Last week, mortgage industry representatives made an interesting admission to lawmakers:
Mortgage modifications aren’t doing the trick.
According to Tom Deutsch, Deputy Executive Director with the American Securitization Forum: “While critically important and increasingly employed, industry-led loss mitigation initiatives, including loan modifications, are not a panacea for declining home prices, mortgage defaults and foreclosures.”
Just like yesterday’s discussion of the massive changes to the $700 Billion Bailout Plan, this has direct ramifications for real estate investors. Please read onward…
I’m not a mortgage industry insider. I don’t know whether Mr. Deutsch’s statement is fact or a convenient creation of stubborn mortgage lenders. Either seems possible.
Nevertheless, some reasonably plausible explanations exist for the stated weakness of mortgage modifications as a foreclosure avoidance tool:
- According to Michael Gross, Bank of America’s managing director for loan administration loss mitigation, a lender doesn’t necessarily have the authority to modify every loan, since many loans are subject to contractual obligations with underlying investors (Bryan’s Interpretation: I suspect this is, in part, a coded way of saying that to modify a mortgage may inhibit the lender’s ability to profitably pay out on their deposit account obligations such as CD’s and savings accounts)
- Many home owners have multiple mortgages, and there’s no way for one mortgage holder to force the other mortgage holders to simultaneously modify their terms. (Bryan’s Interpretation: If Lender A and Lender B both have a mortgage against a property, there’s no way either of them are going to agree to take a loss unless the other lender takes a loss too.)
- Resistant borrowers who are in over their heads and just don’t care anymore are refusing to seek or accept mortgage modifications.
I think the real reason the mortgage industry is making a play to convince lawmakers that mortgage modifications aren’t working is in the hope that the government will offer further direct financial aid to the mortgage lenders. After all, the mortgage companies succeeded in convincing our Very Stupid Congress that the entire world would fall apart without government intervention, so why not try the same thing again.
As it turns out, a Very Stupid Congressman, Democrat Barney Frank of Massachusetts, was very quick to demonstrate his lack of ability to creatively think when he said: “I believe we now have a situation that requires legislation.”
Really, Barney? Have you ever met a problem that didn’t require legislation? Remember, Barney ole pal, you were instrumental in creating this subprime crisis (along with your buddy Democrat Senator Chris Dodd from Connecticut) when you legislatively paved the way for the subprime crisis and refused to do anything constructive to resolve it. But I digress…
Forgive the brief rant. It still galls me that there is overwhelming proof that Frank and Dodd were among the primary architects of this mess, yet they still have the nerve – and the full support of their party – in speaking out about it. Yet again, I digress…
Here’s the connection to real estate investors: Just like yesterday’s analysis of changes to the $700 Billion Bailout plan, the news that lenders don’t want to grant mortgage modifications will probably further pave the way for more short sales since short sales are actually a final solution for lenders rather than a temporary “stop the bleeding” type of action, and therefore probably (though not certainly) a preferred way to deal with the problem of defaulted mortgages.
One way or the other, I’m convinced that short sales are going to become a tool of supreme importance during the next 12-24 months.
That’s why I’m placing extremely high importance on finding some good short sale training to provide to you. I’m not a short sale expert, so I’ll seek out a bona fide expert on the topic and share them with you via free teleseminar and/or webinar as quickly as possible.
Do you have a preferred short sale expert from whom you’d like to hear? If so, sound off below. And also, tell us about your experience with mortgage modifications in recent months so we all know what is really happening in the real world of mortgages.
Thank you for reading RealEstate.BryanEllis.com!
*** BIG NEWS: Bryan will host the nation’s leading expert and educator on Short Sale Investing in a private FREE webinar on Tuesday, November 25. Click here to register (no cost).
Hi Bryan, your rant was justified by the actions of congress to cause the problem, then want to take more taxpayer money to throw at the problem. About short sales… last year, once I realized we were going into a new cycle and my sub to and lease option strategies were not working as well, and my money and savings were disappearing, I started looking for a solution. After examining all the different options, I decided to try short sales for a necessary infusion of cash. I started on one, it being my first, with only two basic sources of information. One was a booklet from Lou Brown, which was just basically all the documentation, and how to set it up. Then next was from audio clips of Dwan Bent Twyford discussing short sales. I began the process, made the calls, sent in the documentation, and made 45,000 on the first deal, although it took 3 months to get it closed. My new philosophy is stack em deep. I have closed 3 so far, and have 15 pending. The one I close this week will get me 25,000. Short sales have saved my butt. My daughter, (24 years old) who recently divorced and moved back in with me, started learning short sales, and is now closing on her first, and will have no need for her full time job making 8.50 per hour any longer.
When the county propery appraiser needed to raise revenues for Orange County Florida and the county approved 121 apartment developements to convert to condo’s, the value of condo’s fell like a lead balloon. I can guess a lot of politicians lined their pockets with green to get this passed. I was never made aware of the change until it had already been passed by the county commissioners. My $250,000. unit went to $160,000. practically over night due to this. My entire complex of 622 units have decreased by 50% in 6 months. If anyone needs to be rescued it’s the little guy like me who has just enough to keep from starving.
For a great expert on short sales you should speak with Claude Whited of Financial Health Coach down in Naples, Fl. He has 100′s of students.
I definately agree with short sales as being the way to go, but if you can find leads for short sales, you can still make a little money by referring deals to the investors who do shortsales while you figure it all out.
Update from Bryan —
EXCELLENT NEWS! We’ve secured an instructional session from one of America’s leading short sale experts and educators, Mr. Jeff Kaller. Click here for the details:
FREE Short Sale Training Webinar
This Loan Modification is a big scam, the attornies are the ones making the money by charging homeowners $3500.00 to do the paper work. if you are having problem paying the monthly mortagage , how can you find so much noney to pay the attorney? does the Barney Frank know about this ? Is yhis legal ?
Hi, Brian,
Wanted to weigh in a bit on short sales. I recently completed my first short sale with a minimum of problems. The thing that continues to nag at me: if the lender is willing to “short sell” a property to me, why shouldn’t the previous owner be given the opportunity to maintain a mortgage for the same amount? Obviously, there are many reasons homes end up in foreclosure, but certainly one of the most publicized is the adjustable rate mortgage. My guess is that the agreed-to sales price in many short sales would be a price that the previous owner could maintain assuming it was set up on a 30 year fixed (I’m sure that was the case in my recently-completed short sale). I think lenders and owners should share the pain this way: houses should be re-appraised now, which in most cases would mean the home would lose value. The lender should offer the owner a fixed rate loan for that amount. Net result: home owner loses equity but perhaps gains a loan that can be handled, homeowner is not displaced, lender loses what would have been generated with the ARM package but does not have to foreclose and incur all the costs connected with that.
I think Jim is right on the money. How many banks would have survived this crisis if they thought like Jim suggested (or if they would think at all)? How many owners would still be in their homes and have good loans? As front load interest weighs heavy on all loans and most of these loans are within 2 years of their creation, the lenders would still have years to generate profit. They will have lost out of some of the money that was generated from overly agressive strategies (greed) to refinance into pay option and Arm loans but they would be in business today and they would not have the resulting inventory woes that makes them insolvent.
Maybe thats a good suggestion for our government. Why should we the taxpayers pay for all the homeowner screwups and bank screwups if there are workable fixes like this to be had.
Pass legislation that requires re-valuation of home prices and then have lenders and owners engage in a new contract for the appraised value at 30 year fixed terms. Owners will have lost equity, their slap on the hands for getting into deals they couldn’t afford, and lenders would have lost interest, their slap on the hands for . . . many things, but all would be in place today and they would be able to survive the economic climate, which would not look like this if that had been the case. Hindsight perhaps? Still do-able perhaps?
One of the most serious problems I see over and over in this loan crisis is the almost total lack of how any of this works by most people. When I say most people, I mean everyone!
The banks are hamstrung by regulations, all kinds of regulations and don’t forget the political threats too. I could work at explaining all of them but it would take pages, a book really, to cover the basics. Now don’t think I am going to defend banks I am not. I will just cover a few things first.
One huge problem banks have right now it mark to market. To express this in a simple way it means as a property is sold through foreclosure or short sale, they have to revalue all their holdings to the “New” lower valuation implied by this sale in this regulation.
The net effect is it takes huge amounts of “paper” money off their books reflecting less gross equity by the bank. This is one of the wonderful federal regulations that have crushed the credit market.
Another incredible crusher is Sarbanes-Oxley, without a doubt one of the worst pieces of legislation ever written. This is a more hidden one that takes the CEO to new heights of don’t want to get involved and don’t want to do anything that might make the shareholders unhappy.
These are just two of the rules that have gone a long ways towards crushing our economy in recent years. For those that want to blame someone look up the many pushers of these two pieces of legislation and blame them or just blame the idiot congress!
Now on the other side I see all kind of just plain stupid ideas put out by both citizens and politicians. Whenever you hear someone saying, “why don’t they?” I can tell you it is because they never took the time to read a contract and learn what all the stuff in it really means. Hell, most of the people holding the contract and telling you where to sign don’t have any idea what is being said nor why it is being said.
I will share with you a pet bitch of mine. title insurance. It is good for less than 24 hours, it cost too much and only guarantees, and well it doesn’t really guarantee anything. What it does do is state for the time it takes you to sign the contract until midnight they haven’t found anything bad about the property. Oh and by the way, if they missed something it is not their fault and they are not liable anyhow. Sounds like a great investment to me, NOT!
However, I digress; many people have well-meaning and great sounding ideas that are completely illegal. Short sales are one example of well meaning ideas, why don’t they offer the same terms to the homeowner. Because the law states it, is fraud and will get you federal prison time. What about the family? Even bigger fraud and more prison.
ARM’s are another vicious idea by the banks, well not really if you study the concept of “redlining” and its prevention, you will find it is what caused the concept to come about. The banks were trying to find ways to not be blackmailed by politicians. Has it been well executed no not really but it is the “law of unintended consequences.” What one-idiot politician does will affect us all and it won’t be good.
Listening to the crap by the news and from congress and even some of the uninformed ideas in blogs just make a person want to cry. Either the congress cannot or will not remember what they wrote last year or they just do not have any idea what any of it really means.
I personally think they just do not care what it means as long as they can be the center of attention they are happy. My two cents.
The real problem here is we have a tax code everyone agrees is impossible to understand legally impossible to follow. Everyone makes some kind of mistake that breaks the law, even if they file a 1040 EZ form they probably fail some test in the code.
Well that is what we have in most of our lives now. We have so many laws, rules, and edicts; it is not possible to comply with them all. What happens is it often doesn’t show up in a big way until we have a crisis, then we find we cannot move without breaking the law, then we find out huge groups are screwed and we have to change everything to make it better.
Problem is we just pile more on top of the mess and make it worse next time.
Congress will not get us out of this, they just point at someone else and spin like tops.
Banks will not get us out of this because they do not care and are not allowed to do anything even if they did. The new President will not help because he thinks he is God’s gift to humanity and does not have a clue how business works not does he care. He has what he wants now and screw the rest of us.
So who is going to help? Good question, time is not on our side right now and compared to the rest of the world we have it good still. That will not last too long. I think this will work out if we can keep the politicians talking and not doing. If we can stop the Dems from spending all the money in the world and if everyone just takes a deep breath and understand most of this will happen no matter what we do now.
When you are in a wreck you can often see it happening and often wish it would stop but it doesn’t and won’t, you are just along for the ride at that time.
I just hope the ride isn’t too long.
I would like to recommend D.C. Fawcett’s Foreclosure Wealth Seminar. I purchased his home study course at the beginning of the year and just finished a 3-day bootcamp on the course this weekend.
Before purchasing his course, I researched programs for nearly 6 months and then choose his. With his program, you will learn everything (and I do mean everything) you need to know to complete a successful short sale.
One of the things I’m most impressed with is the sales scripts he provides. I have been in sales my entire career and have always HATED sales scripts, but that is NOT true with the scripts he provides. They’re excellent and you will know exactly what to say, not only the potential seller, but to everyone you will work with through the short sale process.
This is a complete course…all the insturctions, forms, sales scripts, checklists, etc are included. DC truly does know the short sale process and he holds nothing back in teaching his students.