Homeowner Rescue Alliance

Analysts at JP Morgan Chase & Co. predict that between March 2009 and mid year 2011, we could see as many as 6.4 Million new foreclosures!!

Here’s the “good” news:

That number is 2.5 million less than what would have been expected if no mortgage assistance was being provided

(I have it in small print for a reason)

Folks, I don’t know about you – but I’m tired of the “not so bad news”. Press releases like this serve as notice to let us know that leaders would rather desensitize us to the sheer number of jobs lost or foreclosures than try and take a more proactive approach to cutting these estimates.

Just as they sometimes do “lock in”, closed sessions of congress to get important legislative initiatives passed; they need to do the same here.  Let's take the Administration, investor reps, GSEs, insurance companies and mortgage servicing companies....lock em in there...hide the key...and don’t let them out until they’ve got a workable plan...and keep them in the area while we watch it work!!!

(okay, now back to reality)

Even as the banks work to implement the plan announced by the President on March 4^th, many have openly admitted that the plan will only affect a small percentage of loans. The key thing to understand is that most of what the President has been talking about mainly applies to loans that were purchased or guaranteed by Fannie Mae or Freddie Mac.

If you haven’t done so yet,

Go to http://loanlookup.fanniemae.com/loanlookup/ to check to see if your loan is owned by Fannie Mae.

Go to https://ww3.freddiemac.com/corporate/ to check to see if your loan is owned by Freddie Mac.

Don’t try to wrap your head around who, what and why your loan is connected to them, just type in your information and find out.

In the meantime, we’ve got to brace ourselves for what’s coming down the pipe.

Gods Speed,

HRA Blogger

It's all about "Da Bills"!!! And I ain't talkin' about the team T.O. is gonna play for next season.

Last week a story came out about how “even the good mortgages” (if there was ever such a thing) had begun to foreclose. I read that and it reminded me of a debate I had a few years ago.

While at the Mortgage Banker’s Association School, I got into a debate with an instructor. The debate was over the normal trend that the housing market followed with regard to refinances and home purchases vs. what I saw as a major paradigm shift in lending due to the cash flow crunch that Americans were going through after having stagnant wages for the past 20 years.

For a lot of economists that called the bubble, they looked at it as an unsustainable trend that would collapse because that's what bubbles do.  For me, this thing is far from over because all of it is a symptom of a much greater disease that is currently effecting housing and then will move into the retirement system, keeping our economy stagnant for a lot longer than anyone is comfortable with.

See, the normal trend was that a refinance boom (as we were thought to be coming out of in 2005) would be followed by a drop in refinance activity and an uptick in home purchases. As mortgage banking students we were being taught in this particular class to get used to doing a whole lot of purchases if we wanted to stay in business.

By this time, I was already 2 years into a financial study that I personally undertook to examine the cash flow habits of homeowners that came to me for loans. What I found was that at various income levels, homeowners had gotten so used to refinancing that the money that came in the form of “cash out” when they refinanced acted as a 2^nd or 3^rd source of income.

I found plenty of homeowners that were annually spending 1.5 to 3 times their incomes using their mortgages as that extra source that made that mathematical miracle possible.

I mean – how does someone who makes $70,000 a year, spend $120,000 a year? They borrow it.

Mortgage debt was opening up new worlds for people. They could pay off their credit cards and auto loans and stick that debt into low cost, tax deductible mortgages...saving money and making their credit scores look great.

With credit card debt you could only go so far, but with mortgage debt, the sky was the limit as long as your home kept going up in value.

During this time it was believed that if someone had a low interest rate on their mortgage then there was no reason to refinance, hence the instructors advice to focus on purchase business. This made sense, especially because rates were trending up after 2005, so people felt like they had the best rate they were going to get.

For me though, it was clear that people HAD to and would continue to HAVE to refinance because - even though they had a really low 1^st mortgage that they wanted to keep low, they still had a cash flow problem.

This meant that they would surround their low cost mortgage (maybe in the 5 or 6% range) with a bunch of higher costing consumer debt in order to continue their spending binge. They’d go back to the credit cards and auto loans that they paid off in their last refinance and the cycle would start all over again. With rates rising, this consumer debt would become more expensive and before you knew it, that 7 or 8% mortgage would look much better than the 12 to 15% average you were paying on your maxed out credit cards and higher interest auto/personal loans.

What I KNEW was that people would be forced to continue to refinance. What I never anticipated was just how unavailable that option would be. To clarify, when I said “forced” I meant that if these people weren’t able to refinance they would no doubt foreclose. What we’re seeing today is a result of millions of people not having the option to refinance. Couple that with layoffs, wage cuts and credit card companies reducing credit limits for even their best customers – and you’re looking at many more foreclosures coming down the line.

I don’t care if you’ve got a 4.5% 30 year fixed – if you were part of the crowd of homeowners who purchased a home before 2006 and got used to refinancing, then you are a foreclosure risk. Act now.

HRA Blogger

Yeah folks, I’m putting this out there. For everyone looking for a chance to buy a home and lock in that “sub 5%” 30 year fixed mortgage...forget about it.

I’m sure many have read thousands of times about the competition for money from various investment classes. The dominant competition that everyone uses to see what’s going to happen with mortgage rates is that competition between equities and debt or more commonly, stocks and bonds. In the “debt” or “bond” column many people look to the 10 Year Treasury Note as an indicator.

Last week, this instrument got killed as investors sold off treasuries and yields rose to their highest levels since November 2008.

The bottom line here is that rates cannot continue to be in the 4% range. Just like the failing philosophies of financial pundits who claimed we had reached a “new era” in finance where risk was allocated, etc. – some people are out there really holding out thinking rates are going to come back down to sub 5 levels.

I remember a few years ago when I tried to explain to a group of homeowners how investors looked at them. It kinda went like this:

You call it a mortgage, the investor calls it a debt investment or instrument

You call it your loan application, the investor calls it a risk profile

You call it your interest rate, the investor calls it a rate of return or yield

You call it a mortgage payment, the investor calls it a coupon payment

You call it a late payment, the investor calls it default

Your mortgage and all of the other debt is out their competing for dollars with every other investment opportunity out there. In some cases YOU ARE THE INVESTOR. That’s right...your pension, 401K, etc. is probably in some way, shape or form invested in a debt instrument.

As the market worsens and companies get cheaper, and investors start to look for opportunities in equities or stocks. In order to free up their cash and get into stocks (or other investments), they sell their debt investments which include corporate bonds and treasuries. In order to stay in the competition, debt instruments have to be cheaper to acquire (prices go down) and have to “sweeten the returns” for the investors – which means yields (or what you call “interest rate”) have to go up.

Don’t take my word for it, educate yourself and watch that competition happen. It’s kind of interesting once you get a little understanding.

There’s a great scene in the movie “Catch Me If You Can” where Frank Sr. (who plays Leonardo DiCaprio’s father in the film) is told by the bank that they cannot cash his check because they have no relationship with him.

It was during this time in the 60s when banks HAD to have a relationship with their depositors and borrowers in order to feel comfortable doing business with them. This acted like a “3^rd supervisor” over banking activities because the community felt like they had a vested interest in what went on with their savings deposits. Banks also fully understood the risk that they were taking on because they knew the borrowers, their families and all about their ability and reputation when it came to repayment.

The only downside came, as depicted in this movie, was when things went wrong bankers passed judgment negatively faster than they did positively and once your business was out in the streets, no banks would do business with you. You can see this in the movie as Frank’s family is forced to move out of their big home to a small apartment. The question I ask is, “how did one rebuild during these times?” How could you rebound from a bad situation if everyone passed judgment on you and second chances were hard to come by?

The other big problem was the exclusivity of banking. It was during this period in the 60s when race relations were boiling over and discrimination was standard operating procedure at our nation’s banks. If you look at your loan disclosures like Equal Credit Opportunity Act and Fair Lending, you’ll see the changes that had to take place in order to broaden the spectrum of qualified depositors and borrowers. Spielberg doesn’t deal with this in the movie at all, but you can see that relationship-based banking had its pluses and minuses.

Fast forward to the 1990s and you now had “risk based” banking and lending. Credit scores and automated underwriting systems now determined whether or not you were a good deposit or lending risk. This was great for opening up banking to a larger demographic, but somewhere in all of this we lost the banking relationship. Banks got disconnected from their borrowers and relied heavily on credit reports and computer models.

As millions of homeowners face late payments and foreclosures, I again as the question:

How does one rebuild?

How does your FICO score account for the fact that at a certain period of time between June 2007 and June 2010 our banking system shut down. Housing prices plummeted, forcing banks to stop lending to everyone. Businesses in turn, faced credit crunches and laid people off. People felt the hit in their pay cuts and watching their credit limits drop were unable to keep up with their payment obligations.

All of this craziness has had and will continue to have a major impact on credit scores for years to come. We will definitely be reevaluating the bank-community-consumer relationship and these events will force the big 3 credit bureaus (Experian, Equifax and Trans Union) to re-evaluate how they do business if they want to remain relevant.

My prediction: How you pay your “non debt” payments will have a big impact on Credit 2.0 version of the scoring system. I mean how you pay your phone bill, gas bill, rent, gym membership...all of the relationships that have been ignored over the years will need to be included in your financial evaluation in order to 1) get a better sense of the TRUE risk involved with lending you money and 2) give those who have been impacted by this a chance to rebuild.

There’ll be many more changes to our banking and credit systems in the years to come to deal with this crisis. In the meantime, make sure you pay everyone you can on time.

Good Luck

BTP

HRA Blogger

Sounds like a good idea, right? Not if you are actually in the loan modification business. Let’s face it, this is a “cottage industry” that no one is falling over themselves to defend.

...unless of course you are one of the hundreds of thousands of homeowners who have received a well intentioned, genuinely beneficial service.

Let’s think about this for a sec.

The explosion of loan modification companies (some legal and some illegal) is Capitalism at its best.

Market Problem:

• Lenders are overwhelmed, underpaid and to-date have been highly unmotivated to help homeowners
• Non profits have been complaining from the gate about how overwhelmed and understaffed they are. I can’t tell you how many homeowners have come to us complaining about the turn times or lack of personal touch.
• The housing market has not stabilized at all
• We’re foreclosing at a rate of thousands of homeowners PER DAY

Genuine Customer Need

• Struggling homeowners
• Their neighbors whose value is positively affected by a home being saved from foreclosure
• City governments that need less blight and property abandonment
• Mortgage Servicers who know that outsourcing is better than hiring 100 employees with salaries, benefits, etc.

Invisible Hand (See Adam Smith) Motivated Market Participants

• Laid off mortgage industry executives
• Closed down mortgage bankers
• Laid off operations staffers who used to process and underwrite loans

I’m not naïve enough to think that all of the participants are completely scrupulous, but YOU can’t be naïve enough to think that the housing market can get along fine without these participants.

Let’s just digest a quick fact: We had over 3,000,000 foreclosures in 2008. That is over 8,200 foreclosures per day! There is no way you can tell me that the industry does not need good clean loan modification to supplement the efforts of an ailing industry. For all of the bad actors, REGULATE THEM (isn’t that what regulators didn’t do the first time around) – just don’t treat all of us good guys like criminals.

And let’s not forget “consumer choice”. Government must resist treating people like children who can’t decide what is best for their lives. I understand that we’re recovering from a housing crisis that was based primarily on poor decision making across the board – but let’s let the markets operate and homeowners choose what is best for them. Do I agree with some of the pricing – NO, it’s ridiculous – but people are paying!! They’re not paying because they’re helpless fools. They are paying because they’ve tried and failed to get through to their lenders and every week their changing the requirements.

And for everyone saying that you can’t allow the people who originate these loans to modify them – a quick note of truth:

Countrywide, Wells Fargo and Washington Mutual were the largest originators in the country. THEY ALSO are the biggest mortgage servicers in the country too and contribute a good chunk of money that fund the non profits who provide this service for “free”. Between Countrywide and Wells Fargo alone they service over 17,000,000 loans – many of which are SUB PRIME.

Oh, and before I forget – many of the non profits who are doing loss mitigation used to do major home BUYER workshops that guided people through the process. The problem is we didn’t do home OWNERSHIP workshops to teach people how to keep their homes...but that’s what grant money was used for before it was redirected to loss mitigation.

I’m just making a small point:

There is no avoiding the people who got us here, because WE ALL GOT US HERE!!!

And for those who still have doubts, I leave you with this chart

...you’ll notice that we have yet to reach the peak of this think. Check out that orange arrow and then look at the year – that’s 2010 folks.

HRA Blogger

www.hrahelp.com