Struggling Homeowners Are Being Led To Slaughter By Far Too Much False Hope
Re: The Growing Housing Crisis
I just got off the phone with a homeowner who claimed that she and a few of her neighbors are all debating on what to do with their homes. She explained to me that due to some financial setbacks, they are having to take money from their retirement account to keep paying their mortgage. She went on to tell me that the bank was assuring her that a trial modification was forthcoming and her and her friends had just read that home sales were up 27%! Based on this recent news, she asked if I felt she should continue to spend their retirement money on their home that they cannot currently afford. ARE YOU KIDDING ME?!
Look, I am not claiming to have all the answers here, but as a consumer advocate, non-profit, my only agenda is to speak the truth based on empirical evidence and let people decide for themselves. I do not and will not agree that it is okay to dumb down America and keep feeding them false hope that a “turn around” is just around the corner. It’s not. At least not with respect to housing. We have significant pain left to deal with.
Cities and County’s Have Been Hurt Badly
Fitch and Moody’s and others gave AAA ratings to financial instruments that they knew, or should have known, were not AAA worthy. By doing this, pension funds and other legally restricted funds were able to invest in them for a higher rate of return. When it became known that they were improperly rated, these legally restricted funds had to leave the investment, even if it was at a loss. This was the beginning of the meltdown. What few understand is that now, at least in California, many municipalities have to make up the short fall in the public retirement funds that lost money in these investments, since the employee unions contracts say they are guaranteed to always make money and never loose, or be at risk of market corrections like the rest of the private sector. Thereby causing an even greater economic crisis for the County or City impacted.
The municipalities are dealing with massive deficits, layoffs and furloughs which only compounds and exacerbates the problem, as more and more of their constituents are finding it difficult to make their mortgage payment.
The Underlying Challenge
Currently, according to the latest HAMP (US Treasury) numbers, Data Quick numbers, Foreclosure Radar numbers and First American Core Logic numbers, there are 6.5 million homeowners who are 60 days or more behind on their mortgage. This number is projected to increase to 13 to 14 million over the next three to four years, according to the Center For Responsible Lending, as well as Goldman Sachs themselves. Since they are apparently the only smart people around that predicted this crisis, we should listen to them.
The Presidents own numbers (See Herbert Allisons testimony before Congress in December) report that at best, they expect to assist between 3 and 4 million responsible homeowners through 2012. Does anyone besides me see the problem here? This leaves 10 million of you who are not scheduled at this point to receive help.
But Wait, It Gets Worse
Those that receive the modification do not usually understand that the HAMP program and other programs often have increases in payments beginning on the third to fifth year, that most will not be able to afford. Nor do they understand that their incomes are not going to be able to handle this increase and that potentially, all they are truly doing is helping the bank manage when they will get the home back, not if they will get it back. They have not a clue that behind the scenes are negotiations that will impact their mortgage and who they will be dealing with in the future. In fact, many loans are being packaged and sold in large “pools” to allow someone else besides your current lender to kick you out if you fail to get help, or you are part of the 50% of the folks that fail to keep their modified terms within the first 12 MONTHS (See Mr. Dugans testimony before Congress in March 2010. He is the Director of the Office of the Comptroller).
I’m not crying Chicken Little. I do not believe the sky is falling, but if the Mortgage Bankers Association short sold their building in February of 2010 (Read story from OC Register here:
http://mortgage.freedomblogging.com/2010/02/09/mortgage-bankers-hq/26095/) at a loss of 58 million and Goldman Sachs is alleged to have packaged instruments based on our current loans with the prediction they were going to fail, why in the world do you, the individual homeowner, believe things are getting better?! Are you crazy? No, you’re not. You just want to believe that people would not take advantage of other people in this way. Especially with respect to someones home. Sadly, it is becoming more and more evident, that either through manipulation, or sheer ignorance, your trust has been misplaced.
Many of you are in fact, victims of circumstances beyond your ability and control
This was done to you in many cases, not by you. I’m not talking about the homeowner who went out and bought a Hummer with matching Wave Runners at minimum wage. I’m talking about you, the one who did mostly everything right and are now wondering how you will live out your retirement years. You want to do the right thing and it pains you to not keep your promise to pay. I know who you are. You come to my classes and you cry on my shoulder and I am angry for you, very angry.
Get out! Get out now! From 1940 to 2000 (In CA it averaged 7.1% for this 60 year time frame) appreciation was based on many factors, including underwriting criteria that demonstrated one’s ability and willingness to repay debt. From 2000 to 2006, it didn’t matter. Fog a mirror, get a loan. Because of this, we had too many buyers which caused unrealistic appreciation. What my point? You’re looking at 10 years minimum before your home comes close to being worth what it was at peak. Most un-biased experts believe it is likely longer than that. Here is a fact; your credit damage from a short sale will cure far faster than your equity position will. You can buy in the future in just two to four years, I assure you (See Fannie Mae’s April announcements and refer to HUD’s 4155). You may not want to, but you could. All you are doing currently is postponing the inevitable and worse, you are being manipulated by being offered false hope by well meaning folks who are dependent on their job or their funding to tell you a story that in most cases, does not have a happy ending for you.
A trial modification will report you as late on your mortgage each and every month you make that trial payment on time.
Did you know that? Then, five to twelve months later, 80% plus of the time, you get denied for the permanent modification. Since the lender has already met the statutory requirements for notification for a foreclosure action in CA, when they are in fact done taking payments from you and are ready to sell your home, they can deny the modification and then you will find out you don’t own your home anymore once you get a knock on the door from a Realtor exclaiming they are here to offer you; “cash for keys as long as you get out and don’t hurt the home on the way out.” Please, let me teach you how to leave under your terms, not theirs.
Don’t try go this alone
This is a complicated mess. You have recourse vs. non-recourse issues, anti deficiency issues, cancellation of debt, re-conveyance issues, obtaining a full satisfaction issue, future collection issues, future audit issues, impugned income issues and the list goes on. The American homeowner who is in trouble has a major problem and without proper guidance is in big trouble. Not just today, but in the future. If the problem is allowed to be managed the way that it currently is, they will lose their collective voice. Help me help all of us by getting the word out. People need details that they cannot easily find, from someone who has nothing to gain. All the HELP program wants to do is educate and then steer those who have been educated towards the professionals who brought the public to us to be educated in the first place. It’s a win-win for all.
The President calls April, Financial Literacy month. Let’s take him at his word that he will allow the truth, the whole truth to be told to homeowners from an expert with no agenda. www.freehomeownershiphelp.org. Please suppport consumer protection through education and become HELP Certified so we can reach more people in need. And, if you are a homeowner, or homebuyer, use HELP Certified Professionals who support our cause. They are willing to be held accountable and they fund our ability to offer free un-biased education to the public.
Chris Sorensen, Founder-USA HELP, Inc.