Stocks Up + Economy Recovering, But a New Real Estate Storm On The Radar

Book the First: Recalled to Life

On the national front, news stories indicate that the stock market is steadily resurrecting itself, the first real positive sign that the economy may finally be on the mend. A recent article in The Wall Street Journal noted that banks especially were showing vast improvements, with J.P. Morgan Chase calculating a 55% surge in quarterly profits. While the news is encouraging, there is still hesitation rather than outright relief in the undertone of the stories. The reason: if the banks have not learned from their mistakes, the economy might be six feet under again and sooner than we think.

Book the Second: The Golden Thread

While numbers in South Florida still appear disheartening, a little golden thread appears to be tying up the drowning homeowners into a pretty little package called loan modifications. Although a recent article in The Sun-Sentinel quoted RealtyTrac stating that foreclosure filings in Broward had risen 38% in Broward from March 2009, the numbers seem to be decreasing slightly from previously months. The federal government attributes this to the success of new government workout programs.

Recent statements from the Treasury Department tout the success of the new government loan modification programs. Although the programs did not technically go into effect until April, some banks began using them “successfully” earlier. A recent press release by the Assistant Secretary of Financial Stability for the Treasury Department stated the new programs were on track to help 3 to 4 million homeowners by the end of 2012, with over 1.4 million homeowners already beginning the application process. While this appears to be a positive turn, everything will fall apart if that single golden thread snaps.

Book the Third: The Track of a Storm

Interestingly, there are many unanticipated problems stemming from these workouts that might put the housing market right back into the tempest. Loan modifications, while being touted by the government as the evacuation that might save homeowners, are creating a path of destruction in their wake. In fact, while loan modifications are helping some owners, it appears to be hurting others in the process by driving down the value of homes and pushing others further underwater on their loans, leading to more foreclosure filings overall.

Another problem was reported in The New York Times: homeowners who receive modifications are defaulting again, eventually losing their homes to foreclosure anyway. Although the U.S. Treasury stated the 1% of loan modification recipients who had already defaulted this year under modified loans were expected, numbers from previous programs are not encouraging. Reports from 2008 and 2009 showed that eventually 60% of modification recipients re-defaulted. The problem is not the program itself, but rather the fact that by the time relief comes, homeowners are already buried in insurmountable debt.

Right now, it appears that South Florida is in the direct path of the storm, and it could either die off or score a direct hit with thousands of casualties. While optimistic reports indicate that the worst is over, it really appears we are actually in the eye of the storm, and the worst might be still to come. Overall, the current market seems like a precarious teeter-totter, with the stock market up and the housing market down. Once the two find a delicate balance, the economy should finally stabilize. For now, it is the best of times… and the worst of times.

Unlike the flippers of the past, these folks are true professionals as this IS their business. They are not cops, firemen or teachers by day and flippers by night.

In fact, OppenheimLaw and Weston Title represent a number of these types of professional groups. They are all well funded and clearly taking advantage of the fact that the Banks are drowning in too much stuff and thus many times are clueless to the true value of an asset.

Further, as we have explained before, the Banks would rather get back cold cash now than continue trying to make old loans work through loan modifications, when they know the likelihood of re-default remains high. That is why we at OppenheimLaw and our sister title company, Weston Title, are calling 2010 the “Year of the Short Sale.” Banks actually still do about 20% better according to a recent Federal Reserve study when they allow a short sale to proceed as opposed to the Bank proceeding all the way through the foreclosure process. Of course with millions of homes that have already been foreclosed upon by the Banks, the Banks have to somehow get rid of their unwanted inventory.

One word of caution: if you are thinking of becoming a “professional flipper” do your homework; and do not think for a moment that there is a title company out there that will allow you to use the funds from the final buyer as your source of funds to purchase the property at the courthouse’s steps or in a short sale. That practice is now dead.

Thus, if you are in a position to look at flipping as your way to help bail yourself out from being underwater to treading water with your head up high… call me!

Roy Oppenheim

From the Trenches

Topics discussed include: foreclosure defense, mediation in foreclosure, loan modifications and loan modification scams.

What: Foreclosure Hotline: Ask Questions, Get Answers
When: Tonight, Monday August 31, 5:30 – 6:00 PM
How: Call CBS4 305-597-4404 and speak to a foreclosure attorney
Why: Learn how to prevent foreclosure, get free foreclosure advice, ask questions about short sales and Florida real estate

Roy Oppenheim will be in good company tonight at CBS4 with Geoff Sherman, also a foreclosure defense attorney at Oppenheim Law. Be sure to call in tonight (305-597-4404) from 5:00 – 6:30 PM for your free consultation.

Posted on Sun, Aug. 30, 2009

Here are some tips to ease the pain of loan modification

BY MONICA HATCHER
mhatcher@MiamiHerald.com

Getting a loan modification is no easy task, especially if you go it alone. Banks, swamped with borrowers seeking help, are overwhelmed and understaffed. Homeowners complain of their files getting lost, months and months of waiting, and flat-out rejection, even when they have followed all the rules.

For those who are patient and diligent, the quest for a loan modification can be a highly rewarding endeavor. Loan payments can be reduced by hundreds of dollars each month, truly making them affordable and enabling owners to hold on to their homes.

Below are some tips to help get you started:

Q: Can I get a loan modification if I don’t have a job?

A: Yes. Borrowers who have lost their jobs may still be eligible for help. They need to demonstrate they have some kind of ability to make their payments, be it with savings or unemployment benefits. Maisah Williams, financial literacy coordinator with the Human Services Coalition in Miami-Dade, said lenders will consider the circumstances of your job loss and what the chances are you will be reemployed soon. They may offer you a forebearance plan, in which all or a portion of your monthly

payment is temporarily postponed.

Q: How are most loan modifications structured and how low can my payments go?

A: Payment reductions range from between 20 to 30 percent. Under the federal government’s Making Home Affordable program, a lender will first reduce the interest rate on your loan to no less than 2 percent, then, if necessary, extend the loan term by up to 40 years to bring the monthly payments down to 38 percent of pre-tax income. The Treasury matches, dollar for dollar, further reductions until the payment is no more than 31 percent of your income. The new interest rate is fixed for five years. Then, it ticks up by one percent annually until it reaches the rate on the day your loan was modified.

Q: Do I need to hire someone to help me through the process?

A: No. It is possible to go it alone, but modification counselors warn the process can be time-consuming and complex. Karel Reyes, creator of StepByStepLoanModificationDVD.com, said there is no need for cash-strapped borrowers to pay thousands of dollars to an attorney or private firm, if they learn about the process and are willing to spend the time and effort it requires. Avi Shenkar, president of GMA Modification in Miami Beach, however, said professionals know banks’ inner workings. They ensure an application is moving quickly. He also said a pro may have greater success getting fees and penalties waived. Others said professionals know how to present applications to increase the chance of approval.

If you decide to hire a private company, make sure you check it out. Steer clear of firms that guarantee success or ask for hefty upfront fees.

Q: How do I get the process started?

A: Call your bank and ask for the loss mitigation department. Usually the representative will conduct a screening and ask you about your situation. If you meet basic eligibility criteria, the lender will send you an application package.

Q: What kind of information will I need to provide to the bank?

A: W-2s from your employer, a pay stub, and information about your savings and investments. You’ll be asked to document your debts and expenses. Don’t forget things like the birth of a baby or car insurance. Reyes said borrowers forget the small things that add up. Don’t forget to include all your income, such as rent collected from a roommate or child support. Document as best you can your loss of income or the impact of a divorce. If you owe more on your home than it’s worth, Reyes suggests sending in comparable sales info from your neighborhood. You’ll have to write a letter explaining why you need help. The more detail, the better, Reyes said.

Q: I’m seriously underwater. Will the bank reduce the principal balance of my loan?

A: Probably not. Lenders sometimes make principal reductions, but they are not common. A sharp interest rate reduction, though, will reduce the total amount you owe. Remember, too, that even though the bank lenders won’t reduce the principal, they may allow you to short-sell. That means you can sell the home for less than you owe them. It’s another way to avoid foreclosure.

Q: Does the bank charge a fee?

A: Banks may charge a negligible administrative fee. Other fees and late payment penalties can be waived, if you ask for it.

Q: My house is already scheduled for a foreclosure auction. Is it too late for me?

A: No. Lenders can cancel the foreclosure sale up to the very day of the auction. If you contact your bank at a very late stage in the foreclosure process, make sure the lender cancels the sale. There have been instances where homes have been sold at auction or taken back by the banks even though the home owner is being considered for a modification.

Q: How long does the process take?

A: About three to five months, though it depends on the bank. Some are more responsive than others.

Q: How do you get your application to the top of the pile?

A: Repeated follow-up calls are key. Roy Oppenheim, a foreclosure defense attorney in Weston, said you should call the bank as much as they called you when you fell behind.

Q: What happens to the payments I don’t make while I wait for my modification to be approved?

A: The missed payments are typically folded back into the balance of the loan.

Q: What if I have a second mortgage or a home equity credit line?

A: Under the Home Affordable plan, second mortgages are automatically modified with the first.

Q: Will the lender expect me to spend my savings or tap retirement accounts before approving me?

A: No. IRAs, 401(k)s, life insurance policies and annuities are off limits. Lenders cannot consider them. Oppenheim says lenders can and may consider cash you have in the bank, stocks held in your name or other real estate. If you have too much of that stuff, you could be disqualified. Mainly, though, lenders are interested in your income.

Q: If I overstate my expenses or understate my income, will the lender be more inclined to approve me?

A: Modification counselors say borrowers often undermine their efforts by making themselves appear worse off. If you are too needy, lenders won’t approve you, Shenkar said. Lenders want people who can pay the loan once it has been restructured, or they want to foreclose and quickly resell it to recover their losses.

Q: I’m current on my payments. Can I still get my loan modified?

A: Yes, but it’s tough. Under the federal Making Home Affordable plan, lenders are encouraged to modify loans before borrowers fall behind, but that is not widely practiced. Banks want homeowners to, at least, take a hit to their credit score to avoid the moral hazard of everyone asking for a modification, it is thought. Banks say they must deal with borrowers in danger of losing their homes first. Borrowers who are current should be at risk of falling behind in the very near future.

Q: I can’t cover my mortgage with the rent from an investment property I own. Is there any help available for me?

A: Yes. You won’t get help from the federal government’s modification plan, but most banks have other programs that will consider loan modifications for investment properties. Oppenheim said he frequently handles loan modifications for investors.

Many South Florida residents are left scratching their heads when it comes to things like loan modifications or refinancing.

But thanks to Al Sunshine of Miami’s CBS 4, Roy Oppenheim, Ellen Pilelsky, and Geoff Sherman will be answering questions tonight about the ever-changing real estate market through CBS 4’s Your Money real estate panel phone bank.

Who: Oppenheim Law
What: CBS 4 Neighbors 4 Neighbors Real Estate Phone Bank
When: TONIGHT – August 10th, from 5:00 to 6:30 PM
How: Call (305) 597-4404
Why: Get answers about mortgage modifications and refinancing

Oppenheim Law is proud to announce that the entire panel of advisors will be compiled of its attorneys. So whether you are already in the process of foreclosure or just want to find out your rights as a homeowner, Oppenheim Law will be available tonight to answer all of your questions.

Make sure to tune in to CBS4 tonight and call (305) 597-4404 between 5:00 and 6:30 with your loan modification and refinancing questions.

With the ever-changing real estate market, many South Florida residents are left with questions and concerns or are in need of real estate advice. Thanks to Al Sunshine of Miami’s CBS4, South Florida homeowners can call into this homeowner phone bank next Monday to have their questions addressed.

• Who: Oppenheim Law
• What: CBS 4 Neighbors 4 Neighbors Real Estate Phone Bank
• When: August 10th, from 5:00 to 6:30 PM
• Where: From the comfort of your home
• How: Call (305) 597-4404
• Why: Ask legal real estate questions about mortgage modifications and refinancing

Three times in the running, foreclosure attorney Roy Oppenheim has participated on the panel of real estate advisors and this week the entire panel of advisors will be compiled of the attorneys at Oppenheim Law.

So whether you are wondering about your legal options as a homeowner or want to find out the foreclosure process, Oppenheim Law will be there for guidance.

The number to call is (305) 597-4404 between 5:00 and 6:30 next Monday, August 10th. For more information visit www.cbs4.com.

First and foremost, the study validates the fact that principal balance reductions in mortgage modification were truly an urban legend.

How mortgage modification shops were set up to influence individuals into thinking that they could get massive reductions in principal is beyond me…

However, at least for 2008, the verdict is now in. Only about 1.3 percent of all mortgage modifications included any principal reduction at all. Frequently, mortgage modifications have included increases in the outstanding principal balance. In fact, in the third and fourth quarters of 2008, principal balance increases occurred on 70.9 percent and 61.5 percent of all loans respectively.

What did occur, however, is there were indeed meaningful reductions in the monthly outlay that individuals had on their particular mortgages because of increasing the term of the loans as well as substantially reducing the monthly interest due on the loan. Thus, the average loan that was modified in the third and fourth quarter of 2008 saw a 21 percent reduction in monthly payments. In a few cases, however, approximately 6 percent of modifications during that same period actually saw an increase.

Now it is very important to understand that in 2008 President Bush was still in office and President Obama had not yet implemented any of his financial stimulus packages. Thus, anecdotally, we are now starting to see, on occasion, principal reductions in certain modifications. Certainly, the number is well in excess of 1 percent, but is not something that is occurring on every loan with any certainty.

Policymakers and individuals frequently do not understand why banks are so reluctant to reduce the principal balance of a loan to the value of the property. I always thought that the reason was that the banks were concerned about creating a contagion of individuals who possibly could afford to pay their mortgage, but have decided to seek modification because they don’t feel it’s fair that their neighbor is getting a modification while they are not.

In fact, as previously discussed in my prior blog about foreclosures and social networks, researchers have distinguished “strategic foreclosures” to be when an individual walks away from their home because it does not make economic sense to continue making payments when the property is underwater. While the term does not exist in the area of mortgage modification, perhaps banks are concerned about continuing to modify too many loans thereby unwittingly encouraging “strategic modifications.”

In fact, a bank’s decision to not embrace modifications is actually quite simple, yet it lurks beneath the surface…

Loan Modifications and Decreased Values
First and foremost, the reason many banks chose not to embrace modifications was that property values were going to continue to erode and decrease. Under such circumstances with knowledge that many such modifications would fail, the bank would net even less money than they would if they brought the foreclosure immediately. Thus, the banks thought they should just get it over with, take the medicine and this would leave them in better shape than if they allowed for a modification that then subsequently failed. The fact of the matter is that, certainly in the past year, the banks were not wrong in that prices have continued to fall and thus by doing a quick foreclosure they would be in better shape than allowing the property to linger and continue to deteriorate in value.

Loan Modifications and “Self-Curing”
The second reason that the banks were reluctant to conduct modifications is because they felt that they would be shooting themselves in the foot. Specifically, the banks know that a fairly decent percentage, as much as 30 percent of all loans that are in default, will “self-cure” and bring themselves back into compliance— meaning that they will no longer be in default. Obviously, if the banks decided to modify an entire portfolio of mortgages they would lose the opportunity to receive the additional income from those mortgages or individuals that decided to self cure their default. When the bank factors in the loss of “self-curing” mortgages their loss is much higher than when they decide to only modify certain loans and then anticipate that other loans may indeed “self cure.”

The problem with the self-cure analysis is that it is based on an economic environment where equity in homes historically had not fallen more than 20 percent below the mortgage amount. As discussed previously we are now in an environment’ where many homes are as much as 50 percent underwater and the idea of self-cure is highly unlikely.

The Feds paper concludes, that “if the presence of ‘self-cure’ risk and re-default risk do make renegotiation less appealing to investors, the number of easily ‘preventable’ foreclosures may be far smaller than many commentators believe.”

Thus, it is still my contention that if the government wants to deal with the foreclosure crisis and make sure that it does not continue to get worse and become a contagion, that the focus must be on restoring an orderly pricing structure to the market by providing the proper incentives to individuals and investors to come back into the market and re-stabilize the housing market. Like any market, if there are too few buyers and too many sellers, prices will continue to decrease. If we are able to bring more buyers back into the market prices will stabilize, the number of defaults will decrease, people will be more reluctant to walk away from their homes, the number of foreclosures will no longer increase, and what economists call a “negative feedback loop” will finally be stopped in its tracks. And guess what? The banks will no longer be afraid to modify loans.

For more information view my video interview about banks and mortgage modifications.

Roy Oppenheim

“We are writing to you as a participant in the Administration’s Making Home Affordable (MHA) program. As you are aware, the Home Affordable Modification Program (HAMP) under MHA is designed to help responsible but at-risk homeowners modify their mortgages in order to lower their monthly payments to sustainable levels and avoid foreclosure. This program is a critical part of our collective effort to stabilize the housing market and promote economic recovery.

Since we published our detailed guidance, we have started to see a significant ramp-up in the number of trial modification offers and trial modifications underway. However, much more progress is needed. There appears to be substantial variation among servicers in performance and borrower experience, as well as inconsistent results in converting trial modification offers into actual trial modifications. We believe there is a general need for servicers to devote substantially more resources to this program for it to fully succeed and achieve the objectives we all share.

In order to assess our progress under the program and improve the speed of implementation, we request that you designate a senior liaison, with whom you have regular contact and who is authorized to make decisions on behalf of you as CEO, to work directly with us on all aspects of MHA. We will invite this person to meet with senior Treasury and HUD officials on July 28 to discuss full implementation of the program. To prepare for that meeting, we ask that your liaison send us a letter by July 23, detailing specific steps that your organization will take towards effective implementation and compliance. Similarly, we invite you or your liaison to provide suggestions on ways that we can improve program design.

In conjunction with this meeting, we plan to take three important steps to improve the program’s performance. First, we will begin publicly reporting results under the program. By August 4, we will begin issuing monthly reports with servicer-specific performance measures, including the number of trial modification offers each servicer has extended to eligible borrowers, the number of trial plans that are underway; the number of final modifications, and eventually, the long term success of those modifications. The purpose of these reports is to provide a transparent and public accounting of individual servicer performance as well as overall program performance. We will discuss with you the content of these reports at the July 28 meeting.

Second, we will work with servicers such as you to set more exacting operational metrics to measure the performance of the program, such as average borrower wait time for inbound

borrower inquiries, the completeness and accuracy of information provided applicants, document handling, and response time for completed applications.

Third, in order to minimize the likelihood that borrower applications are overlooked or that applicants are inadvertently denied a modification, Treasury has also asked Freddie Mac, in its role as compliance agent, to develop a “second look” process pursuant to which Freddie Mac will audit a sample of MHA modification applications that have been declined. Freddie Mac will coordinate with servicers such as you to address specific cases that arise and to address general operational weaknesses where errors prove more systematic.

We are asking that all servicers expand servicing capacity and improve the execution quality of loan modifications in order to help the sizable number of homeowners at risk of foreclosure and eligible for the program. This will require adding more staff than previously planned, expanding call centers beyond their current size, providing an escalation path for borrowers dissatisfied with the service they have received, bolstering training of representatives, developing extra on-line tools, and sending additional mailings to borrowers who may be eligible for the program.

We are confident that together we can improve the speed and efficacy of the MHA program in a manner that is consistent with your aims as a leading financial institution.

Our shared goal must be to make the program as successful as possible in keeping Americans in their homes and providing stability to the housing market. With your continued help, we believe that we can achieve this goal.

Sincerely,

Timothy F. Geithner Shaun Donovan”

http://www.washingtonpost.com/wp-dyn/content/article/2009/07/09/AR2009070902928.html