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

...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

photo by:  GypsyRock

It’s officially the tax month folks and with all of the short selling, foreclosures and even a few principal reductions – there will be people out there who need to be watching their tax liability.

I want to preface this post with one major statement:

Neither I nor Homeowner Rescue Alliance is a qualified tax professional. It’s important that you consult a tax professional when dealing with any of the issues mentioned in this post.

This post is a little lengthy, but it should help to highlight a few things. I’ve linked back to a few pages on the IRS’s main site so that you can research things further.

Now that we got that out of the way, there are just a few items that I’d like to cover:

What is debt cancellation?

Borrowed money is not considered income by the IRS – Why? Because they (as in the Uncle Sam) are assuming that you will pay the money back. When the lender you’re dealing with “forgives” that debt, then the IRS considers the loan proceeds that you received income. You don’t really “feel” like its income because it started as a loan, but it became income as soon as you no longer had to pay the money back. In “tax circles” (if there is such a thing), this is called “Phantom Income”.

When does this typically happen?

This typically happens:

When you foreclose and the lender is not able to sell the home for what you owe them.

Example: you owe the bank $300,000 and you default on your payments. The bank takes the house back and can only sell it for $250,000 – because of the short fall they have to “forgive” $50,000. You could wind up with a 1099-C – “C” meaning “cancelled debt” - and that would be counted as “Phantom Income” (and yes it’s taxable) to you of $50,000.

When you do a short sale on your home, the lender is accepting an amount of money “short” of what they are owed and allowing you to sell the home to avoid foreclosure.

Example: you owe 300,000 and instead of foreclosing, you hire a real estate agent whose able to find a buyer willing to pay $250,000 for the house. The bank accepts the $250,000 even though they are owed $300,000 – therefore FORGIVING $50,000. Again, you get a 1099-C and Phantom Income.

Note: Some of you may be asking, “What’s the difference between Short Sale and Foreclosure, especially if I get taxed in both cases?” The difference is in the effect on your credit score. A short sale is a much better route to go than foreclosing or simply walking away because it's considered a debt settlement as opposed to an all out failure to pay.  Foreclosures also create a negative public record in the County Recorders office for everyone else to see - short sales dont.

We’ve heard a lot of talk about people asking to have their mortgage principal reduced and there are even rumors that it’s been done.

When you get your loan balance reduced by the bank in order to make your mortgage payments more affordable that can trigger extra tax liability too. The bank in that case has FORGIVEN a portion of your debt and you could be liable for the portion of your debt that was forgiven

Example: You owe $300,000 at a 6% interest rate and the bank wants to make your payment more affordable. To do this, they decide to lower the principal balance on your loan from $300,000 to $250,000 in order to lower your payment from $1500 a month in interest to $1,250 a month in interest. You could get a 1099-C from the bank for $50,000.

Now if any of these three things happens to you, there are three tools that you can use to offset, eliminate or deal with the tax consequences.

Tool 1: Mortgage Forgiveness Debt Relief Act

In 2007, the Bush Administration (yes he did) passed the Mortgage Forgiveness Debt Relief Act. This act allows homeowners to exclude from their taxes the money they borrowed to buy, build or substantially improve their primary residence.

Sticking to our $300,000 example: If the bank were to forgive $50,000 of your outstanding loan balance through: 1) Foreclosure, 2) Short Sale or 3) Principal Reduction – without this Act you would be responsible for $50,000 in income.

Let’s rewind a bit and give a back story to our $300,000 example

Mr. Example purchased the home in 2005 for $275,000. He did so with 100% financing and used a $275,000 mortgage (loan #1) to BUY the property.

In 2006, when the market allowed his house to appreciate, he did a new loan (loan #2) for $300,000 and took out $25,000 in cash to go on a much needed vacation.

Even though he owes $300,000 - $275,000 of it was used to BUY the home.

When the bank lowered the principal balance for loan #2 from $300,000 to $250,000 - that would have normally triggered $50,000 in Phantom Income, but because of Bush’s Act - Mr. Example will only have $25,000 in Phantom Income. This is because $275,000 of the $300,000 owed was used to BUY the home. That’s called “Purchase Money”.

So when you buy a home always keep track of how much you paid for it and what your original purchase money mortgage amount was.

Tool 2: Insolvency Calculator

Believe it or not all of us have a balance sheet. A balance sheet is nothing more that a “T” chart – with Assets (things that you own that have value) on one side and Liabilities (debts that you owe others) on the other. When you subtract Liabilities from Assets you either get a positive number – called “Net Worth” or a negative number – called “Insolvency Amount”.  The IRS allows you to offset Phantom Income using an Insolvency Calculator.

Example

Scenario A

100,000 Assets - $50,000 Liabilities = $50,000 (a positive number) Net Worth

Scenario B

100,000 Assets - $150,000 Liabilities = -$50,000 (a negative number) Insolvency Amount

Going back to our $300,000 example – if the IRS were to stick Mr. Example with $50,000 in extra income and Mr. Example’s Balance Sheet showed a positive Net Worth Number (as in Scenario A) – then he would owe taxes on the full $50,000 in income

He would owe taxes on the full $50,000 using Scenario A

If Mr. Example’s Balance Sheet showed a negative Insolvency Amount Number (as in Scenario B) - then he would be able to off set his tax liability by the amount that he was insolvent.

In Scenario B, his insolvency amount (-$50,000) would offset his income of $50,000 – and equal $0 extra income – therefore eliminating any extra tax liability.

I tried to make these examples “blog short” so that I don’t have a 5 page post, but you can refer to the IRS site for further explanation.

Tool 3: Last, but not least: IRS Installment Plans

If all else fails:

You don’t have enough of a “purchase money” loan amount to cover your Phantom Income and take advantage of Bush’s Mortgage Relief Act...

And you don’t have a negative (insolvent) balance sheet to take advantage of the Insolvency Calculator...

Then you can set up an Installment Agreement with the IRS. The IRS is willing to let you pay your tax debt off over time. Take advantage of this instead of trying to duck Uncle Sam or avoid the issue.

For many homeowners that we deal with who either foreclose on their property or have to short sale – it’s more than worth it to get out from underneath a mountain of debt if all it takes is a couple hundred a month to the IRS. They are very flexible as long as you’re honest.

That’s it. Go to the IRS Website to see the rest

HRA Blogger

www.hrahelp.com

The latest cover story from Newsweek features Nobel laureate and New York Times columnist, Paul Krugman. He has emerged as one of the more popular amongst a crowd of pundits who have been critical of the President’s economic plan – specifically, his dealing with the financial system.

Krugman is well respected for his points of view and over the years he’s built up a reputation for being a harsh critic of the Executive Branch. Pundits with a voice like his quickly gain respect when they predict the inevitable, like one of his quotes from May of 2005 that was used in the Newsweek piece:

If housing prices actually started falling, we’d be looking at a very nasty scene, in which both construction and consumer spending would plunge, pushing the economy right back into recession. That’s why it’s so ominous to see signs that America’s housing market, like the stock market at the end of the last decade, is approaching the final, feverish stages of a speculative bubble.

Quotes like these, his library of best selling books, not to mention his Nobel Prize have made him a journalistic superstar...I just don’t know if he’d be the best policy maker.

Regarding Obama’s banking plans, Krugman has said:

This isn't really about letting markets work. It's just an indirect, disguised way to subsidize purchases of bad assets. If this plan fails – as it almost surely will – it's unlikely that he'll (Obama) be able to persuade Congress to come up with more funds to do what he should have done in the first place.

As I said earlier, Krugman is not alone in his critique – William Greider, a respected voice as well who wrote one of my favorite books, “The Soul of Capitalism”, has been equally critical:

The handing out of government guarantees and capital to hedge funds... financial institutions founded on secrecy... They don't even pretend to be transparent.... We want reform, but we want it done right. And we want it done for the public interest, not for the old order.... And... everybody knows in this country that this has now been, for some years... mainly a top down society....

The only problem with both Krugman and Grieder’s critique is that they both approach this problem and offer one solution: WE NEED TO NATIONALIZE OUR BANKS!

Anyone that takes this approach uses Sweden as their model. The only problem with this is that the government doesn’t have anywhere near the capacity to take this advice AND our banking system is much larger and more complex than anyone else’s. I loved Greider’s book and I do share both his and Krugman’s belief that our entire capitalistic system needs restructuring – but you have to approach this practically. Our system is layered with Institutional Funds, Wall Street firms, Hedge Funds, National Banks, Local Banks and a handful of Savings & Loans. Within this existing structure, there is an opportunity for a productive public/private partnership (unlike the one currently proposed) whereby you could allocate capital to those institutions who have largely been marginalized in the past and whose balance sheets aren’t ladened with (excuse my French) “a bunch of doo doo”.

You can take a look at our post on Community Banks to get idea of what I’m talking about. So, like others, I don’t necessarily agree with the governments approach, but I also think we’re not being broad enough with our suggestions.

All that said - my favorite quote of the article was from an anonymous Obama Administration official:

“...pundits can have a 60 percent chance of being right – and just go for it. They have nothing to lose but readers...”

HRA Blogger

www.hrahelp.com

They don’t make films like this everyday. The only “financially focused” film that I think even comes close was the famous “Wall Street” with Charlie Sheen and Michael Douglas.

This scene in the movie, where he explains to the community where all the money has gone, shows just how central to the community the local banker was at one point in our history. The banker knew everyone in the community and everyone knew him. He had a hand in everything from building the major community center - to the accounts for the major employer - to funding the loan on the Jones family’s new car. There was a real sense of community during these times and the banker was the keystone. Growing up as a kid, I aspired to become a banker for that very reason – the person playing this role had a real stake and influence in the success of the people around him (or her).

In Martin Mayer’s 1997 book “The Bankers: The Next Generation...” he writes of how the role of the banker in the community has changed drastically with bank mergers and takeovers. In today’s climate that’s happening at an even more alarming pace (anyone see the Chase signs all over California lately).

What happened to the community banker? We desperately need that role back.

California has over 217 community banks...many of which struggle everyday to gain position amongst the towering national banks whose growing monopoly over the nation’s deposits grows with each business day. The one positive that’s come out of the banking collapse is the damage it’s done to the national banks’ dominance over the landscape. Many community banks stuck with conservative lending standards and did not get as heavily involved in risky lending products or financial investments. I can’t help but smile when I meet with friends who work for or run some these institutions because I know “their day has arrived”. This is an opportunity for them to re-establish themselves and their role in the community.

Don’t get me wrong – I’m not naïve to the fact that there was a time in this country where we needed the national banks badly. During the Civil Rights era, redlining and other discriminatory banking practices limited the scope of what was considered “community” to the privileged few...and those times warranted government involvement through the expansion of Fannie Mae/Freddie Mac and their influence over federally chartered institutions. With this expansion came a move from “relationship banking” where the banker knew who you were personally (giving him the opportunity to discriminate) to “risk based lending” based on predictive financial models (great prediction boys!!). Somewhere in all of this, we lost the sense of community...and more importantly, we lost the central economic role that a banker can play in handling the business of that community.

With our historic election this past November, on begs the question, “Are we ready to bring back the community banker?” We’ll see

Chew on this for a moment:

With less money than the government gave to AIG, they could give $100,000,000 to the top 1000 community banks around the country – many of which don’t have toxic balance sheets or employees who demand retention bonuses – and get them to lend that money out to their communities. That would get money moving again and could quite possibly create mini economic booms all over.

There’s a suggestion for you Mr. President.

...at least as we've known it for past 50 years.  The good thing about the death is the post mortem renaissance.

What I took away from the “discussion” between Cramer and Stewart – beyond the back and forth regarding CNBC’s reporting – was a real loss of faith or let’s say, “an economic epiphany”. This video clip was the most important statement of the night as far as I was concerned because it spoke to a much larger issue.

As I’ve mentioned many times before (more out of frustration that I never completed it than anything else) I started writing a book in 2003 about “the game of capitalism” and how as a country, we stopped playing it. My inspiration for this book was based on what I had seen in the financial services industry when I worked as an “advisor” (ridiculously, just after my 19^th b-day) and what I was seeing happen in the housing industry at the time. Not only had we shifted focus over the past 50 or so years – from entrepreneurialism to consumerism, but we had also tragically (if not foolishly) embraced a paradigm that believed in three major things:

1. Job Security
2. Home Security (as in housing prices continuing to rise)
3. ..and Retirement Security

Our retirement security has been pummeled twice in the past 10 years – first with the internet boom and bust and now with the fall out from the housing bubble...and we haven’t even got into the problem of underfunded pension funds whose liabilities outweigh their asset base by 2:1 or worse (the next crisis on the horizon)!!

[FYI: Pension “liabilities” are the commitments of compensation (mainly wage or benefits) made by private companies or governments to their employees)]

Job security is clearly being tested as some of the worlds most stable companies have started massive layoffs – and that’s if they’ve managed to stay in business at all.

Housing security – or at least the belief that your home was an asset that would pay you at retirement (especially with the advent of reverse mortgages) is currently a dismal topics.

Across the board, we’ve allowed government, big business, banking and ourselves to live in this dreamland where we’d be allowed to go on in a perpetual state of complacency, never re-educating or re-inventing ourselves or truly participating in this magnificent game of Capitalism. Now, don’t get me wrong – I’m not saying that everyone should become an entrepreneur – I’m just saying that every few years you have to step your game up as either a:

1. More marketable employee
2. Part time business owner
3. Full time business owner
4. ...or business investor (and that doesn’t mean a passive buyer of stocks and bonds)

What were once supplements (social security, etc.); are now being relied upon as replacements for income. And as Jon articulated so brilliantly, Wall Street has become the Disneyland for MBA grads (and I’m not hatin’ on the post-graddies out there) who took massive risks with other peoples’ money – but besides that: banks have become consumer lenders instead of business ones, big businesses have become like failing government institutions, and local governments have lost their way in terms of making their communities economically viable.

I don’t know about you, but what the current economic crisis (and it will be “current” for quite some time – no matter the optimism spewing from the sides of certain thought leaders’ mouths) is saying to me is, point blank, we need to step our respective economic games up.

Just a little weekend opinion piece

HRA Blogger

Homeowner Rescue Alliance

www.hrahelp.com

The ESL Housing Crisis

In December of 2007, Homeowner Rescue Alliance coordinated a workshop with the office of Assemblymember Anna Caballero to provide free education to homeowners in the South County Area (San Benito, Monterey, Santa Cruz and parts of Santa Clara). As we were told, previous workshops were sparsely attended so we were unsure how many homeowners were going to turn out. When we arrived, we came into a room of almost 200 people. As often as we had spoken in front of audiences, this was much different. To see 200 frustrated and confused people staring back at you as they were that Saturday morning - it touched our entire team. “How could this happen?!” was the question that seemed to scream through their facial expressions.

I see a lot of TV and radio personalities who belittle and criticize these homeowners; dismissing them as misguided speculators or reckless impulse buyers who didn’t think before acting. All that is easy to spit out when you’re in front of a camera with nothing but your crew around you; but when you’re in the room and you look into these faces and hear these stories, it’s much more difficult to be as cavalier. What we’re forgetting in all of this is that there are people – people who work hard every day, contribute to their communities and pay their taxes and who speak English as a Second Language (ESL). I know certain CNN personalities have a serious problem with this population, but we have to understand the serious contribution that is made (not to mention the money that is made by the banks who lend to them) from their existence as a MAJOR part of the country. In fact, ITIN (Individual Tax Identification Number) loans – which are made to individuals who do not have a Social Security Number – outperformed many other mortgage classes before the crisis hit; so this dispels the myth that this group is/was the primary problem.

Because of it’s population mix, the 28^th Assembly District served as a great setting to examine the housing challenges of this group. The District has a population of over 423,000 people – 59% of whom are Latino, with a large segment speaking Spanish as their primary language.

As we went through our power point presentations, explaining what was happening and how it was only going to get worse – you could just see the frustration building. We had two rooms, one for English speaking that had about 50 people and one for Spanish speaking that held just under 150 people. As soon as the Q&A portion started – it was pandemonium – people were crying out for help, threatening to walk away and asking insightful questions – all at the same time. While the presentation lasted about 45 minutes, we fielded questions from the audience for over 2 hours.

The saddest things to hear were the stories from different homeowners – how they had been promised things from members of our industry that were ridiculous. The out and out fraud that was being committed by people that misled those who TRUSTED...that is such an important thing for us to get out of this crisis – they trusted the professionals that they worked with to help them make the best decision...and no one trusted quite like this community.

But as bad as the stories were of how homeowners in this District got into this problem, it’s even worse now to listen to some of the stories of those that they’ve TRUSTED to get them out of it. Many have paid thousands to “work out” companies claiming that they could do everything from cut their payment in half - to refinance them into the Hope For Homeowners Program (a program that’s helped less than 30 homeowners so far) to eliminating the mortgage altogether. We feel more like a grief counseling clean up crew, dealing with families in the aftermath – than a loss mitigation operation.

The simple message that we’d like to convey is that this problem is too large for the servicing industry to handle alone. The loss mitigation labyrinth that mortgage servicers have homeowners go through (and the changes that they make monthly) is very hard to keep up with for fluent English speaking mortgage professionals, let alone Spanish speakers. Challenges like this make it clear that we need to re-examine our approach to solving this housing crisis AT THE GROUND LEVEL – IN THE COMMUNITIES - while remaining sensitive to the diversity of our housing market. Right now there is a HUGE vacuum – the non profits are overwhelmed and there are very few licensed firms out there – leaving the space wide open for a “fraudulent element” of individuals claiming to be everything from loss mitigation specialists to real estate attorneys. If the government won’t work with private enterprise, then mortgage servicers must find a balance between establishing an approved vendor system and not crippling the supplemental efforts of licensed, reputable firms who are trying to do things the right way.

We’ll see if they can pull it off. In the meantime...our number is always available.

HRA Blogger

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