FOR IMMEDIATE RELEASE:

February 21, 2012

 CONTACT:

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 CONSUMER FINANCIAL PROTECTION BUREAU CONVENES SMALL BUSINESS PANEL FOR KNOW BEFORE YOU OWE MORTGAGE DISCLOSURES

Panel is Bureau’s First Under Small Business Regulatory Enforcement Fairness Act

 WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) is announcing today the formation of a Small Business Review Panel as part of its initiative to integrate the mortgage disclosure forms that borrowers receive when applying for and closing on a loan. The review panel will solicit feedback from small businesses that make mortgage loans and conduct mortgage closings.

 “This is another step in the CFPB’s wide-ranging efforts to gather the input of the people who will be affected by our rules. The CFPB is dedicated to issuing thoughtful, research-based rules that take into account not only the benefits to consumers but also how businesses of all sizes will be affected,” said CFPB Director Richard Cordray. “We take all feedback seriously.”

 The CFPB began its Know Before You Owe initiative to combine mortgage loan disclosure forms in May 2011. The project integrates two federally required mortgage disclosures into a single, simpler form that makes the costs and risks of the loan clearer for borrowers. Combining and simplifying these forms will also reduce burdens on lenders.

 For more than thirty-five years, two federal laws (the Truth in Lending Act or “TILA,” and the Real Estate Settlement Procedures Act or “RESPA”) have required lenders and settlement agents to give consumers who take out a mortgage loan different but overlapping disclosure forms regarding the loan’s terms and costs. This duplication has long been recognized as inefficient and confusing for consumers and industry. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB is responsible for solving this problem by combining the disclosures.

However, TILA and RESPA are separate laws with different and sometimes inconsistent requirements. The CFPB will propose rules that integrate the statutory requirements and resolve any inconsistencies. The CFPB’s thorough and innovative approach to the disclosure forms not only clearly conveys the information that the laws mandate but also highlights the information consumers really need to know.

The CFPB is convening the Small Business Review Panel to help with proposals the CFPB is considering. Examples of these include:

· Consumers need to know what information they can rely on. Three days after application, consumers will receive an integrated loan estimate that clearly discloses the terms and costs of the mortgage loan. However, many lenders and mortgage brokers provide consumers with preliminary estimates of loan terms and costs earlier in the process. These estimates are not required by TILA or RESPA. The CFPB is considering whether to require that these preliminary estimates carry a disclaimer informing the consumer that the preliminary estimate is not the Loan Estimate required by law. This is intended to help consumers avoid relying on estimates that may not be reliable.

 · Consumers need to be able to rely on their loan estimate. Under current rules, when a lender provides the consumer with an estimate of the cost of its own services under RESPA, the actual cost cannot be higher than the estimate unless there is a valid change of circumstances. The CFPB is considering a proposal to apply the same limitation when the lender estimates the cost of services provided by its affiliates or by companies the lender requires the consumer to use. This is intended to make the Loan Estimate more reliable for consumers.

 · Consumers need to know the final terms and costs before they sit down at the closing table. Under current rules, consumers typically receive a disclosure with some of their final loan terms and costs three business days before closing on the loan, but other costs are not finalized until the day of closing. As a result, consumers sometimes do not know how much they will owe until it is too late. The CFPB is considering a proposal that would generally require delivery of the integrated settlement disclosure stating the consumer’s final loan terms and costs at least three business days before closing to reduce the risk that consumers will face unexpectedly higher closing costs at the last minute.

 In developing new forms, the CFPB has engaged and continues to engage extensively with consumers and industry – well before proposing its regulation. The CFPB has conducted one-on-one testing of the forms in 9 cities across the country. The CFPB has also posted the forms on its website and received more than 27,000 comments from the public, including industry. Engaging with consumers helps the CFPB understand what they need from the form. Engaging with industry helps the CFPB understand the benefits and costs from the businesses – large and small – that are likely to be directly affected by the new mortgage disclosure.

 The CFPB will be sharing the following documents with the Small Business Review Panel:

 An overview of the proposals under consideration: http://www.consumerfinance.gov/wp-content/uploads/2012/02/20120221_cfpb_tila-respa-integration-rulemaking-outline-of-proposals-and-alternatives.pdf

A fact sheet summarizing the Small Business Review Panel process:http://www.consumerfinance.gov/wp-content/uploads/2012/02/20120221_cfpb_factsheet-small-business-review-panel-process.pdf

A list of questions and issues on which the CFPB will seek input:http://www.consumerfinance.gov/wp-content/uploads/2012/02/20120221_cfpb_tila-respa-integration-rulemaking-discussion-issues-for-small-entity-representatives.pdf

In this process, the CFPB is following the requirements of the Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996. Generally, unless a proposed rule will not have a significant economic impact on a substantial number of small entities, the CFPB will seek input directly from small entities about potential costs of a proposed rule and potentially less-burdensome alternatives before issuing the proposal for public comment.

Under this law, representatives from the CFPB, the Chief Counsel for Advocacy of the Small Business Administration (SBA), and the Office of Management and Budget’s Office of Information and Regulatory Affairs will form a review panel. The panel meets with a group of representatives of small financial service providers selected by the CFPB, in consultation with the SBA. The representatives will provide the panel with feedback on the benefits and burdens of complying with the proposals the CFPB is considering. The representatives may also suggest alternatives that would minimize those burdens.

 Within 60 days of convening, the review panel completes a report on the input received from small providers during the panel process. The report also contains the panel’s findings on the potential effects of the proposed regulation on small providers and any significant alternatives that accomplish the objectives of the proposed rule while minimizing such impacts. The CFPB then considers the panel’s report and the comments and advice provided by small providers as it prepares the proposed rule. The CFPB plans to formally release a proposed rule for comment in July.

 ###

 The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.ConsumerFinance.gov.

Subject: G-fee Hike Not Part of Payroll Tax Package?

 ByBrian Collins

FEB 16, 2012 1:14pm ET

A proposal to hike guarantee fees on Fannie Mae and Freddie Mac for the second time in two months was floated Wednesday night during negotiations over a $150 billion bill that would extend the payroll tax deduction and unemployment benefits.

However, a g-fee hike does not seem to be part of the package that congressional leaders are expected to unveil later today, according to industry sources tracking the issue.

In December, Congress passed a two-month extension bill, funded by a 10 basis point hike in Fannie/Freddie g-fees.

During Wednesday’s talks, it appears an additional g-fee hike was floated to help pay for the 10-month extension bill, which also ensures reimbursement rates for Medicare doctors.

It appears that Republicans were reluctant to accept another g-fee hike, because it would make the federal government even more dependent on the GSEs as a source of revenues. The 10bp g-fee hike that goes into effect in April is expected to raise $35 billion over 10 years to pay for the cost of the two-month extension.

Many Republican lawmakers want to wind down Fannie and Freddie and privatize them. Nevertheless, the g-fee option remains enticing for some in Congress as it gets harder to find sources of revenue to pay for government programs.

Housing and other industry groups have made clear to Congress that they oppose the use of g-fees as a source to fund other government programs.

“We are united in opposition to increasing g-fees and FHA premiums for reasons other than minimizing the GSEs’ or FHA’s risk exposure, shoring up capital reserves and ensuring the liquidity of the secondary mortgage market,” according to a joint letter signed by 19 trade groups.

As part of the two-month extension, Congress also increased the annual premiums on Federal Housing Administration loans by 10 bps.  But the premium revenues will remain with FHA to shore up its reserves.

 Fred Kreger, CMC

President Elect & Vice President, Government Affairs

California Association of Mortgage Professionals (CAMP)

“Excellence and Integrity in Lending”

Certified Mortgage Consultant

American Family Funding,

A Division of American Pacific Mortgage – A Direct Lender

24961 The Old Road Ste 101

Stevenson Ranch, CA 91381

Phone: (661) 505-4311

Cell: (661) 400-8905

Fax: (661) 705-8339

DRE License # 01371184 / 01215943

NLMS License# 214640 / 1850

Check out our GA blog site: www.campga.org

 FOR IMMEDIATE RELEASE                                                                                           

THURSDAY, FEBRUARY 9, 2012                                                                        (202)514-2008

WWW.JUSTICE.GOV                                                                                    TTY (866) 544-5309

FEDERAL GOVERNMENT AND STATE ATTORNEYS GENERAL REACH

$25 BILLION AGREEMENT WITH FIVE LARGEST MORTGAGE SERVICERS TO ADDRESS MORTGAGE LOAN SERVICING AND FORECLOSURE ABUSES

$25 billion agreement provides homeowner relief & new protections, stops abuses

WASHINGTON – U.S. Attorney General Eric Holder, Department of Housing and Urban Development (HUD) Secretary Shaun Donovan, Iowa Attorney General Tom Miller and Colorado Attorney General John W. Suthers announced today that the federal government and 49state attorneys general have reached a landmark $25 billion agreement with the nation’s five largest mortgage servicers to address mortgage loan servicing and foreclosure abuses.  The agreement provides substantial financial relief to homeowners and establishes significant new homeowner protections for the future. 

The unprecedented joint agreement is the largest federal-state civil settlement ever obtained and is the result of extensive investigations by federal agencies, including the Department of Justice, HUD and the HUD Office of the Inspector General (HUD-OIG), and state attorneys general and state banking regulators across the country.  The joint federal-state group entered into the agreement with the nation’s five largest mortgage servicers: Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Company, Citigroup Inc., and Ally Financial Inc. (formerly GMAC).

“This agreement – the largest joint federal-state settlement ever obtained – is the result of unprecedented coordination among enforcement agencies throughout the government,” said Attorney General Holder.  “It holds mortgage servicers accountable for abusive practices and requires them to commit more than $20 billion towards financial relief for consumers.  As a result, struggling homeowners throughout the country will benefit from reduced principals and refinancing of their loans.  The agreement also requires substantial changes in how servicers do business, which will ensure the abuses of the past are not repeated.”

“This historic settlement will provide immediate relief to homeowners – forcing banks to reduce the principal balance on many loans, refinance loans for underwater borrowers, and pay billions of dollars to states and consumers,” said HUD Secretary Donovan. “Banks must follow the laws.  Any bank that hasn’t done so should be held accountable and should take prompt action to correct its mistakes.  And it will not end with this settlement. One of the most important ways this settlement helps homeowners is that it forces the banks to clean up their acts and fix the problems uncovered during our investigations.  And it does that by committing them to major reforms in how they service mortgage loans.  These new customer service standards are in keeping with the Homeowners Bill of Rights recently announced by President Obama – a single, straightforward set of commonsense rules that families can count on.”

“This monitored agreement holds the banks accountable, it provides badly needed relief to homeowners, and it transforms the mortgage servicing industry so now homeowners will be protected and treated fairly,” said Iowa Attorney General Miller.

“This settlement has broad bipartisan support from the states because the attorneys general realize that the partnership with the federal agencies made it possible to achieve favorable terms and conditions that would have been difficult for the states or the federal government to achieve on their own,” said Colorado Attorney General Suthers.

The joint federal-state agreement requires servicers to implement comprehensive new mortgage loan servicing standards and to commit $25 billion to resolve violations of state and federal law.  These violations include servicers’ use of “robo-signed” affidavits in foreclosure proceedings; deceptive practices in the offering of loan modifications; failures to offer non-foreclosure alternatives before foreclosing on borrowers with federally insured mortgages; and filing improper documentation in federal bankruptcy court.

Under the terms of the agreement, the servicers are required to collectively dedicate $20 billion toward various forms of financial relief to borrowers.  At least $10 billion will go toward reducing the principal on loans for borrowers who, as of the date of the settlement, are either delinquent or at imminent risk of default and owe more on their mortgages than their homes are worth.  At least $3 billion will go toward refinancing loans for borrowers who are current on their mortgages but who owe more on their mortgage than their homes are worth.  Borrowers who meet basic criteria will be eligible for the refinancing, which will reduce interest rates for borrowers who are currently paying much higher rates or whose adjustable rate mortgages are due to soon rise to much higher rates.  Up to $7 billion will go towards other forms of relief, including forbearance of principal for unemployed borrowers, anti-blight programs, short sales and transitional assistance, benefits for service members who are forced to sell their home at a loss as a result of a Permanent Change in Station order, and other programs.  Because servicers will receive only partial credit for every dollar spent on some of the required activities, the settlement will provide direct benefits to borrowers in excess of $20 billion.  

Mortgage servicers are required to fulfill these obligations within three years.  To encourage servicers to provide relief quickly, there are incentives for relief provided within the first 12 months.  Servicers must reach 75 percent of their targets within the first two years.  Servicers that miss settlement targets and deadlines will be required to pay substantial additional cash amounts.

In addition to the $20 billion in financial relief for borrowers, the agreement requires the servicers to pay $5 billion in cash to the federal and state governments.  $1.5 billion of this payment will be used to establish a Borrower Payment Fund to provide cash payments to borrowers whose homes were sold or taken in foreclosure between Jan. 1, 2008 and Dec. 31, 2011, and who meet other criteria.  This program is separate from the restitution program currently being administered by federal banking regulators to compensate those who suffered direct financial harm as a result of wrongful servicer conduct.  Borrowers will not release any claims in exchange for a payment.  The remaining $3.5 billion of the $5 billion payment will go to state and federal governments to be used to repay public funds lost as a result of servicer misconduct and to fund housing counselors, legal aid and other similar public programs determined by the state attorneys general. 

The $5 billion includes a $1 billion resolution of a separate investigation into fraudulent and wrongful conduct by Bank of America and various Countrywide entities related to the origination and underwriting of Federal Housing Administration (FHA)-insured mortgage loans, and systematic inflation of appraisal values concerning these loans, from Jan. 1, 2003 through April 30, 2009.  Payment of $500 million of this $1 billion will be deferred to partially fund a loan modification program for Countrywide borrowers throughout the nation who are underwater on their mortgages.  This investigation was conducted by the U.S. Attorney’s Office for the Eastern District of New York, with the Civil Division’s Commercial Litigation Branch of the Department of Justice, HUD and HUD-OIG.  The settlement also resolves an investigation by the Eastern District of New York, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) and the Federal Housing Finance Agency-Office of the Inspector General (FHFA-OIG) into allegations that Bank of America defrauded the Home Affordable Modification Program.

The joint federal-state agreement requires the mortgage servicers to implement unprecedented changes in how they service mortgage loans, handle foreclosures, and ensure the accuracy of information provided in federal bankruptcy court.  The agreement requires new servicing standards which will prevent foreclosure abuses of the past, such as robo-signing, improper documentation and lost paperwork, and create dozens of new consumer protections.  The new standards provide for strict oversight of foreclosure processing, including third-party vendors, and new requirements to undertake pre-filing reviews of certain documents filed in bankruptcy court.

The new servicing standards make foreclosure a last resort by requiring servicers to evaluate homeowners for other loss mitigation options first.  In addition, banks will be restricted from foreclosing while the homeowner is being considered for a loan modification.  The new standards also include procedures and timelines for reviewing loan modification applications and give homeowners the right to appeal denials.  Servicers will also be required to create a single point of contact for borrowers seeking information about their loans and maintain adequate staff to handle calls.

The agreement will also provide enhanced protections for service members that go beyond those required by the Servicemembers Civil Relief Act (SCRA).  In addition, the four servicers that had not previously resolved certain portions of potential SCRA liability have agreed to conduct a full review, overseen by the Justice Department’s Civil Rights Division, to determine whether any servicemembers were foreclosed on in violation of SCRA since Jan. 1, 2006.  The servicers have also agreed to conduct a thorough review, overseen by the Civil Rights Division, to determine whether any servicemember, from Jan. 1, 2008, to the present, was charged interest in excess of 6% on their mortgage, after a valid request to lower the interest rate, in violation of the SCRA.  Servicers will be required to make payments to any servicemember who was a victim of a wrongful foreclosure or who was wrongfully charged a higher interest rate.  This compensation for servicemembers is in addition to the $25 billion settlement amount.

The agreement will be filed as a consent judgment in the U.S. District Court for the District of Columbia.  Compliance with the agreement will be overseen by an independent monitor, Joseph A. Smith Jr.  Smith has served as the North Carolina Commissioner of Banks since 2002.  Smith is also the former Chairman of the Conference of State Banks Supervisors (CSBS).  The monitor will oversee implementation of the servicing standards required by the agreement; impose penalties of up to $1 million per violation (or up to $5 million for certain repeat violations); and publish regular public reports that identify any quarter in which a servicer fell short of the standards imposed in the settlement. 

 The agreement resolves certain violations of civil law based on mortgage loan servicing activities.  The agreement does not prevent state and federal authorities from pursuing criminal enforcement actions related to this or other conduct by the servicers.  The agreement does not prevent the government from punishing wrongful securitization conduct that will be the focus of the new Residential Mortgage-Backed Securities Working Group.  The United States also retains its full authority to recover losses and penalties caused to the federal government when a bank failed to satisfy underwriting standards on a government-insured or government-guaranteed loan.  The agreement does not prevent any action by individual borrowers who wish to bring their own lawsuits.  State attorneys general also preserved, among other things, all claims against the Mortgage Electronic Registration Systems (MERS), and all claims brought by borrowers.      

Investigations were conducted by the U.S. Trustee Program of the Department of Justice, HUD-OIG, HUD’s FHA, state attorneys general offices and state banking regulators from throughout the country, the U.S. Attorney’s Office for the Eastern District of New York, the U.S. Attorney’s Office for the District of Colorado, the Justice Department’s Civil Division, the U.S. Attorney’s Office for the Western District of North Carolina, the U.S. Attorney’s Office for the District of South Carolina, the U.S. Attorney’s Office for the Southern District of New York, SIGTARP and FHFA-OIG.  The Department of Treasury, the Federal Trade Commission, the Consumer Financial Protection Bureau, the Justice Department’s Civil Rights Division, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Department of Veterans Affairs and the U.S. Department of Agriculture made critical contributions.

For more information about the mortgage servicing settlement, go towww.NationalMortgageSettlement.com. To find your state attorney general’s website, go to www.NAAG.org and click on “The Attorneys General.”

The joint federal-state agreement is part of enforcement efforts by President Barack Obama’s Financial Fraud Enforcement Task Force.  President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.  The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.  For more information about the task force visit:www.stopfraud.gov.

# # #

This may be of interest. Ther’s a couple interesting points to consider here. You can reach them at their contact info below.

You’re receiving the Weekly Headlines as a current first tuesday student
or as an interested member of the California real estate community.
To ensure property delivery, add us to your contacts.

IF YOU OWN FIVE UNITS OR MORE HAVE A RECYCLING RETAINER FOR YOUR TENANTS

 FACTS

 Owners of “multifamily dwellings” (residential dwelling of five or more units) mjust arrange for eht providing of recycling containers if there is adequate space for t hem unless a solid waste enterprise providing recycling services is not available to serve the property.  (a.b.818,Pub. Res. C. section 42913

MORAL

 If you own the units get the containers or the city may get you with a fine.  On the other hand if you are the consumer and you are mad at your landlord and no recycle bins, the city might be interested.

CALIFORNIA DEPARTMENT OF MOTOR VEHICLES AND APPEALS FROM SUSPENSION OF DRIVERS LICENSE.

FACTS

In 2009 Michael Vitkievicz was arrested for Driving Under the Influence of alcohol(DUI).  There was an administrative hearing held to revoke or suspend his license.  His license was revoked for two years.    On May 10, 2010, the DMV served a notice of its final administrative decision on Vitkeivicz.  The notice stated he had 94 days to appeal.   On August 13, Vitkievicz filed his petition for writ of mandate against the  Director of the DMV.  This was 95 days after the final decision, one day late.  The Vehicle Code (14401(a)) provides for 94 days only.  The trail court said he filed untimely and could not go forward.  Vitkievicz appealed.

 The 2^nd District Courts of Appeal said . . .

 Affirmed.  You must file any appeal revoking a license within 90 days for the date the order is noticed.  When given by mail there is four extra days (CVC 23).  He lost and had to go 2 years without a license.

 MORAL

 Watch the calendar. More people lose on trials and hearings because of procedures rather than on the merits.

We had as attorneys for our client defendant the last case dismissed related to mortgage fraud. More on a procedural basis than on the merits.

CALIFORNIA FRANCHISE TAX BOARD GETTING MORE DIFFICULT ON PROPERTY TAX DEDUCTIONS

FACTS

 The California Franchise Tax Board is leaning on taxpayers and tax preparers to start complying with a LAW THAT PREVENTS PROPERTY OWNERS FROM DEDUCTING CERTAIN REAL ESTATE TAXES ON THEIR INCOME TAX RETURNS.   Many tax preparers are telling clients about the law and asking to see their property tax bills for the first time this year so they can determine which charges can and cannot be deducted.

Federal and state laws generally LIMIT THE REAL ESTATE DEDUCTION TO AD VALOREM TAXES, WHICH ARE CALCULATED AS A PERCENTAGE OF THE PROPERTY’S ASSESSED VALUE. Any tax that is a flat amount per property or benefits a specific property is generally not deductible. There are some minor exceptions, however, and property tax statements do not spell out which charges are not deductible.

 UNTIL THIS YEAR, almost everyone, including tax preparers, ignored this law and deducted 100 percent of property taxes. 

Once uncommon, nondeductible charges began creeping on toCaliforniaproperty tax bills after Proposition 13 in 1978 sharply limited general property tax increases. Since then, many local governments and school districts have been raising money with voter-approved parcel taxes and other charges that are not deductible.

 THE TAX BOARD HAD PLANNED TO ENFORCE COMPLIANCE BY ADDING THREE LINES TO 2011 STATE-TAX RETURNS THAT WOULD REQUIRE PROPERTY OWNERS TO SHOW THEIR PARCEL NUMBER, TOTAL PROPERTY TAX BILL AND THE DEDUCTIBLE AMOUNT. But IT POSTPONED THOSE CHANGES UNTIL 2012 RETURNS. This year, it is hoping to educate the public and tax preparers. It estimates that voluntary compliance could generate about $20 million in additional tax revenue this year.

The FTB has published information on how to comply with this law at www.ftb.ca.gov/individuals/Real_Estate_Tax_Deduction/index.shtml. This page includes a link where most people can look up their tax bill online not all counties offer online lookup and find a sample tax bill for their county. The sample bill attempts to show which charges are and are not deductible. But most people have taxes that are specific to their city, neighborhood or school district that do not show up on the sample bill. (SFCHRON2512)

 MORAL

We have dealt with the IRS on behalf of clients before and have found them to be very reasonable. However, I cannot say the same for the Franchise Tax Board. It is best to have a CPA or professionally responsible tax preparer do your tax returns.

 THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.

AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE.

SEMINAR AND SPEAKING ENGAGEMENT SCHEDULE

Contact Herman Thordsen at  888-667-8529 to Register

We do have attorneys available for those that need assistance in the following areas:

Personal injury

Bankruptcy

Criminal defense.

Employment law including unpaid wages and overtime.

Divorce

Estate Planning, Probate and Trusts

Mortgages and Foreclosures, your rights and remedies

 FAMILY LAW

If you are considering dissolving your marriage or modifying an existing decree or order inCalifornia, please consult your attorney first.  Otherwise you may find problems long after the marriage is over.

TOO MANY CREDITORS BOTHERING YOU?

IF YOU ARE SUED OR THE DEBT IS TOO HIGH WITH CREDITORS BANKRUPTCY CAN BE AN OPTION and IS A LOT LESS EXPENSIVE THAN DEFENDING A LAWSUIT:

 Bankruptcy can potentially avoid a fraud judgment against the defendant thus reducing the risk of losing a professional license.

 If a foreclosure occurred the lenders on the junior mortgages have the right to sue when it is a non purchase money mortgage.  The lenders can sue on the junior mortgages as unsecured promissory notes and they are doing just that.  The bankruptcy can remove this lawsuit.

 Bankruptcy is a form of asset protection believe it or not.  It can in certain circumstances protect OVER $175,000 and more.

 A Chapter 13 bankruptcy may be able to remove that second and even third mortgage by stripping it down as an unsecured lien and paying a percentage of the amount potentially allowing you to save the home.

 Past due Income Taxes under certain circumstances can be discharged in bankruptcy. 

Under certain circumstances you may be able to legally keep one or more of your credit cards after the bankruptcy so you have something to reestablish credit and to use when traveling.

DISCLOSURE 

The services or benefits with respect to bankruptcy relief are under Title 11 of the United States Code.   In doing this: “We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code” within the meaning of Title 11 United States Code Section 528.

 NON PAYMENT OF WAGES OR OVERTIME WAGES?

If anyone you know has not been paid proper wages or overtime we have capable attorneys available that can assist them. There is no charge for the consultation and we only get paid if we win.  Call 888-667-8529 for a free consultation.

PERSONAL INJURY

We do have super lawyers available for you in the event of serious injury.  The consultation is free and we will come to you.

Our trial lawyer for personal injury cases is Alan Brown, a member of the National Trial Lawyers Association.  It is by invitation only to the 100 top trial lawyers in each state.

 The National Trial Lawyers is an organization composed of The Top 100 Trial Lawyers from each state. Membership is obtained through special invitation and is extended only to those attorneys who exemplify superior qualifications of leadership, reputation, influence, stature, and profile as civil plaintiff or criminal defense trial lawyers. It is the mission of The National Trial Lawyers to promote excellence in the legal profession through practical educational programs, networking opportunities, and legal publications that deal with current issues facing The National Trial Lawyers.

 Our firm has been practicing law for over 39 years, the last 20 of which are at the exact same location in Hutton Centre, Santa Ana California where the 405 and 55 freeways meet.  The firm attorneys represent numerous clients in many areas of law in California and nationally.  Mr. Thordsen is a panel attorney with the Los Angeles Police Protective League and the firm is counsel to several trade associations.   Mr. Thordsen has been a member of the Advisory Board of the Mortgage Banking and Real Estate Appraisal Programs at California State University, Fullerton.  Mr. Thordsen has been a member of the California Department of Real Estate Solicitation Task Force Committee and the California Department of Motor Vehicles Anti-Fraud Task Force.

 Mr. Thordsen is an invited guest speaker before trade groups and other organizations on real estate, mortgages, consumer protection, bankruptcy issues and asset protection. 

The firm has represented people in minimum wage and overtime issues and protecting consumers from overzealous creditors and in two cases has assisted in the personal injury recovery of over one million dollars for persons seriously injured in automobile collision cases. 

He has spoken and written on the misclassification of employees as independent contractors to avoid paying minimum wage and overtime. 

 ATTORNEYS IN OUR FIRM are able to represent you in negotiations and litigation of lender buyback demands, deficiency payments on mortgages, foreclosures as well as white-collar crimes.  

We have been successful in representing clients in wage and overtime violation cases and personal injury cases on a contingency fee basis.  Wage disputes include minimum wage, overtime and unemployment compensation issues.

If we may be of service in these areas or estate planning and asset protection, please contact us, and one of our attorneys will discuss the matter with you. 

THE WHITE HOUSE
Office of the Press Secretary

FOR IMMEDIATE RELEASE

February 1, 2012

 FACT SHEET: President Obama’s Plan to Help Responsible Homeowners and Heal the Housing Market

 In his State of the Union address, President Obama laid out a Blueprint for an America Built to Last, calling for action to help responsible borrowers and support a housing market recovery. While the government cannot fix the housing market on its own, the President believes that responsible homeowners should not have to sit and wait for the market to hit bottom to get relief when there are measures at hand that can make a meaningful difference, including allowing these homeowners to save thousands of dollars by refinancing at today’s low interest rates. That’s why the President is putting forward a plan that uses the broad range of tools to help homeowners, supporting middle-class families and the economy.

Key Aspects of the President’s Plan

 Broad Based Refinancing to Help Responsible Borrowers Save an Average of $3,000 per Year: The President’s plan will provide borrowers who are current on their payments with an opportunity to refinance and take advantage of historically low interest rates, cutting through the red tape that prevents these borrowers from saving hundreds of dollars a month and thousands of dollars a year. This plan, which is paid for by a financial fee so that it does not add a dime to the deficit, will:

 Provide access to refinancing for all non-GSE borrowers who are current on their payments and meet a set of simple criteria.

Streamline the refinancing process for all GSE borrowers who are current on their loans.

Give borrowers the chance to rebuild equity through refinancing.

 Homeowner Bill of Rights: The President is putting forward a single set of standards to make sure borrowers and lenders play by the same rules, including:

  Access to a simple mortgage disclosure form, so borrowers understand the loans they are taking out.

Full disclosure of fees and penalties.

Guidelines to prevent conflicts of interest that end up hurting homeowners.

Support to keep responsible families in their homes and out of foreclosure.

Protection for families against inappropriate foreclosure, including right of appeal.

First Pilot Sale to Transition Foreclosed Property into Rental Housing to Help Stabilize Neighborhoods and Improve Home Prices: The FHFA, in conjunction with Treasury and HUD, is announcing a pilot sale of foreclosed properties to be transitioned into rental housing.

 Moving the Market to Provide a Full Year of Forbearance for Borrowers Looking for Work:Following the Administration’s lead, major banks and the GSEs are now providing up to 12 months of forbearance to unemployed borrowers.

Pursuing a Joint Investigation into Mortgage Origination and Servicing Abuses: This effort marshals new resources to investigate misconduct that contributed to the financial crisis under the leadership of federal and state co-chairs.

Rehabilitating Neighborhoods and Reducing Foreclosures:In addition to the steps outlined above, the Administration is expanding eligibility for HAMP to reduce additional foreclosures, increasing incentives for modifications that help borrowers rebuild equity, and is proposing to put people back to work rehabilitating neighborhoods through Project Rebuild.

 Broad Based Refinancing Plan

 Millions of homeowners who are current on their mortgages and could benefit from today’s low interest rates face substantial barriers to refinancing through no fault of their own. Sometimes homeowners with good credit and clean payment histories are rejected because their mortgages are underwater. In other cases, they are rejected because the banks are worried that they will be left taking losses, even where Fannie Mae or Freddie Mac insure these new mortgages.  In the end, these responsible homeowners are stuck paying higher interest rates, costing them thousands of dollars a year.

 To address this challenge, the President worked with housing regulators this fall to take action without Congress to make millions of Americans eligible for lower interest rates. However, there are still millions of responsible Americans who continue to face steep barriers to low-cost, streamlined refinancing. So the President is now calling on Congress to open up opportunities to refinancing for responsible borrowers who are current on their payments.

 Under the proposal, borrowers with loans insured by Fannie Mae or Freddie Mac (i.e. GSE-insured loans) will have access to streamlined refinancing through the GSEs. Borrowers with standard non-GSE loans will have access to refinancing through a new program run through the FHA. For responsible borrowers, there will be no more barriers and no more excuses.

 Key components of the President’s plan include:

Providing Non-GSE Borrowers Access to Simple, Low-Cost Refinancing: President Obama is calling on Congress to pass legislation to establish a streamlined refinancing program. The refinancing program will be open to all non-GSE borrowers with standard (non-jumbo) loans who have been keeping up with their mortgage payments. The program will be operated through the FHA.

 Simple and straightforward eligibility criteria: Any borrower with a loan that is not currently guaranteed by the GSEs can qualify if they meet the following criteria:

They are current on their mortgage: Borrowers will need to have been current on their loan for the past 6 months and have missed no more than one payment in the 6 months prior.

They meet a minimum credit score.Borrowers must have a current FICO score of 580 to be eligible. Approximately 9 in 10 borrowers have a credit score adequate to meet that requirement.

 They have a loan that is no larger than the current FHA conforming loan limits in their area: Currently, FHA limits vary geographically with the median area home price – set at $271,050 in lowest cost areas and as high as $729,750 in the highest cost areas

The loan they are refinancing is for a single family, owner-occupied principal residence.  This will ensure that the program is focused on responsible homeowners trying to stay in their homes.

 Streamlined application process: Borrowers will apply through a streamlined process designed to make it simpler and less expensive for borrowers and lenders to refinance. Borrowers will not be required to submit a new appraisal or tax return. To determine a borrower’s eligibility, a lender need only confirm that the borrower is employed. (Those who are not employed may still be eligible if they meet the other requirements and present limited credit risk. However, a lender will need to perform a full underwriting of these borrowers to determine whether they are a good fit for the program.)

Program parameters to reduce program cost: The President’s plan includes additional steps to reduce program costs, including:

Establishing loan-to-value limits for these loans. The Administration will work with Congress to establish risk-mitigation measures which could include requiring lenders interested in refinancing deeply underwater loans (e.g. greater than 140 LTV) to write down the balance of these loans before they qualify. This would reduce the risk associated with the program and relieve the strain of negative equity on the borrower.

 Creating a separate fund for new streamlined refinancing program. This will help the FHA better track and manage the risk involved and ensure that it has no effect on the operation of the existing Mutual Mortgage Insurance (MMI) fund.

EXAMPLE: How Refinancing Can Benefit a Borrower With a Non-GSE Loan

 A borrower has a non-GSE mortgage originated in 2005 with a 6 percent rate and an initial balance of $300,000 – resulting in monthly payments of about $1,800.

  The outstanding balance is now about $272,000 and the borrower’s home is now worth $225,000, leaving the borrower underwater (with a loan-to-value ratio of about 120%).

 Though the borrower has been paying his mortgage on time, he cannot refinance at today’s historically low rates.

Under the President’s legislative plan, the borrower would be eligible to refinance into a 4.25% percent 30-year loan, whichwould reduce monthly payments by about $460 a month.

 Refinancing Plan Will Be Fully Paid For By a Portion of Fee on Largest Financial Institutions:The Administration estimates the cost of its refinancing plan will be in the range of $5 to $10 billion, depending on exact parameters and take-up. This cost will be fully offset by using a portion of the President’s proposed Financial Crisis Responsibility Fee, which imposes a fee on the largest financial institutions based on their size and the riskiness of their activities – ensuring that the program does not add a dime to the deficit.

 Fully Streamlining Refinancing for All GSE Borrowers:The Administration has worked with the FHFA to streamline the GSEs’ refinancing program for all responsible, current GSE borrowers. The FHFA has made important progress to-date, including eliminating the restriction on allowing deeply underwater borrowers to access refinancing, lowering fees associated with refinancing, and making it easier to access refinancing with lower closing costs.

 To build on this progress, the Administration is calling on Congress to enact additional changes that will benefit homeowners and save taxpayers money by reducing the number of defaults on GSE loans. We believe these steps are within the existing authority of the FHFA. However, to date, the GSEs have not acted, so the Administration is calling on Congress to do what is in the taxpayer’s interest, by:

 a.     Eliminating appraisal costs for all borrowers: Borrowers who happen to live in communities without a significant number of recent home sales often have to get a manual appraisal to determine whether they are eligible for refinancing into a GSE guaranteed loan, even under the HARP program. Under the Administration’s proposal, the GSEs would be directed to use mark-to-market accounting or other alternatives to manual appraisals for any loans for which the loan-to-value cannot be determined with the GSE’s Automated Valuation Model. This will eliminate a significant barrier that will reduce cost and time for borrowers and lenders alike.

 b.     Increasing competition so borrowers get the best possible deal: Today, lenders looking to compete with the current servicer of a borrower’s loan for that borrower’s refinancing business continue to face barriers to participating in HARP. This lack of competition means higher prices and less favorable terms for the borrower. The President’s legislative plan would direct the GSEs to require the same streamlined underwriting for new servicers as they do for current servicers, leveling the playing field and unlocking competition between banks for borrowers’ business.

 c.      Extending streamlined refinancing for all GSE borrowers:The President’s plan would extend these steps to streamline refinancing for homeowners to all GSE borrowers. Those who have significant equity in their home – and thus present less credit risk – should benefit fully from all streamlining, including lower fees and fewer barriers. This will allow more borrowers to take advantage of a program that provides streamlined, low-cost access to today’s low interest rates – and make it easier and more automatic for servicers to market and promote this program for all GSE borrowers.

 Giving Borrowers the Chance to Rebuild Equity in their Homes Through Refinancing:All underwater borrowers who decide to participate in either HARP or the refinancing program through the FHA outlined above will have a choice: they can take the benefit of the reduced interest rate in the form of lower monthly payments, or they can apply that savings to rebuilding equity in their homes. The latter course, when combined with a shorter loan term of 20 years, will give the majority of underwater borrowers the chance to get back above water within five years, or less.

 To encourage borrowers to make the decision to rebuild equity in their homes, we are proposing that the legislation provide for the GSEs and FHA to cover the closing costs of borrowers who chose this option – a benefit averaging about $3,000 per homeowner. To be eligible, a participant in either program must agree to refinance into a loan with a no more than 20 year term with monthly payments roughly equal to those they make under their current loan. For those who agree to these terms, the lender will receive payment for all closing costs directly from the GSEs or the FHA, depending on the entity involved. 

 EXAMPLE: How Rebuilding Equity Can Benefit a Borrower

 A borrower has a 6.5 percent $214,000 30-year mortgage originated in 2006. It now has an outstanding balance of $200,000, but the house is worth $160,000 (a loan-to-value ratio of 125). The monthly payment on this mortgage is $1,350.

 While this borrower is responsibly paying her monthly mortgage, she is locked out of refinancing.

By refinancing into a 4.25 percent 30-year mortgage loan, this borrower will reduce her monthly payment by $370. However, after five years her mortgage balance will remain at $182,000.

Under the rebuilding equity program, the borrower would refinance into a 20-year mortgage at 3.75 percent and commit her monthly savings to paying down principal.After five years, her mortgage balance would decline to $152,000, bringing the borrower above water.

 If the borrower took this option, the GSEs or FHA would also cover her closing costs – potentially saving her about $3,000.

 Streamlined Refinancing for Rural America: The Agriculture Department, which supports mortgage financing for thousands of rural families a year, is taking steps to further streamline its USDA-to-USDA refinancing program. This program is designed to provide those who currently have loans insured by the Department of Agriculture with a low-cost, streamlined process for refinancing into today’s low rates. The Administration is announcing that the Agriculture Department will further streamline this program by eliminating the requirement for a new appraisal, a new credit report and other documentation normally required in a refinancing. To be eligible, a borrower need only demonstrate that he or she has been current on their loan.

 Streamlined Refinancing for FHA Borrowers:  Like the Agriculture Department, the Federal Housing Authority is taking steps to make it easier for borrowers with loans insured by their agency to obtain access to low-cost, streamlined refinancing.  The current FHA-to-FHA streamlined refinance program allows FHA borrowers who are current on their mortgage to refinance into a new FHA-insured loan at today’s lower interest rates without requiring a full re-underwrite of the loan, thereby providing a simple way for borrowers to reduce their mortgage payments.

 However, some borrowers who would be eligible for low-cost refinancing through this program are being denied by lenders reticent to make loans that may compromise their status as FHA-approved lenders. To resolve this issue, the FHA is removing these loans from their “Compare Ratio”, the process by which the performance of these lenders is reviewed. This will open the program up to many more families with FHA-insured loans.

 Homeowner Bill of Rights

EXAMPLE: How Rebuilding Equity Can Benefit a Borrower:

The Administration believes that the mortgage servicing system is badly broken and would benefit from a single set of strong federal standards   As we have learned over the past few years, the nation is not well served by the inconsistent patchwork of standards in place today, which fails to provide the needed support for both homeowners and investors. The Administration believes that there should be one set of rules that borrowers and lenders alike can follow. A fair set of rules will allow lenders to be transparent about options and allow borrowers to meet their responsibilities to understand the terms of their commitments.

The Administration will therefore work closely with regulators, Congress and stakeholders to create a more robust and comprehensive set of rules that better serves borrowers, investors, and the overall housing market. These rules will be driven by the following set of core principles:

 Simple, Easy to Understand Mortgage Forms:Every prospective homeowner should have access to clear, straightforward forms that help inform rather than confuse them when making what is for most families their most consequential financial purchase. To help fulfill this objective, the Consumer Financial Protection Bureau (CFPB) is in the process of developing a simple mortgage disclosure form to be used in all home loans, replacing overlapping and complex forms that include hidden clauses and opaque terms that families cannot understand.

No Hidden Fees and Penalties:Servicers must disclose to homeowners all known fees and penalties in a timely manner and in understandable language, with any changes disclosed before they go into effect.

 No Conflicts of Interest:Servicers and investors must implement standards that minimize conflicts of interest and facilitate coordination and communication, including those between multiple investors and junior lien holders, such that loss mitigation efforts are not hindered for borrowers.

 Assistance For At-Risk Homeowners:

 Early Intervention: Servicers must make reasonable efforts to contact every homeowner who has either demonstrated hardship or fallen delinquent and provide them with a comprehensive set of options to help them avoid foreclosure. Every such homeowner must be given a reasonable time to apply for a modification.

Continuity of Contact:Servicers must provide all homeowners who have requested assistance or fallen delinquent on their mortgage with access to a customer service employee with 1) a complete record of previous communications with that homeowner; 2) access to all documentation and payments submitted by the homeowner; and 3) access to personnel with decision-making authority on loss mitigation options.

 on  Time and Options to Avoid Foreclosure: Servicers must not initiate a foreclosure action unless they are unable to establish contact with the homeowner after reasonable efforts, or the homeowner has shown a clear inability or lack of interest in pursuing alternatives to foreclosure. Any foreclosure action already under way must stop prior to sale once the servicer has received the required documentation and cannot be restarted unless and until the homeowner fails to complete an application for a modification within a reasonable period, their application for a modification has been denied or the homeowner fails to comply with the terms of the modification received.

 Safeguards Against Inappropriate Foreclosure

Right of Appeal: Servicers must explain to all homeowners any decision to take action based on a failure by the homeowner to meet their payment obligations and provide a reasonable opportunity to appeal that decision in a formal review process.

Certification of Proper Process:Prior to a foreclosure sale, servicers must certify in writing to the foreclosure attorney or trustee that appropriate loss mitigation alternatives have been considered and that proceeding to foreclosure sale is consistent with applicable law. A copy of this certification must be provided to the borrower.

The agencies of the executive branch with oversight or other authority over servicing practices –the FHA, the USDA, the VA, and Treasury, through the HAMP program – will each take the steps needed in the coming months to implement rules for their programs that are consistent with these standards.

Announcement of Initial Pilot Sale in Initiative to Transition Real Estate Owned (REO) Property to Rental Housing to Stabilize Neighborhoods and Improve Housing Prices

 When there are vacant and foreclosed homes in neighborhoods, it undermines home prices and stalls the housing recovery. As part of the Administration’s effort to help lay the foundation for a stronger housing recovery, the Department of Treasury and HUD have been working with the FHFA on a strategy to transition REO properties into rental housing. Repurposing foreclosed and vacant homes will reduce the inventory of unsold homes, help stabilize housing prices, support neighborhoods, and provide sustainable rental housing for American families.

 Today, the FHFA is announcing the first major pilot sale of foreclosed properties into rental housing. This marks the first of a series of steps that the FHFA and the Administration will take to develop a smart national program to help manage REO properties, easing the pressure of these distressed properties on communities and the housing market.

 Moving the Market to Provide a Full Year of Forbearance for Borrowers Looking for Work

Last summer, the Administration announced that it was extending the minimum forbearance period that unemployed borrowers in FHA and HAMP would receive on their mortgages to a full year, up from four months in FHA and three months in HAMP. This forbearance period allows borrowers to stay in their homes while they look for jobs, which gives these families a better chance of avoiding default and helps the housing market by reducing the number of foreclosures. Extending this period makes good economic sense as the time it takes the average unemployed American to find work has grown through the course of the housing crisis: nearly 60 percent of unemployed Americans are now out of work for more than four months.

These extensions went into effect for HAMP and the FHA in October. Today the Administration is announcing that the market has followed our lead, finally giving millions of families the time needed to find work before going into default.

12-Month Forbearance for Mortgages Owned by the GSEs: Fannie Mae and Freddie Mac have both announced that lenders servicing their loans can provide up to a year of forbearance for unemployed borrowers, up from 3 months. Between them, Fannie and Freddie cover nearly half of the market, so this alone will extend the relief available for a considerable portion of the nation’s unemployed homeowners.

 Move by Major Servicers to Use 12-Month Forbearance as Default Approach: Key servicers have also followed the Administration’s lead in extending forbearance for the unemployed to a year. Wells Fargo and Bank of America, two of the nation’s largest lenders, have begun to offer this longer period to customers whose loans they hold on their own books, recognizing that it is not just helpful for these struggling families, but it makes good economic sense for their lenders as well.

 A New Industry Norm:With these steps, the industry is gradually moving to a norm of providing 12 months of forbearance for those looking for work. This is a significant shift worthy of note, as only a few months ago unemployed borrowers simply were not being given a fighting chance to find work before being faced with the added burden of a monthly mortgage payment.

 Joint Investigation into Mortgage Origination and Servicing Abuses

 The Department of Justice, the Department of Housing and Urban Development, the Securities and Exchange Commission and state Attorneys General have formed a Residential Mortgage-Backed Securities Working Group under President Obama’s Financial Fraud Enforcement Task Force that will be responsible for investigating misconduct contributing to the financial crisis through the pooling and sale of residential mortgage-backed securities. The Department of Justice has announced that this working group will consist of at least 55 DOJ attorneys, analysts, agents and investigators from around the country, joining existing state and federal resources investigating similar misconduct under those authorities.

 The working group will be co-chaired by senior officials at the Department of Justice and SEC, including Lanny Breuer, Assistant Attorney General, Criminal Division, DOJ; Robert Khuzami, Director of Enforcement, SEC; John Walsh, U.S. Attorney, District of Colorado; and Tony West, Assistant Attorney General, Civil Division, DOJ. The working group will also be co-chaired by New York Attorney General Schneiderman, who will lead the effort from the state level.  Other state Attorneys General have been and will be joining this effort.

 Putting People Back to Work Rehabilitating Homes, Businesses and Communities Through Project Rebuild

 Consistent with a proposal he first put forward in the American Jobs Act, the President will propose in his Budget to invest $15 billion in a national effort to put construction workers on the job rehabilitating and refurbishing hundreds of thousands of vacant and foreclosed homes and businesses. Building on proven approaches to stabilizing neighborhoods with high concentrations of foreclosures – including those piloted through the Neighborhood Stabilization Program – Project Rebuild will bring in expertise and capital from the private sector, focus on commercial and residential property improvements, and expand innovative property solutions like land banks. 

 In addition, the Budget will provide $1 billion in mandatory funding in 2013 for the Housing Trust Fund to finance the development, rehabilitation and preservation of affordable housing for extremely low income families. These approaches will not only create construction jobs but will help reduce blight and crime and stabilize housing prices in areas hardest hit by the housing crisis.

 Expanding HAMP Eligibility to Reduce Additional Foreclosures and Help Stabilize Neighborhoods

To date, the Home Affordable Mortgage Program (HAMP) has helped more than 900,000 families permanently modify their loans, providing them with savings of about $500 a month on average. Combined with measures taken by the FHA and private sector modifications, public and private efforts have helped more than 4.6 million Americans get mortgage aid to prevent avoidable foreclosures.Along with extending the HAMP program by one year to December 31, 2013, the Administration is expanding the eligibility for the program so that it reaches a broader pool of distressed borrowers. Additional borrowers will now have an opportunity to receive modification assistance that provides the same homeowner protections and clear rules for servicers established by HAMP. This includes:

 Ensuring that Borrowers Struggling to Make Ends Meet Because of Debt Beyond Their Mortgage Can Participate in the Program: To date, if a borrower’s first-lien mortgage debt-to-income ratio is below 31% they are ineligible for a HAMP modification. Yet many homeowners who have an affordable first mortgage payment – below that 31% threshold – still struggle beneath the weight of other debt such as second liens and medical bills. Therefore, we are expanding the program to those who struggle with this secondary debt by offering an alternative evaluation opportunity with more flexible debt-to-income criteria.

 Preventing Additional Foreclosures to Support Renters and Stabilize Communities:We will also expand eligibility to include properties that are currently occupied by a tenant or which the borrower intends to rent. This will provide critical relief to both renters and those who rent their homes, while further stabilizing communities from the blight of vacant and foreclosed properties. Single-family homes are an important source of affordable rental housing, and foreclosure of non-owner occupied homes has disproportionate negative effects on low-and moderate-income renters.

Increasing Incentives for Modifications that Help Borrowers Rebuild Equity

Currently, HAMP includes an option for servicers to provide homeowners with a modification that includes a write-down of the borrower’s principal balance when a borrower owes significantly more on their mortgage than their home is worth. These principal reduction modifications help both reduce a borrower’s monthly payment and rebuild equity in their homes. While not appropriate in all circumstances, principal reduction modifications are an important tool in the overall effort to help homeowners achieve affordable and sustainable mortgages. To further encourage investors to consider or expand use of principal reduction modifications, the Administration will:

 Triple the Incentives Provided to Encourage the Reduction of Principal for Underwater Borrowers:To date, the owner of a loan that qualifies for HAMP receives between 6 and 21 cents on the dollar to write down principal on that loan, depending onthe degree of change in the loan-to-value ratio. To increase the amount of principal thatis written down, Treasury will triple those incentives, paying from 18 to 63 cents on thedollar.

 Offer Principal Reduction Incentives for Loans Insured or Owned by the GSEs: HAMP borrowers who have loans owned or guaranteed by Fannie Mae or Freddie Mac do not currently benefit from principal reduction loan modifications. To encourage the GSEs to offer this assistance to its underwater borrowers, Treasury has notified the GSE’s regulator, FHFA, that it will pay principal reduction incentives to Fannie Mae or Freddie Mac if they allow servicers to forgive principal in conjunction with a HAMP modification.

The due-on time bomb

By Jeffery Marino • Jan 6th, 2012 • Category: Feature Articles, January 2012 Journal, Journal Articles

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This article warns of the impending era of due-on-sale enforcement that will befall the real estate market in the approaching age of rising interest rates.

Interest rates — WWII to Reagan and back

At the dawn of America’s postwar economy, interest rates were at historic lows. In 1951, the 30-year fixed rate mortgage (FRM) hovered around 4%, as it did for most of that decade. The personal savings rate was also historically low.

Despite the fact that personal wealth was still recovering from the body blow of the Great Depression, jobs were in great abundance. The advent of the military-industrial complex Eisenhower so distrusted (WWII to Vietnam), coupled with the need to restore America’s crumbling infrastructure led to surging employment, booming gross domestic product (GDP) and a seemingly unquenchable demand for houses, goods and services.

By 1965, the constricted money supply set interest rates on a long upward trajectory, and inflation started to soar under the wartime economy. Almost a quarter of all the savings and loan associations (S&Ls) in California were in serious financial turmoil. The S&Ls had lent on anything to everyone during the booming early ‘60s, and had done so at rates that did not adequately cover the risk of future inflation, eventually causing their total demise by the early ‘90s.

The result was not unlike what we saw in 1991 and 2008. Foreclosures spread like wildfire, and rather than receiving a bailout, a large number of California-based S&Ls were allowed to collapse. Lenders were forced to acquire property by foreclosure, and lender insolvency ran rampant. Thus, merger upon merger occurred. Most often, mergers were induced by governmental pressure (and money) to keep weak lenders from going under or being taken over at greater expense to the government (sound familiar?).

Inflation, Boomers and interest rate uprisings

By the early 1970s the Baby Boomers had arrived and were setting the economy on fire. The Federal Reserve (the Fed) in those days was not as alert and proactive as our current Fed, allowing inflation to hit double digits, turning homeownership into a hedge against inflation-investments. In 1979, the new Fed Chairman promptly shut down the over-exuberant economy by raising short-term rates to 18% plus, on and off for two years before the Fed single handedly brought inflation under control.

Once this occurred, mortgage rates began a long and steady 30-year decline, until they reached the point of absolute zero that we see today. Today, we are right where we were at the end of WWII in terms of low interest rates and inflation, but not in terms of having come out of the recession as occurred by the end of that economic period. [For a comprehensive financial history of the U.S. real estate market spanning WWII to the present, see the first tuesday publication Real Estate Finance, Fifth edition, Chapters 1 and 2.]

Interest rates at the real bottom

Based on the current historically low 30-year FRM interest rate, many industry pundits have speculated about the future fluctuations of the interest rate and its effect on prices. The prevailing question in the press has been oversimplified and uninformed: will the interest rate go any lower? This query is typically accompanied by the seemingly eternal and intrinsically related refrain, when will prices increase? [For current real estate-related interest rate data, see the December 2011 first tuesday article, Current market rates.]

The simple answer to the first question is: no, rates cannot go any lower. This, of course, answers the second question in the negative, since prices will only increase if mortgage ratesdrop, (or production of goods and services increases beyond the rate of inflation).

Will the interest rate go any lower? The simple answer is no.

Allow us, dear reader, to explain.

Although the current 30-year FRM interest rate hovers around 4%, the real interest rate is effectively zero. Thus it is impossible for the rate to go any lower, lest lenders start paying borrowers to accept their loan funds — a fantasy that is possible but highly improbable (called going negative by bankers).

In order to understand the re­­ason why mortgage rates are now essentially zero, one must first grasp the concept of real vs. nominal interest rates — a fairly straightforward concept. Essentially, the nominal interest rate is the mortgage rate advertised by lenders, stated in the note and reported by the media. In theory, the nominal rate includes a premium rate sufficient to account for expected future consumer inflation.

In turn, the real rate of interest is the nominal interest rate minus the current rate of inflation. Since the core rate of inflation is currently 2%, the real interest rate of today’s 30-year FRM is 2%.

Editor’s note — The rate of inflation used for this analysis reflects the core rate of inflation, an adjusted index excluding food and energy prices, which are volatile and properly adjusted out of inflation calculations. The reason: commodities return to their mean-price level leaving little long-term effect on the core rate of consumer inflation. Evidence: Gasoline and copper prices are all over the place every few years, but your mechanic has been charging you $100 n hour since the ‘80s.

Additionally, the core rate of inflation is reported monthly and has fluctuated marginally above and below 2% for the past two decades. Thus, we use the 2% figure here for the sake of clarity and simplicity, acknowledging that it is the targeted level of inflation set by the Fed for their long-standing monetary policy. The same is true for the mortgage rate discussed in this article, which has marginally fallen below and risen above 4% for the past year or so and will most likely do so well through 2013.

The zero lower bound and the liquidity trap

But 2% is not zero, as we have claimed the effective rate on the 30-year FRM to be. This vestigial 2% is eaten up by two inexorable factors: the discount rate and the risk premium rate (to cover defaults) added to mortgages, a margin to assure profitability. The discount rate (the rate paid by lenders to borrow funds directly from the Fed) is currently at .75%, which puts the effective rate of return on a 30-year FRM at 1.25%. This just happens to be the approximate risk premium added to 30-year mortgages, as they are typically pegged at 1.4% or so higher than the 10-year Treasury note (T-note) in order to effectively capture investor dollars for mortgages that might otherwise be invested in “risk-free” government bonds.

The current real rate of return for the 10-year T-note runs just a few tenths of a percentage point above the core rate of inflation. This is due mainly to excessive world-wide currency risks which have driven the yield on the T-note down, the U.S. dollar being the safe haven delivering the real estate industry this benefit.

Thus, the real interest rate on the 30-year FRM is currently zero, offering only a high enough nominal yield for lenders and their investors to keep pace with inflation and retain their money’s purchasing power until they find themselves clear of this rippling global downturn.

It is axiomatic, dear reader. Just like bonds, mortgage rates operate in inverse proportion to prices. As rates go down, prices go up, and vice versa.

Just like bonds, mortgage rates operate in inverse proportion to prices. As rates go down, prices go up, and vice versa.

Since rates literally cannot go down, prices will not go up until the money supply is unleashed and consumers begin to spend. Although money in the form of loan funds is basically free, no one, especially lenders, is spending it — a phenomenon known as the liquidity trap.

In order for prices to rise any further, we must first pass through a full cycle of rising-then-falling interest rates. As inflation picks up, mainly due to the trillions of dollars of cash the Fed has injected into the private banking system since 2007, and as we gain more jobs into 2014-15, interest rates will be driven up by the Fed to withdraw excess liquidity (money) pumped-in to keep the economy from tanking.

The question is not if, but when — and by how much will interest rates rise to keep the economy from recovering at breakaway speed.

The due-on time bomb: be aware and ready

Now here is the rub. The fact that interest rates have bottomed-out and will begin increasing over the next several years is a paradigmatic game-changer for the real estate market. That includes you, our readers.

Since the interest rate spike of the 1980s, when rates peaked at 18%, interest rates have been on a steady decline, and have come to rest at a point beyond which they cannot go. An entire generation of homebuyers has become accustomed to not only low interest rates, but interest rates that have continuously gotten lower.

Thus, the notion of a double-digit interest rate on a 30-year FRM is unthinkable to most potential homebuyers. Aside from the negative implications that zero-bound rates carry for a recovering economy that depends on consumer confidence, a surge in the heretofore receding interest rate tide heralds the resurrection of a most insidious barrier to real estate transactions: enforcement of the due-on-sale clause. [For a comprehensive overview of the due-on-sale clause inherent in all trust deeds, see the March 2011 first tuesday article, The due-on-sale clause: barricading homeowners since ’82.]

Events to occupy a broker’s mind

Thus, while the housing market lingers in the purgatory of low interest rates and low prices, waiting for interest rates to begin their inevitable rise, there exists a due-on time bomb ticking silently just below the surface of real estate sales volume numbers. The bomb will not explode all at once but in slow motion, as rates will rise gradually with creeping inflation and as the employment rate picks up.

This calculus is well-known to brokers who arranged sales during the high interest rate period of 1977 to 1982, a period during which the due-on clause was held at bay by the courts and the strong-arm sheriff – until deregulation let the bears of Wall Street roam at will and build strength, gorging themselves on profits for the last 30 years.

However, once those who have been lucky enough to secure a mortgage at today’s low rates are ready to sell and interest rates have begun to rise (likely during a 2016-forward real estate boomlet), prospective buyers everywhere will be asking the same question that most did in the late ‘70s and early ‘80s: how can I assume the seller’s low-rate loan? At that moment, real estate brokers and agents will have to take the opportunity to educate their client buyers and sellers about the due-on-sale clause included in every trust deed.

Since most buyers in the near future have been raised on falling interest rates, they have had no occasion to learn the term due-on. Brokers have forgotten; agents have not been trained.

Dangerous assumptions

Buyers in the real estate market of the last 30 years would not be interested in assuming the seller’s loan, as they were almost always more likely to get a lower rate on a freshly originated loan.

The advent of Fair Isaac Corporation (FICO) scoring and the fears it engendered added to the lender’s dream of constantly rolling over mortgages to get origination fees (and prepayment penalties). In the off chance a real estate transaction took place which could trigger due-on enforcement, a lender would never exercise their right to call the loan; that would be insisting on making a new loan at a lower rate than the existing loan’s rate — something that will never happen as lenders have one goal only: profit. [For an analysis of the fallacy of FICO scoring, see the December 2011 first tuesday article, The FICO farce.]

As mortgage rates go up, as we have shown they will, lenders will not only pose a barrier to new deals, but they will also begin to call loans en masse on all “subject to” sales transactions, conduct creating high potential for another lender-instituted housing bust of a completely avoidable variety.

They will even sue brokers and agents in retaliation for assisting buyers and sellers in Wellenkamp-style loan assumptions, demanding payment of retroactive interest differential (RID) at the increased market rate over the note rate from the date of closing, a sum they cannot collect when they call the loan on discovery of the sale. [Wellenkamp v. BofA (1892) 12 C2d 212 (Disclosure: the legal editor of this publication was the attorney of record for the plaintiff in this case.)]

Who’s manning the ship?

What can be done to protect the housing market from the unbridled lender dominance instituted by the Garn-St. Germain Federal Depository Institutions Act of 1982 (Garn) and essentially ignored by lenders, brokers and principals ever since?

First, awareness of the deleterious effects of due-on enforcement (especially to a recovering economy and Multiple Listing Service (MLS) housing sales volume) must be developed amongst the professional gatekeepers of the real estate industry who have more at stake than padding their bottom line (read: brokers and agents who deal in real estate as their vocation).

This awareness must then coalesce into political action agitating for the repeal of Garn St. Germain due-on enforcement — for without repeal nothing can change. The momentum for such an action is already building with focus on mortgage lenders by elements of the Occupy Wall Street (OWS) movement. Do not ignore the increasing national consciousness that the successes of the 1% are now systemically integrated into the guts of our political system. [For more information real estate professional involvement in the OWS movement, see the October 2011 first tuesday article, Unions occupy Wall Street — where are the Realtors?]

Enforcement of the due-on sale clause is a prime example of such institutionalized avarice. It benefits no one but lenders to the detriment of society at large, no longer justified as serving any social good as it was portrayed before Congress 30 years ago.

Begin agitating for change now, before rates start rising — once the great boulder begins rolling again, you and your sales volume will get crushed.

Copyright © 2011 by the first tuesday Journal Online – firsttuesdayjournal.com;
P.O. Box 20069, Riverside, CA 92516

Readers are encouraged to reproduce and/or distribute this article.

 

Copyright © 2011 by first tuesday Realty Publications, Inc. Readers are encouraged to reprint or distribute this information with credit given to the first tuesday Journal Online — P.O. Box 20069, Riverside, CA 92516.

About a month ago I sent you my recent Facebook postings. The response was so great I am doing it again. Enjoy.

If you would like to read them daily, go to www.DuaneGomer.com/DuaneGomerSeminars and press the like button. You will have to be registered with Facebook which will take you just a few minutes.

By the way, if you want to renew a Real Estate License or a Notary Commission or get a Sales or Broker License or MLO Courses, call 800-439-4909 or go to www.DuaneGomer.com. We are ready to help. That is our business.

BUSINESS GIFTS
One gift that has been well received by our clients is a year’s subscription to Sunset Magazine. 12 issues with your name on every issue. We have been receiving copies for years from Terry Yapp, Mission Viejo Realtor, and D.J. and I appreciate them greatly. One strong selling point. The cost is only about $16.00 per year. Well worth it. Other gifts we have used successfully are movie tickets, Danish Kringles, Gas Cards and James Salt Water Taffy.

CONGRATULATIONS LINDSEY
This month Lindsey Virginia Gomer gets her degree from CSUN with a Real Estate Major. She passed her DRE Sales test in June, 2010 and now has all her broker courses done. Since she has a four-year degree she needs no experience and will take her Brokers Test soon. Hopefully, she will follow in the footsteps of her father, David Gomer, also a CSUN Real Estate Major and now a Reverse Mortgage Specialist, and Grandpa Duane, a Real Estate Speaker. Look out world here comes Lindsey.

GREAT JOBS
A student said recently, “I would love your job, you just talk all day.” I’ve had some great jobs. One in Germany years ago was Athletic Director for USAF Germany, running Sports Events all over Europe. At Indiana University, I worked nights in the Girl’s Dorms making sandwiches, milk shakes, etc. Had a seminar student the other day who had been one of my customers. BTW, doing seminars is not as easy as it looks. Most of the work is before you start talking. Still, it is the greatest of all possible jobs.

RECOMMENDATIONS
Thank you all who have written recommendations for my Facebook page Duane Gomer Seminars. It is sincerely appreciated. You are the best. BTW, is it against Facebook Policies to have a drawing for all my recommenders at the end of the year and give prizes? I am not an expert about all the Facebook Policies, and I sure don’t want to be eliminated from the program.

MOVIE AWARDS
Screen Actors Guild and Golden Globe nominations were released this week. It is clearly evident that five movies will be around at Oscar time. They are Help (civil rights in the South), Descendants (George Clooney), Midnight in Paris (Woody Allen), Bridesmaids (raunchy female comedy) and the Artist (an ode to silent movies). Fortunately Help and Bridesmaids are available on DVD and Midnight in Paris will be available next week. Other touted movies include Moneyball, Hugo, War Horse, My Week With Marilyn, Ides of March, 50-50. So many to see so little time.

R.E. AGENTS
I have an idea for you. Homeowners just paid their taxes December 12^th. They have heard all the gossip about distressed property sales with low prices and their assessed value is higher. Send your clients, friends, relatives, prospects, etc. information about your County Assessor’s website and URL where they can request a lowered assessment. Tell them that you can help them with comps. Some might appreciate the reminder and remember you when someone has a real estate problem.

NOTARY FACTS
1 – To become a Notary you have to pass a 30 question multiple choice exam with a grade of 70% plus do a 6 hour course. 2 – The maximum fee for each signature is $10.00. 3 – A real estate agent can notarize documents for a deal in which they are receiving a commission. 4 – People can look at your Journal by giving you a written request and paying $.30 per item. 5 – A person does not have to sign a trust deed in front of the Notary. Want to be a Notary? Call me – (800) 439-4909.

END OF THE YEAR
Time to estimate how much you’ll make in 2012. You need to know so you can determine whether you should pay more expenses this year or not and if possible whether you should take income this year or not. Also, make more charity donations in 2011 or wait till 2012. I am positive your religious donation recipients wouldn’t mind a little prepayment. You can pay your April Tax Installment, etc. No handy money. If you use a credit card in December, you can deduct the expense. Talk to your CPA before doing anything. I bet they might have time to talk right around this time of year.

TRAVELING
Years ago we could not get a room at our go-to hotel in Berkeley (The Durant) so they told us about a small hotel nearby. It was 9:00 pm-ish so we grabbed our 4 bags and walked into the small lobby. We didn’t see a reception desk. A couple came out from a side room; when we asked them where the desk was they said, “The hotel is next door this is our home.” As we retreated, I overheard one say, “We have to be sure to lock the door in the future.”

CREDIT CHECK
Go to http://annualcreditreport.com and get your free credit report. While there, get a credit report for your minor children. They have a Social Security Number and agencies are finding identity theft on children. If you want to buy a credit score, go to Trans Union or Equifax. Costs about $15.00 and would be informative. Stay away from freecreditreport.com. They are the largest seller of personal information of any URL in the US of A.

UNEMPLOYED
Saw a great Wall Street Journal article the other day about recommendations for the unemployed. A couple I liked: Volunteer at some charity, etc. to be active. I would add, find charities that have networking possibilities. Stay fit: Exercise more now that your have time. Can it help? Can’t hurt. Consider going 1099. Find something entrepreneurial that costs nothing to try, for example H&R Block. I have been 1099 for almost 50 years. Also, take a trip to North Dakota – great employment possibilities.

SHOPPING TRENDS
Retail sales are up. That is good news. Corporations have more cash on hand than anytime in history. That is good news. Duane Gomer Seminars is still in business and planning 2012. That is extremely good news. Surveys are showing that more people are buying presents for themselves this year then in recent years past. We deserve it. Another good thing about buying for yourself, the sizes, color, style, etc. should be correct.

SEASONS GREETINGS
First, Seasons Greetings to everyone and Happy Hanukah, Merry Christmas, Happy Kwanzaa, etc. For some foreign language speakers I say “Nollaig Shona Dhuit”; “Kala Christouyenna”; “Cestitamo Bozic”; “Mo’adim Lesimkha. Chena tova”;”Feliz Navidad”; “Vrolijk kerstfeest en een gelukkig nieuw jaar” ; “Merry Keshmish”; Mele Kalikimaka Ame Hauoli Makahiki Hou!”; Nadolig Llawen”; “Joyeux Noel”; “Buone Feste Natalizie” ; “Froehliche Weihnachten”;”Boas Festas”; God Jul”;”Gun Tso Sun Tan Gung Haw Sun”; “Merii Kurisumasu”; “Sung Tan Chuk Ha”; “Sawadee Pee Mai”; “Maligayang Pasko”. Sorry for any language we left out we will get them later. But best wishes to all. Duane and DJ Gomer.

NOISE
Relief is coming. Effective December 13, 2012 the Federal CALM Act goes into effect. What does this acronym mean? Commercial Advertising Loudness Mitigation. Finally, regulations that will penalize TV advertisers who crank up the sound on their commercials. If you have ever watched TV you know this. Commercial sound levels will have to be in a proper relationship to the sound levels of the shows they will be on. About time.

VETERANS
A Career Builder’s Survey illustrated that many companies are looking to hire military veterans. Why? 66% of the companies state that they are more disciplined; 65% understand teamwork; 58% are respectful, 56% leaders; 54% better problem solvers. I agree and another interesting stat – of all the different loan problems including Conventional, FHA, Fannie/Freddie, HOEPA etc., VA loans have the best payment records in every year that I have studied. Signed, Duane Gomer LTJG US Navy.

LOOKING FOR YOUR FIRST HOUSE
Rule #1 – There is no perfect house for you anywhere. Rule #2 – If you don’t find a perfect home with every item you want, remember Rule #1. My wife and I really looked for a long time in our last two purchases. We’ve been in our current house 14 years and growing and in our prior house 13 years. Was either home perfect and had every item from our “check list”? No, but they obviously had many attributes that we loved. So, you won’t find “perfect” but you will find “perfect” for you at this time.

ANNA POST
She is the great-great-grand daughter of Emily and the guru of etiquette. For Christmas thank you’s, she says even if you thank grandparents etc. in person send them a hand-written note. They will appreciate it. When is an email thank-you okay? Anna says, “When you are dealing with someone who does everything online.” A good theory I follow in business. If someone mails, I mail. If someone emails, I email. If someone phones, I phone. If someone faxes, I fax, etc. Seems to work for me. I hope.

REAL ESTATE NUMBERS
In the heyday there were 548,000+ licensees in California. Today there are under 440,000 and dropping about 36,000 a year. Divide 36 into 440 and you get in 12 years there will be no agents left. The number of DRE Loan Originators has dropped about 60%. What do you think this has done to an Education Company’s income? BTW, other companies have not faired well. For example, Kodak in 1988 had 145,000 employees; 2011 – 18,800 employees. Guess people aren’t buying film.

HAPPY NEW YEAR
Duane Gomer Seminars would like to wish you a Happy, Joyous, Profitable and Fulfilling New Year. As we did on December 25^th we want to express it in several other idioms. It is beyond my comprehension how many languages are spoken in our world. Shnorhavor nor Tari, Urte, Berri On, Xin Nian Kuai Le / Xin Nian Hao, Godt Nytar, Gelukkig Nieuwjaar, Bonne Annee, Prost Neujahr, Kali Chronia, Hauoli Makahiki Hou, Shana Tova, Buon Anno, Akemashite Omedeto, She Heh Bok Mani Bat Uh Seyo, Gody Nytarr, Sale No Mobarak, Szczesliwego Nowego Roku, Feliz Ana Novo, La Multi Ani, S Novim Godom, Feliz ano Nuevo, Gott Nytt Ar, Manigong Bagong Taon.

NEW JOBS
Everyone today was saying “Happy New Year” and in my mind I kept paraphrasing Tennessee Ernie Ford’s song, “16 Tons.” “You do 200 seminars and what do you get, another year older, and deeper in debt, Saint Peter please can’t I be free, I owe my soul to DRE.” Side note: In my long ago Certified Property Manager days, I once managed a building for Mr. Ford. Not one of my favorite memories. Some favorites: Ann Margaret and her husband Roger; Richard Carson, Johnnie’s brother; etc. Feliz año nuevo.

BIRTHDAYS
I am a Capricorn so my birthday is around now. As you know, identity security experts recommend that publishing your birthday and even more so your birthdate is not good, so I’m not. Some other ideas I learned again at an ID session. When away from home, stop newspapers and mail; no announcements of your absence; put some inside lights on timers in different rooms; don’t neglect front lawns; have friendly neighbors to check periodically, put locks on breaker cabinets and gates.

RESOLUTIONS FOR YOU IN 2012
Get a real estate license, you never know when you might need one; if you have a real estate license – study and get your Broker license; already have a Broker license – become a Notary; already a Notary and Broker – become a CRS (outstanding NAR designation), already a Broker, Notary and CRS, call me for more tips. Where should you do all this? Duane Gomer Seminars, your friendly education and information source; check www.DuaneGomer.com .

ROSE BOWL
When I lived in Wisconsin we would watch the Rose Bowl on black and white TV from our snowbound home and marvel at the weather and the beauty of the Rose Bowl. This year was another great tableau of the San Gabriel Mountains and now it is in living 3D color. Temperatures on the 1st dropped to -9 degrees in North Dakota and -53 degrees in Alaska. Do you think anyone out in the cold made plans to leave for California this week? Let’s hope they bring jobs with them.

I’M LUCKY
I am so fortunate that I’ve never been in a hospital for treatment, never had to wear a cast, etc. However, many friends and family are gone, and now I would love to ask them some questions – my Grandparents; “What do you remember about coming from Germany?” my Parents; “How did you two meet?”; my Uncle; “What was it like fighting in WWII, etc., etc., etc. My point, all you elderly (over 62) start recording and make your memories available to family and friends.

CLOONEY
I’m writing this note from memory so I may be off but: In the movie, “Descendants”, George Clooney is extremely wealthy. He said, “It is good to give your offspring enough so they can do something but not enough so they can do nothing.” Buffet and Gates seem to agree with that as they are donating so much to charity. I want to run out of breath and money at the same time working on my own short sales.

EPILOGUE

This newsletter is sent to my past students and other real estate professionals. If you are not interested in receiving them, please opt-out at the bottom of this email and please accept my apology for any inconvenience. I would like to mention that we receive many outstanding comments about our information. Try us, you might like us.

Duane
Real Estate, Notary Public & MLO Education
DRE Sponsor #0054 & NMLS Provider #1400388
Duane@DuaneGomer.com
23312 Madero St. #J, Mission Viejo, 92691
WEB: www.DuaneGomer.com
BLOG: www.DuaneGomer.info
FACEBOOK: Duane Gomer Seminars
(800) 439-4909 or (949) 457-8930
Office Hours: 9 a.m. to 3 p.m.

DRE LICENSE CONTINUING EDUCATION REVIEW SEMINARS

Cerritos – Wed., Feb. 22 – 9 a.m. Call 562-860-5656 to register by 2/20

Corona – Mon., Feb. 6^th – 9 a.m. Call 951-735-5121 to register by 2/3

Chula Vista – Mon., Jan. 23^rd – 9 a.m. Call 619-421-7811 to register by 1/20

Downey – Thurs., Feb. 9^th – 9 a.m. Call 562-861-0915 to register by 2/7

Laguna Hills – Thurs., Jan. 26^th – 1 p.m. Call 949-457-8930 to register by 1/24

Long Beach – Tues., Jan. 24^th – 9 a.m. Call 800-439-4909 to register by 1/19

Mission Viejo – Mon., Jan. 30^th – 9 a.m. Call 949-457-8930 to register by 1/27

Newport Beach – Wed., Feb. 15^th – 9 a.m. Call 949-722-2300 to register by 2/13

Oxnard – Fri., Feb. 10^th – 9 a.m. Call 805-981-2100 to register by 2/8

Is a strategic default un-American?

In their collective effort to encourage homeownership by any means necessary, the government and the media make no apologies for characterizing the strategically defaulting homeowner as an unpatriotic contradiction to capitalism.

As the jobless Lesser Depression continues wreaking havoc on home values and shriveling opportunities for the unemployed, speeches and press conferences by society’s figureheads continue emphasizing the importance of sending the “right message” to your family by paying back what you promised to pay.

Why aren’t those same figureheads pointing fingers at strategically defaulting businesses?

It seems a business that chooses to declare bankruptcy at the opportune moment to preserve cash flow is a wisely managed entity in the eyes of financial analysts everywhere, but a homeowner who does the same is labeled a cheat. The ability to strategically default with impunity is unique to businesses since the concept of morality in finance varies depending on whether it’s businesses or individuals involved.

The double standard

Political rhetoric aside, the decision to strategically default is not a moral decision. Every trust deed contains a put option, a contract provision requiring the lender to buy the home on any default. Homeowners are not committing a crime (or even a theological no-no) by exercising their put option, but merely making a wise financial decision in light of current economic conditions. [For more information regarding the put option, see the July 2011 first tuesday article, Strategic default smarts.]

Declaring bankruptcy is very commonly used in the business world as a sort of restart button; a chance to pare down debt before it gets out of hand. American Airlines recently declared bankruptcy, but not as a last ditch effort to salvage the company. They made a tactical decision to cut their losses, shed some debt, get competitive standing and preserve their earnings — and investors rewarded them for it.

Underwater homeowners can do the same, but most don’t because of the perceived social and seemingly moral consequences. Though businesses are commended for a strategic bankruptcy to avoid going under, homeowners who owe more than their homes are worth are warned not to employ the same wisdom for fear of public ridicule and a scarlet letter from their lender.

What’s ironic is organizations that criticize the strategic default have chosen to strategically shed their black-hole assets themselves. The Mortgage Bankers Association (MBA), whose president has publicly argued that strategic default “sends the wrong message” to society, recently completed a deliberate shortsale of its headquarters for millions of dollars less than the remaining principal balance of the building’s mortgage – no recourse of course.

Strictly business

While the government drones on about an underwater homeowner’s moral duty to faithfully pay his mortgage through thick and thin, lenders focus only on the bottom line when making financial decisions. Lenders could approve more modifications or principal reductions for the unemployed and beleaguered in the name of morality, but they choose profit (read: sound business decisions) over social responsibility every time.

Washington and Wall Street have deliberately confused homeowners by muddling the difference between moral decisions and business decisions. Lenders have no problem forgiving the debt of big business politicians because it earns them political clout. In the long run, it is more lucrative to stay in the good graces of politicians and business executives, which makes forgiving their debt a rational decision. [For more information regarding public policy and homeownership, see the October 2010 first tuesday article, Is homeownership a luxury or a necessity? and the March 2011 first tuesday article, The home mortgage tax deduction: inducing debt and stifling mobility.]

Debt forgiveness for one homeowner, on the other hand, means debt forgiveness for all homeowners, and that is just too much lost profit. [For more information regarding principal reduction, see the January 2011 first tuesday article, The inconsistent cramdown policy.]

Many homeowners unknowingly made bad decisions when they were encouraged by everyone to borrow money under subprime lending conditions. But lenders who made loans with adjustable interest rates and no down payments must also be held responsible for their part. As long as underwater homeowners keep faithfully paying their mortgages, lenders suffer a lesser degree of consequences for their irresponsible, overzealous behavior during the Millennium Boom.

De-occupying our homes

Lenders have made it clear they won’t budge; they fully expect homeowners to pay their mortgage no matter what. Homeowners who disagree must actively decide to stop paying their mortgage and walk away from the property, a mere exercise of the put-option written into their mortgage contracts.

The Occupy Wall Street (OWS) diaspora has migrated to foreclosed homes around the country, their motive being to stop lenders from taking homes through foreclosure. But if OWS really wants to vindicate underwater homeowners, they will picket to force lenders to take back the collateral no longer worth the amount borrowed. [For more information regarding OWS, see the December 2011 first tuesday article, OWS occupies foreclosures.]

If homeowners want to salvage their finances, they will stop believing the government- and lender-endorsed rhetoric of the good American borrower and stop making personally pointless mortgage payments.

The morality of strategic default: businesses vs. homeowners , 5.0 out of 5 based on 2 ratings There are currently 1 comments highlighted: 105543. - ft

Copyright © 2011 by the first tuesday Journal Online – firsttuesdayjournal.com;
P.O. Box 20069, Riverside, CA 92516

Readers are encouraged to reproduce and/or distribute this article.

Copyright © 2011 by first tuesday Realty Publications, Inc. Readers are encouraged to reprint or distribute this information with credit given to the first tuesday Journal Online — P.O. Box 20069, Riverside, CA 92516.

Tagged as: American Airlines, bankruptcy, black-hole asset, Cramdown, declare bankruptcy, MBA, Millennium Boom, modification, mortgage, Mortgage Bankers Association, Occupy Wall Street, OWS, Principal reduction, put option, Shortsale, strategic default, trust deed