Ms S came to us before sending everything to Pen Fed we could have helped her modify into a 30 year fixed, and here’s why.

1. Pen Fed clearly indicates on their website that they will modify loans as long as they meet their guidelines.
2. Typical mods start at 2.0% up to 3.5% and her loan balance would amortize for 30 years
3. Her income was over the guidelines only because it “included” the child support which was ending in May 2012, just 6 months from the date of her request. She should not have included that in her submission.
4. The second key on this file was the Divorce Decree.
5. Pen Fed was now holding all the cards because Ms S sent the Decree to them which specifically stated that she had 12 months from the date of Divorce to refinance the home in her name or she would have to sell it.

The facts on this file are as follows. Ms. S almost agreed to refinance into a worse loan, amortized for 40 years which increases the profit to Pen Fed, and does nothing about securing her payment for the future. There is no telling what her rate would be in 5 years. Additionally, her payment was only going down by $200 a month and she was relinquishing her x-husband from any and all responsibility. By passing on the 40 year refi, and short selling the home instead, any potential tax burden would be shared with her and her x-husband making it more fair. This forces Pen Fed’s hand into a decent low rate modification instead of losing up to $60,000 by selling short. So it benefits and bank and the homeowner.

Remember, the key to any negotiation is the numbers. It’s vital to have someone who knows the guidelines inside and out help you before you send anything to the bank or credit union.

Case Study 2 – November 2011

Client P went to all the bank-sponsored seminars during 2008 and 2009 and submitted their forms for a modification with Hope Now, and various other non profits that were touted by the government and the news to help them lower their mortgage payment. Nothing happened. When they were referred to 360 Group we started with the Pre Audit questionnaire and found several reasons why they couldn’t get anywhere.

Upon review of their portfolio several things where made clear.

1. Both self employed, their P & L showed that together they earned too much money to qualify for a modification.

2. They were not deducting any expenses from their home based businesses.

3. Then other items surfaced. They had 3 life insurance policies that all overlapped. They were spending over $300 per month on double coverage without even realizing it.

Client P called 360 Group when they became late on their mortgage payment and the lender helped themselves to the money in their savings account. They thought that taking money from their account without written approval was illegal. It is not! Banks have a variety of small print that allows them to “help themselves” to your cash if you miss a payment on a loan or even a credit card. 

One of the best things you can do as a consumer in this country is to NOT bank and borrow with the same institution. Further, you need to know the details about the affiliates these firms share information with. For example, Bank of America owns over 14 different companies of a different name. This fact alone impacts millions of people each year. We all get a small brochure in the mail twice a year with the tiny 2 point font you need a magnifying glass to read. This is the affiliated business relationship fine print.

Over the next six months 360 Group began a course to help the P’s with several structural plans so that they “could” actually qualify for that modification. Here’s what we did.

1. Helped them organize their life insurance to one main plan, dropping the overlapping plan and saving them $300 per month.
2. Showed them how to save receipts and use legitimate business expense deductions for their business which lowered their combined income.
3. The lower income then enabled them to qualify for a modification to save their home.Often, time needs to be spent organizing and planning BEFORE a modification is submitted or a Short Sale is executed. If you know someone who needs advice on what their options are, we’re always here to help. Contact us today.

New HARP Program reality

This week everyone I speak with seems to think the new HARP 2.0 changes will save everyone’s home and lower their payment. NOT TRUE. Lets slow down and look at the reality here.

Veronica Clemons, a spokesperson for Wells Fargo Home Mortgage, says the company is waiting for specific guidelines and requirements from Fannie Mae and Freddie Mac in order to put the changes into practice. She adds that once the company’s mortgage servicing team has the guidelines in hand, “it will take us some time – depending on the complexity of the guidelines – to make the necessary systems changes to begin offering the new enhancements to our customers.” The GSEs’ regulator, the Federal Housing Finance Agency(FHFA), says Fannie and Freddie plan to issue guidance with operational details about the HARP changes by November 15th.

“Since industry participation in HARP is not mandatory, implementation schedules will vary as individual lenders, mortgage insurers, and other market participants modify their processes,” FHFA said.

Bank of America says it will participate in the enhanced Home Affordable Refinance Program announced by the administration, and it expects the new guidelines and eligibility criteria to go into effect after December 1st, 2011. “Despite ongoing economic challenges, nearly 90 percent of our customers remain current on their mortgage,” BofA spokesperson Rick Simon said. “HARP helps these homeowners who remain current on their mortgage with options to lower their monthly payment when, otherwise, conventional funding options are limited.”

The GSEs have removed the 125 percent loan-to-value (LTV) cap under the program. Now any borrower with anLTV ratio above 80 percent is eligible for a HARP refinance, as long as the loan was sold to Fannie or Freddie prior to May 31, 2009, and the borrower is not delinquent on their payments. Since HARP was launched in 2009, nearly 900,000 loans have been refinanced through the program. Government officials estimate that an additional 1 million homeowners will receive assistance under the new guidelines.

In its announcement of the program changes, FHFA encouraged borrowers to contact their existing lender or any other mortgage lender offering HARP refinances. This is where you need to be careful, millions of homeowners have been pushed into signing new Adjustable Rate Mortgages with heavy closing costs which only benefits the lender. A lot of people are unfamiliar with the GFE and TIL ( Good Faith Estimate and Truth In Lending ) documents to clearly see what they are getting themselves into.

If you or anyone you know needs help clarifying these documents, please let us know. There is never any cost for our consultations.