Monday, August 29, 2011

The Challenge with the Refi and the Big 5 banks

I am going to try covering a couple of real estate challenges, as I see them, that is happening with the Administration and also what the BIG 5 Banks are trying to achieve.
Let’s start off with the Administration: So what they are trying to push is for everyone to refinance at “Today’s Lower Interest Rate” but what does it really mean for the homeowner.

Firstly, I don’t hear anything about lowering the ‘Principal Balance’, the new lender ordering an appraisal and refinancing on that ‘New’ value… That’s what will help the people, not what you are suggesting.

So what does that mean?
It means, yes your payment will be lower (if you qualify… but I will come back to this in a minute) but you will still owe $600,000 on a home that is valued at $300,000…. Which means you will never be able to sell it without bringing a check to closing.

One of the main reasons for the “refinance” idea will be to ‘Re-Contract’ you into a mortgage that will hopefully be free of fraudulent assignments and transfers.
Which lets everyone off the hook for all their fraud and deceiving the homeowner with false forecloses etc.
As with the Administration Foreclosure Rescue packages which fell flat on their face, this will be much the same.
You will be able to apply to get a refinance; however we could probably count on your two hands how many people will actually qualify for the refinance… read the small print.

For the people in CA, Boxer has claimed that the Administration has Stolen her plan…. Watch out Californians this whole clock and dagger approach will affect you more than anyone.

So the next thing, Bank of America, Wells and JP Morgan are trying to pay off the government with $8.5 Billion dollars as a settlement to the fraud involvement in their foreclosure process.

Remember this:

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
Thomas Jefferson, (Attributed)
3rd president of US (1743 - 1826)

Saturday, July 16, 2011


I have been missing from the blog for some time but it's time to come back since there is so much new info to share.


This is a common question and there is I am sure many people with many opinions. Being an investor in short sales for many years, we are adding a new dimension to our business.

Our attorneys and research team have what we know to be the answer.
In case you don't know, when you buy your home you sign the mortgage /deed of trust and then you also sign the 'NOTE'

With purposes these should always be kept together.. However they are not... almost Never.
Homeowners get a letter through the mail stating that 'Your mortgage servicer has changed' and you need to start paying us.

It is being proven that more than 95% of these transactions are improperly assigned.
It usually because of one or more of the following:
1) The original note /mortgage is faulty
2) Assignment is incorrect
3) The assigning servicer did not have the authority to assign
4) The note and mortgage were not together at the time of assignment
5) Most notes and mortgages are digitally recorded and the original paper one has been destroyed.

Now even given time to locate the originals could they do it? The answer is probably not... and here is why.

Once your lender allows you to close and you have signed your life away for the next 30 years, the lender will not leave themselves wide open... so they take your loan and bundle it with a couple of thousand others and change its name to a "POOL"

So here is where the fun starts. The lender then takes the pool and sells it so they get their "loan money back" right away.

However what we have found out is not all the mortgages are A++ ratings as they were sold.... Hence the real estate market falling off a cliff.

Banks took loans split them up and sold it in their bundles "pools" good mixed with bad. Banks thought if an investor took let's say 10,00 loans but 1,500 of the loans were not very good rating.. i.e destined to go into default, they wouldn't mind or wouldn't notice because of the GOOD loans they had in the "pool"

However we all know how that turned out.

So back to the point of why cant the bank find your original note?

Simple way to explain it. Imagine a big bag of carrots... huge bag.. and every carrot was a mortgage note... now take all those carrots and put them into a juicer!! Put the juice put into a cup and sell the cup of carrot juice..... that's what banks do with your loan.

So unless you are David Copperfield tell me how you can turn the carrot juice back into your (carrot) loan???

Well think about it, once it is juiced is your carrot in this cup, that cup or the other cup.... chances are it is in all the cups... meaning no more carrot. Meaning no more NOTE.

I will be back giving you more insight to where the lies are.
Steve McAloon

Wednesday, August 12, 2009

Realtors React to Lenders non communication

Challenges hit the real estate market on a daily basis and one that is starting to raise it's head is the non communication from Lenders to Realtors.

So why all of a sudden are lenders not communicating with Realtors? The reason is properties not getting closed once an approval has been granted.

The main cause of the 'non closing issue' unfortunately is the second lien or subordinate lien holder not taking what the first position is allowing.

Let me explain. A 1st lien is owed $700k and a second is owed $125k, the values of the house is now $400k. The first has approved a short sale but has only authorized the 2ND to receive $3,000. The 2ND is saying they require 10% which equates to $12,500.

So what we now have is a deficit of $9,500... so who pays that.

The homeowner can't pay it, the new buyer doesn't want to pay it so either the Realtor has to give up their commissions to pay off the 2ND or the deal is dead.

when this scenario comes up 8/10 deals are dead.

I will follow up later to show how there is a way round this challenge and how Realtors can not only get their commission but a further 5%

Stay tuned.

Wednesday, February 11, 2009

The Truth about Short Sales.. from the homeowners side

So we recently covered the area of shorts sales from of lenders angle today we are going to look at it from a homeowners angle and how it effects them.
Firstly Mr. and Mrs. Homeowner please be careful there are many scams going on and I will try to point out a couple of them to keep you on your guard.
Lets take a scenario which a lot of people can concur with these days.
You bought a house in 2006, for $550,000 and you managed to get 100% financing doing a stated income loan, low or no docs.
your payment was $4,425 with a 2 year arm.
Present day: your interest arm has reset and your payment has shot up; your new payment is $5,900. WOW !
You don't earn enough to pay that extra amount so you default on your mortgage.
Month one leads into month two because you think 'I will do some over time plus Joe Blow owes me some money... I'll catch up' ... then month two goes into month three, then for most it's too late.
But now there is another days gone by your house may be worth $590,000 - $620,000 but the housing bubble has burst and your pride and joy home is now worth $310,000.
You can't refinance as there is no value in the property anymore, no lender in their right mind is going to finance that, plus now that the rules have changed you won't qualify financially anyway.
You are already 4-5 months behind so your credit reflects that too, so no lender is going to lend to you.
You can't sell the house as you would need to take $250k to the closing and if you had that kind of money you would not be behind on your payments... right ?
So what do you do?
If you had only one mortgage you could do a deed in leu, meaning you give the house back to the lender via a deed and you are released of your obligations.
But more than likely you will need to go down the route of a short sale in order to reduce the debt and get the house sold. Now there are pros and cons with doing a short sale and we will try cover most of them hear.
In my previous article you read why the banks will take a short sale but it has got to make sense as well as fall within their matrix criteria.
There are reputable companies that will do a great job doing your short sale but also there are people who will do a terrible job.
Being a home owner please bare in mind there is no guarantee that a lender will do a short sale on your property. Note: If anyone promises you that they can do the short sale. walk away, no one can guarantee you an approval as no one can control the banks, and most don't know the lenders criteria anyway.
Here is the thing every house will sell if it is at the right price, the trick is getting the lender to take that price.
If the short sale is completed successfully then the ripple effect can be extraordinary. So many people can be benefit. Lets look at the ripple when the house is sold.
The house will be sold to a third party ( happy new home owner), your lender gets paid, the new buyers lender has a new loan, survey, title, insurance, electric, cable, gas, water, trash, lawn guys,all the way down to your driving license address being changed which will cost around $20.
The short sale approval and close is bigger than most people think and stimulates the economy.
The homeowner also has a few benefits, the house is sold, gone are the pressures of foreclosure that are effecting so many families right now. The homeowner does not have a foreclosure on their credit which means in a few years when the housing market stabilizes again and the homeowner gets into a better financial status they could again become homeowners.
Ok, so I hear everyone shouting what about the deficiency, it will hound the home owner for years, they still have debt. May be true but there are a few different scenarios.
A good negotiator when talking to the lenders, will ask for zero deficiency towards the homeowner, if they have proved their case well most get approved without a deficiency.
You my still get a IRS 1099 for the difference between what you owed and what the house was sold for. This is a taxable event for the homeowner and will be reported as income.
A lender cannot give you a deficiency and a 1099, as the lender can't get paid via a deficiency and give you a 1099 for income if they are being made whole by the deficiency.
I would also tell you to get your CPA to find out about the 982 IRS form which is a forgiveness of indebtedness to the IRS and see if you qualify.
I would also check out the senate bill H.R 3648 dated Jan 4th 2007 which talks about the deficiency in regards to the IRS.
Do not listen to people who say you can stay in the house and pay rent , they will short sale it and pay off the debt.........9/10 it wont happen, they are pocketing the money and doing nothing.
Plus it is illegal to accept rent when a property is in default without those payments going towards the mortgage company. it is called equity skimming and comes with a side of 5-10 years in a local penitentiary.
Now if you had a HELOC (home equity line of credit) where you pulled money out of the house when things were good, you have another challenge. HELOC loans are qualified as a good loan as it was cash out. The lender is entitled to get that money back and can attach it to you personally, or another property that you own or even garnish wages.
Now what you can do is, if the debts is negotiated and they still want ....lets say $20k from you (as you borrowed $80k) then ask that it is reported positively on your credit report.
please bare in mind you did sign a promissory note for $80k and they gave it to you, now you are only being asked to pay back 20k of it. is not a bad deal really.
Most of the time it will be interest free for the duration.
If your mitigation company is successful in the negotiation of the mortgage debt and the house is sold, there is another challenge.
Most lenders FHA, Freddie MAc and Fannie Mae will not give the homeowner a new mortgage for between 2-4 years. Really its not a big deal in todays economy, personally I would want to wait for a few years anyway to let the housing market come back and rebuild my credit. before I move forward with another house purchase.
Until Next time.
Steve M
Please to not take this as legal advice. I am not an attorney or a CPA, please check with your own council before engaging with any of the information supplied. this is solely for reading purposes and the information is solely my opinion.

Saturday, January 24, 2009

The Truth about Short Sales

Firstly I would like to recommend to everyone to stop listening to people who talk about short sales but have never actually carried out one or if they have it may have been one or two.
I have carried out over 400 short sales and I will now give you a synopsis of the truths behind short sales.
Unfortunately, most people listen to realtors or attorneys when it comes to short sales and most of them do not understand the underlying details and the technicalities of a short sale. I hope by the end of this column that you will be enlightened in the world of short sales by the information in which I am about to give.
It has been said that the Short Sale is the new kid on the block, the new buzz word in real estate but the fact is real estate investors have been conducting short sales for many years.
So the question is why a bank would take less than what is owed and why are banks taking so long to make a decision on a short sale because we know that they don't really want the house back?
One of the main reasons a lenders do short sales is so they can recoup as much of the loss as possible but that's not all.
Loans are funded to lenders from 'pools' of money from Wall St and lenders are penalized for every foreclosure they have.
For every 100k that a lender forecloses on the lender is forbidden to lend 600k which must be held back.
I.e a loan for $400k goes to foreclosure the lender will lose $2.4 million dollars in lending power, which encompassed by the lost interest payments and foreclosure costs and now they have a house they don't want and cant sell.
When their loss of lending power hits a critical mass then Wall St, calls and tells them to get their portfolio ready and call the loans due. Hence the fall of many banks.
They are much better taking a loss now, no foreclosure, no house to worry about and they still have their lending power.
So now you know why they do short sales, now I will tell you why they don't do it.
Every loan is backed either by a private investor or Government body and every loan has an underwriting criteria.
FHA will accept 82% of the now appraised value as long as it does not exceed 63% of the total indebtedness which includes delinquent interest payments.
Freddie Mac and Fannie Mae will except 90-92% of the appraised value but have a loss severity cut off of 52%.
VA will accept 88% of the now value with a loss severity cut off of 64%.
Private investors can be more flexible but the above have strict rules. Prospecting buyers trying to go in for the kill and putting in ridiculous offers on properties and with real estate agents, not aware of the criteria, they are putting in offers and wondering why they don't get a reply. This is why most of the short sales are being held up.
Real estate agents and attorneys are not taught the criteria's within banks and lenders and that is why many of them fail.
I have personally had offers coming to me for $180k for a house that is worth $450k in today's market. I don't even waste my time presenting them.
I hope this gives you some insight to the short sale from a lenders point of view.
I will be posting and update with the short sale from the homeowners point of view towards the end of the week.
Steve M

Thursday, January 15, 2009

Gov Bailout

Today the Senate gave the OK to release the bailout funds as requested by Barrack Obama two days ago.
Looks like the Senate are on Barracks side already.

But the question remains the same; even after a $350 Billion dollar pay out nothing has changed in the housing market, so where is the money going.

Banks are being told repeatedly to ' start lending' but up until now still nothing, in fact it seems harder than ever to get a loan even for people who have money.

We recently had a client who was buying a $2.9 mil dollar home with a credit score of 825 and a down payment of $1 mil and the loan was declined.

PMI companies are hemorrhaging and no longer want to insure mortgage loans.
Mean while lenders are not doing themselves any favors by refusing to do short sales ( where a lender takes less than what is owed to satisfy the mortgage) and taking houses to foreclosure sale.
This makes no sense at all. firstly it costs the lender/investor over 70-80k to do a foreclosure, then when it goes to the sale they need to foreclose on the amount that is owed.
i.e If the lender is owed $400k for a property but the real value now is only $280k the lender must foreclose on the $400, which doesn't make sense since there will be no third party bidders willing to pay $400k for a house that is worth $280k.
So the lender takes the house back into REO ( real estate owned) and they try to sell it on the open market
this is where the lenders need their heads looked at. The short sale offer would probably be in the region of $260-$270k.
They could have saved themselves the hassle of foreclosure, stopped the bleeding on the loss and prevented the homeowner having a foreclosure on their credit.
Now they have an over leveraged property that no one wants, the homeowner is homeless and credit destroyed, and they have still lost money.
And the painful thing is they will try and sell it at the $260-$280k level... where is the sense.

If the 'People' are bailing out these banks they need to be held accountable and foreclosing properties when there is an alternative is no longer acceptable.

We need a body to over see the banks are making the right decisions for everyone and not themselves as usual.