Default On Purpose

Fannie Mae and Freddie Mac sued for fraud

mikem — Mon, 19 Dec 2011 22:50:23 +0000

Last week the SEC brought civil fraud charges against Freddie Mac and Fannie Mae executives. The SEC alleges top executives misled the public about subprime mortgages that the housing giants owned and insured.

I’m not sure what to think about the lawsuit. I think it’s good that some of these executives are being pursued for risky the kind of behavior that put all of us in this economic situation. On the other hand the SEC, Freddie Mac, and Fannie Mae are all federally funded government enterprises. Essentially as taxpayers we are paying for legions of attorneys to litigate a lawsuit in which the government is both the plaintiff and the defendant.

Since this is a civil suit and no one will spend any time in prison, what’s the best possible outcome? That the executives are liable for millions of dollars in damages? Match that against the cost of the attorneys, judges, and everyone involved I’m sure this trial costs millions of dollars. My point is that the lawsuit won’t change anything for long term investor who’s portfolio value dropped 40%, or the homeowner who owes more on the mortgage than the house is worth. Perhaps we should be devoting more time, energy, and money to helping the people and companies most affected by the economic downturn, not pursuing those who profited from it most.

What are your thoughts on all of this?

Federal government muddling housing recovery

mikem — Mon, 12 Dec 2011 19:12:38 +0000

Here’s a USA Today article that came out this morning. The article really illustrates several issues that we see on a consistent basis dealing with underwater properties here in Arizona. Regardless of what side of the aisle you stand on, there hasn’t been enough help to homeowners. Big banks and investment firms have received billions of dollars in bailouts to help them stay afloat. Conversely, the federal government has passed several programs to try and help homeowners; the problem is that these programs have been utterly ineffective in getting homeowners the help the need.

The federal government’s Home Affordable Modification Program (HAMP) was announced in 2009 and supposed to help 3,000,000 – 4,000,000 homeowners but has only given 883,076 homeowners loan modifications. To be honest, I’m surprised it has even helped that many people. I heard 10x more horror stories about loan modifications than I do success stories.

The federal government’s Home Affordable Refinance Program (HARP) has helped 928,570 homeowners while it was intended to help 4,000,000 – 5,000,000. One of the biggest problems with this program is that those homeowners who are moderately to severely underwater on their homes will not be eligible. This program isn’t helping the people that need help most; those homeowners who owe significantly more on their homes than they are worth (a market research firm puts the number of people in this situation at 11 million).

FHA Short Refinance program suffers from the same problems as HARP. The investor who owns the mortgage will lose money if a homeowner who is underwater refinances to a lower rate and principal. It doesn’t make sense for the investor to do this, so homeowners will be left out in the cold. The program has refinanced less than 400 mortgages while its goal is 500,000 to 1,500,000.

All the programs have also caused issues at the banks like Bank of America, Chase, Wells Fargo, etc. There are so many programs and so many people are calling in to try these programs that the banks simply don’t have enough man power to service everyone in a timely manner. Plus the programs are so complicated and change so frequently that it’s impossible for the banks to stay on top of everything.

The main issue at hand is the government is not doing anything to erase the negative equity that so many homeowners have. There needs to be a mechanism that allows over leveraged properties to be valued and mortgaged at current fair market value before this mess will be behind us.

What’s your solution to this mess?

Study: Underwater homeowners who walk are more credit savvy

nickm — Mon, 25 Apr 2011 18:27:51 +0000

“They’re getting their life in order,” says Andrew Jennings, chief analytics officer at FICO.

Click to view the USA Today article. The article examines the demographics of individuals who are choosing to strategically default.

nickm — Thu, 07 Apr 2011 17:59:58 +0000

Thousands of Americans like you are are choosing Strategic Default as the first step to rebuilding their financial freedom.

Do you owe more than your home is worth?
Are you late on your mortgage payments?
Are you facing a hardship that is making it difficult or impossible to make your payments?
Have you been notified of an impending foreclosure?

Know your options. The Default On Purpose team is a collection of legal and real estate professionals that serve the Phoenix metropolitan area in helping homeowners who are over leveraged on their property, facing foreclosure, or going through a hardship (whether it is financial, medical, or otherwise). We will provide you with the legal counsel you need so you are able to get out from underneath an underwater asset and get back on the road to financial freedom. The Default On Purpose team specializes in Strategic Default, Foreclosure Avoidance, Short Sales, and Loan Modification.

It’s not too late to contact someone. Turn to us for the Strategic Default guidance you need.

Short sales? Foreclosures? A different perspective on finding a great bargain in this market

nickm — Thu, 07 Apr 2011 17:58:26 +0000

One of the more recent trends we’ve been seeing in the current market from buyers is placing a large emphasis on finding the best possible ‘deal’ out there. I had a buyer tell me this week that while they found a home that was completely remodeled and 100% move-in ready, they were not prepared to ‘overpay and become another statistic.’ The property was certainly not overpriced; it was simply at the high end (not the highest) on the spectrum of comparable properties in the neighborhood. And rightly so – brand new stainless appliances, new granite countertops, new carpet and tile, fresh paint, landscaping, etc.

It’s interesting to see that a lot of buyers are more willing to now buy properties that need a little work, most of the time these being short sales and foreclosures. The trend becomes more interesting when you take into account that short sales and foreclosures usually take longer to close than a property being sold free and clear. But this is the state of the market; buyers are willing to forgo property today in order to get what they feel is the best possible ‘deal’ on property tomorrow.

But lets look at this picture from the financial perspective. There has been plenty of conjecture and opinion about where mortgage interest rates are going, but the common theme seems to be they are unstable and are eventually going up. Here’s a look at average mortgage rates over the past few years. Data provided by Freddie Mac

While there’s no doubt that rates are still low, the Mortgage Bankers Association predicts mid to high 5%s by the end of this year, and low 6%s in 2012. The National Association of REALTORS predicts the same kind of rise. Leading indicators of mortgage rates are also pointing to a rise in rates; the prime rate is expected to slightly rise, US treasury bond yields are expected to rise, as well as increasing uncertainty in the US governments role in buying and insuring mortgages. So what does this mean for buyers?

Let’s take the example of borrowing $200,000 at 5% versus 6% (ancillary costs like insurance and property taxes won’t be included in these calculations for simplicity). If you amortize the terms, you’ll find that the 6% loan payment is only about $125/month higher than the 5%.

However, when you look at the total interest paid over the life of the loan, the 5% will pay $186,511 in total interest while the 6% pays $231,676 in total interest! That’s a $45,165 difference! Even if you decide to sell the property after 10 years, you would have still paid almost $20,000 more in total interest on the 6% than the 5% (since interest payments compose the majority of the total payment in the early periods of the loan).

The higher the loan amount the more staggering the numbers. A $300,000 loan at 6% pays over $67,747 more in total interest than 5%. At $400,000, the difference is $90,329.

Will interest rates rise a full percent in the next month or two? Probably not. But they have risen .77% over the past 5 months. Even 5% vs. 5.77% with a $200,000loan amount, the 5.77% loan has $34,576 more interest built in than the 5%. At $300,00, the difference is $51,864. At $400,000, it’s $69,162.

These are pretty high numbers considering only a 5 month, .77% (that’s three quarters of a percent) change in interest rates.

My advice; don’t get so caught up in finding the property that is priced lowest in the subdivision or has the lowest $/square foot. Don’t let deal-shopping cloud your judgment from finding a home that you love. After all, you’re going to be living there for a while. Look around, but don’t spend an inordinate amount of time doing so. Remember that the final sales price of the home is only one piece of a larger puzzle. If you are a buyer in this market, find a home you love and you can afford. The terms of the loan are most likely going to have a much larger effect on the investment than the final sale price of the home.

51% of homeowners in Arizona are underwater

nickm — Tue, 29 Mar 2011 19:34:17 +0000

There has been a lot of debate in recent years over how much Arizona real estate prices have fallen, the ominous shadow inventory, overbuilding, when the housing market will recover, how many years supply of inventory exists, whether or not there will be a double dip, etc, etc. While these statistics and topics provide good banter and a powerful reminder of just how far we’ve fallen, they really only speak to the macro-level economy. What REALLY matters are the homeowners. The decisions of the millions of people in Arizona will ultimately be the solution of all the aforementioned problems.

So why do I mention this? CoreLogic, a business analytics and proprietary research company, recently released a report detailing exactly how many homeowners have negative equity (Negative equity, often referred to as “underwater” or “upside down,” means that borrowers owe more on their mortgages than their homes are worth). The report, (which can be found here) has a headline of DATA SHOWS 23 PERCENT OF BORROWERS UNDERWATER WITH $750 BILLION DOLLARS OF NEGATIVE EQUITY.

Wow, that is significant. However, those numbers are at a national level. Arizona has the 2nd highest negative equity percentage at 51%. FIFTY ONE PERCENT! That means more than HALF of every Arizona homeowner is paying for an investment with negative return. What would you do if your bonds or stock portfolio had a negative return since late 2006?

So what are these homeowners to do? The bankers on Wall Street have no intention of helping these people out. Why would they? They have an homeowner paying $1.75-$2.00 on an asset that’s worth $1.00. That’s a good deal to Wall Street. So it becomes clear that the homeowners of Arizona need to find a solution other than subscribing to an investment that returns negative. Default On Purpose aims to give information and support services so that homeowners are able to make educated decisions and sell their overleveraged properties. with no debt deficiencies, no taxable income, and minimal credit damage.

When we meet with clients who are looking to get out from underneath a property, we analyze 3 variables that will determine whether or not it is in the homeowner’s best interest to sell the property:

1. Debt deficiency

2. Tax issues

3. Credit damage

Issue #2 has become a hot button issue within the industry lately. Let’s take the example of a homeowner who sells their property for $200,000, but the mortgage balance is at $300,000. The bank decides to forgive the $100,000 debt deficiency. Now, the bank is mandated by federal law to issue the homeowner a 1099 for the forgiven debt. Because of The Mortgage Debt Relief Act of 2007, that $100,000 will not cause a taxable event.

However, this act expires January 1, 2013. With the average short sale taking 6-8 months (some taking even longer), this deadline is approaching rapidly (Isn’t it believable that banks will begin postponing foreclosures until after the deadline so that the delinquent borrowers will have more of an incentive to keep the mortgage current?. There has been a significant amount of urgency in the marketplace now that this deadline is approaching.

We believe that in order for homeowners to protect themselves, they need to being looking at their options, at the latest, early summer. Otherwise, homeowners are opening themselves to more liability than they need to. The only way Arizona will pull themselves out of this hole is by individual homeowners making educated financial decisions, and we believe providing this information enabling information can benefit everyone.

Are we at the bottom yet?

nickm — Wed, 29 Dec 2010 20:27:39 +0000

In an interview with Fortune Magazine, Senior Vice President at Realty Trac, Rick Sharga said that the amount of foreclosures in 2011 could top the already estimated 1.2 million foreclosures the market in 2010. Mr. Sharga still sees a possible 5% or more drop in prices as well.

Daryl Jones, an analyst at investment research firm Hedgeye says that with the tightness of underwriting guidelines for prospective borrowers, the increased amount of down payment the borrowers must put down and the current glut of inventory that we could see another 15% to 30% drop in prices. if this is true this means that home are still today far over priced and that any recovery is further down the road than we thought.

Obviously it is going to take significant job creation to really help us out of this down market and until that happens all we can do is hope that the continued drop in values is minimal.

I am not ok with simply waiting to see what happens in our economy and real estate market. I want to help anyone that wants to be helped. If you have been thinking about walking away from your home, or you are already in the foreclosure process and need help please contact us. We will guide you through the challenges and pit falls that come with walking away.

Here is the link to the information I gave above.

http://finance.fortune.cnn.com/2010/12/27/bull-vs-bear-will-housing-rebound/

Will The Foreclosure Mess Last for Years??

nickm — Fri, 08 Oct 2010 04:03:12 +0000

An article posted today on Bloomberg Businessweek is suggesting that with all of these so called fraudulent foreclosures that banks have been accused of doing, that there may be a wave a class action lawsuits filed by a number of different parties. State attorney General’s, homeowners in foreclosure, buyers that bought foreclosed properties and title companies are among the suggested plaintiffs.

With these potential lawsuits looming and bank postponing or simply canceling foreclosure sales in many states the possibility that years may go by before the suites are settled and or homes are actually foreclosed on with the proper documents with original signatures by bank executives is becoming a very real possibility.

This could cause the housing market to continue to be in the dumps with little or no recovery in sight. I am all for banks having to make sure that if they intend to foreclosure on a home that they have filed the appropriate paperwork, but let’s be honest here, dragging this out for another 5 to possibly even 10 years is not what we need to fix this market and economy. We need to get these overleveraged homes off both the lender’s book and our own. It is time to take matters into our own hands rather than waiting for these banks to tell us what they are going to do. There are other options out there if you don’t want to wait for a foreclosure that may or may not happen before the tax law that is protecting many of us expires. If you would like more information on alternatives to foreclosure please contact us.

The link for the story above is here….. http://www.msnbc.msn.com/id/39562824/ns/business-real_estate

Foreign Investors Are Snatching Up US Real Estate

nickm — Tue, 05 Oct 2010 16:56:37 +0000

An article released by the Associated Press has brought to light an interesting topic. There are investors from all over the world that are pouring their money and savings into the US real estate market. These people are not buying stock or shares in real estate hedge funds or investments but rather they are actually buying real property.

There are more than a few reason why this is happening right now. One, the exchange rates are becoming more and more favorable for foreign investors due to the sinking dollar. Two, when we look at many of the average price per square foot costs in our market compared to the markets of these investors, the deals are too irresistable for them to pass up.

So what does this say?? Well it looks like we are in the midst of another boom. We see it everyday, multiple offers on properties we list. Considering that these investors are buying homes for something like $50 to $75 per square foot in some cases, as compared to $300 to $500 per foot where some of the investors are from it’s no wonder there is a bit of a mad rush on homes.

Don’t believe all of the bad things you hear on TV and other media sources. Make no mistake that we are in a real estate boom, and there is no better time to buy low if you can, or liquidate if you need to. Buyers are out there and they are buying as fast as they can possibly write checks.

For more information here is the link to the original story.

http://www.msnbc.msn.com/id/39509509/from/toolbar

BofA, GMAC, and JP Morgan Postpone Foreclosures In More Than 23 States

nickm — Mon, 04 Oct 2010 04:25:42 +0000

It is coming to the attention of many State Attorney General’s as well as the mass media that some of our nations largest lending institutions have been foreclosing on homes without even reading the paperwork that is needed to complete the process. These banks have not been verifying the information and making sure the home that are slated to foreclose are the correct homes.

State Attorney General’s are turning up the heat on these lenders. There are formal investigations that are ongoing into the actions of lenders and the law firms hired by lender to facilitate the foreclosure sales. Some of the law firms are actually being investigated for providing fraudulent documents to the lenders pertaining to the foreclosure sales.

To see more on this story click the link below.

http://finance.yahoo.com/news/Bank-of-America-delays-apf-4073054242.html?x=0&sec=topStories&pos=5&asset=&ccode=