Paper Cuts

Whoa, there, Mr. Banker. Not so fast.

For the first few weeks of the robo-signer foreclosure documentation scandal, the party line was that this was just a matter of a few stray pieces of paperwork that got waylaid. The banks could easily regenerate new copies, and lickety-split! Problem solved.

Uh, no. Turns out that many of the original documents, when they can be located, are faulty. Those are just the ones that can be unearthed. Apparently, reams of critical legal documents have vanished. Are they important? Only if you think that people should have reassurance that they mortgage payments they've been making are actually credited to the correct mortgage accounts. Or that people should be be able to rely on proof that they actually own what they bought. You know: property rights that go back to the men-in-tights era, Sherwood Forest and all that. Documents must count. That's why you sign so many at closing. Right?

With 17 new attorneys general soon to take oaths, and the robo-signing plague spreading to the Federal Housing Administration, bank bureaucrats are running out of safe havens. The AGs will be eager to make their reputations. The FHA doesn’t want to be the last ones standing in this high-stakes game of musical chairs.

Here’s what should happen: The new consumer protection agency will make happy with the newly manned up House to put the kind of pressure on lenders that Obama, et. Al. should have brought to bear to begin with. The AG’s represent the other flank of this pincer strategy. The two sides will close in. the banks will suddenly decide that it’s really better for their investors, for homeowners and – pass the Kleenex, please! -- for America that foreclosures-in-process be handled very differently. It will suddenly make financial sense that homeowners get refinanced en masse or at least get to relinquish the title but keep renting their houses at current market rates, with an option to buy them back.

Is this what will happen? Depends on the testosterone levels of the newly elected. The lenders can get ahead of this by taking their writedowns now and putting a charitable spin on it. Or they can choose death by a thousand paper-wielding lawyers and politicians.
Image courtesy of Morguefile contributor jppi.

The Perfect Calm

State attorneys general are on the warpath.

Foreclosures are stalled, throwing sales of distressed properties into chaos.

Congressional committees are weighing new revenue opportunities. Translation: the mortgage deduction may soon be trimmed back.

It’s the perfect calm….if you’re thinking of selling. How’s that?

If you’re not selling short or some variation thereof, your house, and the transaction, will offer a safe harbor for delay-battered buyers.

The home mortgage deduction still stands, and probably will be grandfathered under any future scalebacks, if precedent holds.

The assurance of a continuing deduction offers your buyer a margin of safety.

Mortgage rates are shockingly low. Borrowing now creates a bit of a shock absorber for any future declines in housing values.

Next year will probably be tumultuous for the real estate industry. The wild cards, of course, are sweeping regulatory change and interest-rate craziness. That foreclosure activity will continue is already a given. That’s the storm. Which makes now, the calm.

One Way Road to Oblivion

Why is it so dang hard for lenders to work with homeowners? The weekend news cycle bristled with examples of lender cluelessness and incompetence. The most egregious: this Chicago area family fell a little behind on their mortgage, did everything recommended by their financial counselor, then was denied a loan modification because they saved too much and disqualified themselves.

Last week, major banks pooh-poohed the notion that any of the foreclosure paperwork they pushed through without a glance might have problems. Nobody disputes that most people in this pile are actually in arrears on their loans, but the entire point of a title search and proper paperwork is to have an accurate record of the transaction. The banks’ newfound disdain for crossing t’s and dotting I’s is, you can be assured, limited only to the shoveling of this generation of foreclosure paper.

Which would be bad enough, but today it turns out that their platitudes were misplaced. Whoops! Bank of America is finding problems with the underlying foreclosure documents after

Really: why is this bureaucracy unable to properly process paper? Aren’t they experts in paper pushing?

They are…but only in one direction: managing income stream related paperwork. The mortgage processing industrial complex is a one-way, eight-lane highway for mortgages that are being paid on time with no complications.

The reverse lane? A sidewalk. Maybe. They’re just not set up for it because their business is literally built on the assumption that only two things happen to mortgages: you pay and they skim profits as your mortgage changes lanes from one investment pool to another.

Think of it this way: it’s the bureaucratic version of having to drive on the left, as they do in the U.K. Technically, you have the skills to drive. You can still see where you are going. But nothing on the dashboard or in the view out the windshield is where it seems that it ought to be. So your driving is erratic and slow.

And the rest of us are stuck behind you.

Image courtesy of Morguefile contributors komgrit. and jabikeman.

Not Worth the Paper It’s Printed On

Big surprise! Too-good-to-be-true mortgages written at the height of the bubble weren’t true for banks, either. The past week has seen a spate of major – read: TARP-level - lenders stopping foreclosures in their tracks because the underlying paperwork doesn’t hold up.
Quite literally, those mortgages weren’t worth the paper they were printed on.

If you are a homeowner on the brink of foreclosure, you could be forgiven for trying to size up if foreclosures are suspended in your state . You are probably wondering how to get your paperwork examined. But before you respond to the first late-night legal ad you see, check with your title insurer.

Title insurance is one of those dull but necessary requirements for closing a real estate purchase. Essentially, it ensures someone – maybe you, the owner, or maybe the lender – against the exact types of claims now bubbling up. When title problems come up, the insurer covers the legal cost of looking into it and getting things straightened out.

As you can imagine, recent events are pushing title insurers to center stage. They might even emerge as a hero in this sorry debacle. But before you order up the tickertape for your personal hero homecoming, check your policy. This release from the American Land Title Association can get you started

Excavate your title insurance policy to make sure you are covered (not just your lender). Depending on how urgently you need to figure out if bad paperwork could save your house, line up a meeting with either a real estate lawyer or the title insurer to review your options.

Your mortgage might be worth the paper it’s written on, and then some. But it might not. Either way, clarifying the title and your legal protection to the title will help you decide how to proceed.

Image courtesy of Morguefile user Tferr.

The Root Causes of the Underwater Homeowner...Part II

Earlier today I put out a Tweet (follow me @ForSaleByOwner) to pass along a news story about a real estate broker who apparently has been smashing the yard signs of a former employee-turned-competitor. As you can see in the video, the broker was arrested for destruction of personal property and should rightfully be held responsible for his acts.

But my attention was also focused on the other party, a Realtor who apparently works for a real estate company that promises buyers the opportunity to buy homes with only a $500 downpayment.

As I wrote in an earlier post about the root cause of the underwater homeowner, the median downpayment of a home bought in 2008 was just nine percent. For first-time home buyers, it was just 4 percent. Financial advisors suggest that buyers make at least a 15-20% down payment. So, I questioned, who has been planting the idea in so many people's minds that it's a good idea to buy a home with hardly any downpayment (29% of all buyers, by the way, put 0% down)?

Maybe it's real estate agents with businesses like 500downpayment.com? Telling people that they can buy a home with such low down payment amounts puts these folks on the path to heavy debt and, as we're seeing across the country, foreclosure and bankruptcy. The real estate commission structure is designed so that it rewards any and all real estate transaction, no matter if the buyer can actually afford the home or not.

Sadly, as long as the commission structure is maintained whereby it rewards even sly real estate sales tactics, far too many unsuspecting Americans will continue to be put in situations where they don't have the financial means to pay for their homes.

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The Root Causes of the Underwater Homeowner

The Wall Street Journal is reporting today that, as of the end of 2008, a disturbing 20% of all U.S. homes that have a mortgage on them were "underwater." That means that when the New Year's Eve Ball dropped in Times Square, there were more than 8.3 million homeowners throughout the country that owe more on their mortgage than their home is worth.

Experts agree that this 8.3 million figure has climbed since that time.

But how did we get here? Declining home values have received much play in the media as the reason why so many are underwater, but declining home prices only tell half of the story. Considering that a mortgage is simply a home's sales price minus its down payment, we can accurately state that mortgages are more likely to become underwater whenever a smaller down payment exists.

A 2008 report from the National Association of Realtors provides us with critically important statistics about down payment amounts (click on the above image for complete information). According to the National Association of Realtors:

• The median down payment amount for all home buyers is ONLY 9 percent;
• The median down payment amount for first time home buyers is ONLY 4 percent;
• 29% of all home buyers put 0% down to buy their home; and
  
• 34% of first-time home buyers put 0% down to buy their home.

Such low down payment amounts, coupled with decreasing home prices, are the reasons why there is such a large percentage of home owners who are underwater. These folks obviously made a bad decision to leverage themselves so greatly, but a fundamental question is, "Who was advising them to buy homes that they couldn’t afford?"

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Obama Unveils $75 Billion Foreclosure Prevention Plan

In many ways, the Phoenix metropolitan area is ground zero for the nation's housing crisis. Home prices has plummeted nearly 40% in the past couple years, and approximately 60% of homes bought in the last five years are worth less than their mortgaged amount. More than six percent of all Phoenix homes have received a foreclosure filing in the past 12 months. Unemployment has risen, making it even more difficult to find buyers in this depressed housing market.

President Obama today used the Phoenix market as a backdrop to unveil a $75 billion plan to help home borrowers affected by declining home values and an increasingly inability to keep up with monthly mortgage payments.

Dubbed the Homeowner Affordability and Stability Plan, the President's plan will offer:

1. refinancing help for four to five million homeowners who receive their mortgages through Fannie Mae or Freddie Mac
2. new incentives for lenders to modify the terms of sub-prime loans at risk of default and foreclosure
3. steps to keep mortgage rates low for millions of middle class families looking to secure new mortgages
4. additional reforms designed to help families stay in their homes

Details of the plan are still coming out. The White House is doing a good job keeping the public informed though this informative blog that contains documents to help Americans understand the plan and how it can help affected home owners.

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Foreclosure Filings Increased Record Amount in 2008

RealtyTrac, a firm that tracks real estate foreclosures, today issued figures that show that foreclosure filings (default notices, auction sale notices and bank repossessions) —were reported on 2.33 million U.S. properties in 2008, an depressing 81 percent increase from 2007 and a whopping 225 percent increase from 2006.

California had the 523,624 foreclosure filings, the most of any state, which amounted to a nearly 110 percent increase from 2007. Florida had the second most with 385,309 foreclosure filings, while Arizona had the third most with 116,911 filings.

Not all filings result in an actual foreclosure but, as this CNN article reports, more than 860,000 families in the U.S. did lose their home due to foreclosure last year. For these folks, especially those who own more on their mortgage than the home is worth, should consult with an attorney as bankruptcy may loom loom in their future.

For those that have not been foreclosed, but have received any sort of default notice or are unable to keep up with their mortgage payments, the absolute worst thing to do is sit idle and do nothing. Mortgage lenders don't want you to go into foreclosure, as they are in the business of lending money and do not want your house sitting on their books.

My advice is to seek out help. The sooner the better. Call your mortgage company and tell them your situation, explaining any financial hardship that has made it difficult to keep up with payments. They might be able to do a loan modification, whereby they readjust your mortgage to fit with your budget.

Or, contact Help Now, which is an alliance between HUD and the mortgage industry that provides free foreclosure prevention assistance. Their website is HopeNow.com to learn more or speak with a live counseler by calling 888-995-HOPE.

Hope Now is a great organization that will help you negiotate a loan modification, or work out a repayment plan to help you get current on missed payments.

I'd like to reiterate that the worst action you can take is inaction. If you received a foreclosure filing, you're not alone (2.3 million properties are in the same shoes as you!) and you shouldn't feel ashamed of asking for help. Contact your lender or Hope Now.

Follow me on Twitter @ http://twitter.com/FSBO_Guy