We INTERRUPT this FORECLOSURE CRISIS for a COMMERCIAL Message by: Martin Andelman
Also copy and paste this link for another great article... http://mandelman.ml-implode.com/2009/11/a-hundred-thousand-homeowners-voices-of-hope-change/
So... commercial real estate has been the next financial shoe to drop for some time now.
The best thing about the meltdown in commercial property, for me anyway, is that it's just a variation on a now all too well-known theme: Underwater properties cannot be refinanced so when loans come due... it's foreclosure time. And foreclosures on underwater properties result in losses for banks and other investor groups, which in turn lead to federal bailouts, at least in cases where the bank is deemed TBTF - too big to fail, which should really be renamed TPCTF - or "too politically connected to fail". So, at least I don't have to spend time explaining what's causing the problem... capiche?
And although I don't know how successful such efforts are, some are now offering to work with lenders to get these loans modified, and its been talked about for the last year by those claiming knowledge of the space.
To be entirely candid, I expected to be hearing more about the impact of commercial property defaults tearing into bank balance sheets by now. A few months back I read about the John Hancock building in downtown Chicago being bought by a new investor group for something like $600 million less than the amount of the last mortgage, and I thought to myself... ouch, that's gotta' smart.
The commercial property meltdown is also familiar territory in that, even though there are hundreds of billions of dollars in underwater loans that will likely end up blowing up on bank balance sheets, Treasury Secretary Tim Geithner says there's nothing to worry about. According to Bloomberg, on October 29th of this year, while Tim was speaking at the Chicago Economic Club, he was asked whether defaults on commercial real estate could lead to another banking meltdown, he responded by saying:
"I don't think so. That's a problem the economy can manage through even though it's going to be still exceptionally difficult."
I don't care what anyone says... I love Tim. He's really is the best, don't you think? This is a guy that would have awoken on the morning that Katrina slammed into the Gulf Coast, looked out the window of his hotel, and said:
"It's a bit damp, but I'm sure it will clear up by this afternoon."
And, lest you think I exaggerate Tim's propensity to view the future through only the rosiest of lenses, Tim said what he did about the commercial real estate market on October 29th, just a few days AFTER Capmark Financial Group, one of the country's largest commercial real estate lenders, filed for bankruptcy protection. According to Moody's, Capmark has originated more than $10 billion in commercial property loans.
Capmark came into existence in 2006, when an obviously prescient group of investors, including KKR & Co., Goldman Sachs and Five Mile Capital Partners acquired GMAC's commercial-real estate business, renaming it Capmark. The group ended up with about 75% of the company, with GMAC and its employees holding onto the rest.
Capmark reported a second quarter loss of $1.6 billion this year, and finally filed for bankruptcy around the 24th of October. KK&R has already written down its investment in Capmark to... wait for it... zero. Maybe the guys at KK&R haven't spent enough time hanging out with Tim, because they sound like real downers.
The FDIC has also notified Capmark that it must raise capital in order to increase liquidity at its Utah bank, which also has roughly $10 billion in assets, although the bank is not included in Capmark's bankruptcy filing... don't ask me why. That's funny, isn't it? The FDIC going around telling other financial institutions about their need to raise capital and increase liquidity. I'm not saying it's wrong... that's the FDIC's job and all, but it's still funny to me. Sort of like Bernie Madoff going around telling fund managers what they need to do to remain in compliance with SEC regulations. Not exactly, but sort of.
Predictably, Capmark was just another company that relied heavily on selling the loans it made into the now non-existent, secondary market. When that market froze solid, as a result of the fabulous rating system we've developed in this country, and property values fell as a result, poor Capmark found itself stuck owing more to lenders than its loans were worth.
Doesn't that make you wonder why homeowners aren't described in that light?
Why is it that when Capmark goes bankrupt as a result of owing more on real estate than it's worth, as a result of the secondary (read: bond) market freezing solid, the company is described as being the victim of unfortunate circumstances beyond its control? But, when the same exact thing happens to a homeowner, that homeowner becomes an irresponsible individual who assumed real estate prices would go up forever, used his or her home as an ATM, and bit off more than he or she could chew.
The problem is that between now and 2013, more than $2 trillion in commercial mortgages will need to be refinanced, according to a Deutsche Bank report published last July. Commercial mortgages aren't like their residential cousins, because they typically have 5-10 year terms, as opposed to thirty.
With Moody's/REAL Commercial Property Price Index showing that commercial properties have declined in value by 40% since their peak in October of 2007, the owners of these properties are going to have a dickens of a time refinancing them, assuming they'd want to in the first place. Homes are all about emotion, but I'm not sure the guy who owns a strip mall center in Des Moines feels all that much of an emotional connection to his property. Maybe I'm wrong, we'll soon see.
The Philadelphia Inquirer recently quoted a guy by the name of Paul Halpern, who is a partner at Versa Capital Management of Philadelphia. Paul's view is that a lack of available financing for commercial real estate has prevented properties from trading at depressed values. He says that may help some lenders that would otherwise be facing huge write-offs. But then he got all Geithner-like when he said:
"By the time financing is available, asset prices will have recovered substantially, though not enough to save everybody."
Where do these guys get their sense of humor... or rather "hubris"? Rock on, brother Paul, rock on.
Okay, so does anybody have any questions about what's going on here? Commercial real estate, a couple of trillion worth, is now circling the drain and soon we're all going to hear that loud flushing sound we've all come to know and love, coming from banks all over the country.
I can't keep up with the number of banks that have closed their doors forever during this past year, the list grows too quickly, but I think we're at something in the neighborhood of 126, give or take, and you know that many of these regional banks... the ones not TBTF... have gone down as a result of their commercial loan portfolios.
Wilbur Ross, the at least somewhat creepy looking Chairman & CEO of WL Ross & Co. told CNBC on September 15th, that he sees perhaps 1,000 more regional banks going under in the months to come. But here's the rub... his characterization of this catastrophic forecast is that it will "create opportunities for investors". Oh, well in that case, let the rooting and cheering begin. Fail banks, fail! Fail banks, fail!
I'll say: What do we want?
You say: Opportunity!
I'll say: How will we get it?
And you say: By 1,000 banks failing in the next few months!
Ross also told CNBC that his company will be looking to pick up some of the smaller institutions that fail, but... and pay attention here... he said: "There will be opportunities, but we will need federal assistance in them, because what we're mainly looking for is stable sources of deposits, not so much the loan portfolio."
You might want to go back and read that last paragraph. What he just said, besides that he's looking to buy banks in order to get "federal assistance," which is a euphemism for you know what, but far more importantly in my view, he's looking to pick up "stable sources of deposits" at a discount. "Stable sources of deposits?" That sounds suspiciously like the bank accounts of regular folk... homeowners, if you will.
Does that say anything important to you, because to me it speaks volumes. Maybe "the people" have more power than they think. I wonder what would happen to Mr. Ross' interest if the stability of those coveted deposits was somehow lessened. I don't know, it's besides the point... just thinking out loud over here.
Okay, so there's not a whole lot of question that the implosion of commercial real estate is upon us, and that its growth as a destructive force over the next several years is assured. So, what is our government doing about this clear and present danger, to borrow a line from Tom Clancy?
It's simple, really. And predictable, too, I suppose. Just conjure up some new rules and regulations that allow banks to ignore the losses, what else? I mean, it's working fabulously well in the residential real estate market, so why quit on a winner?
According to the Halloween issue of the Wall Street Journal, federal bank regulators, including the FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency ("OCC"), have issued guidelines that allow banks to keep commercial property loans on their books as "performing," regardless of the true value of the underlying properties. It seems that the new guidelines were provided because of the government's concern about commercial property owners that are... are you ready for this...
"Experiencing diminished operating cash flows, depreciated collateral values, or prolonged delays in selling or renting commercial properties."
Oh, poor babies... Now I'm worried about them too. How could I not be? You have to feel sorry for anyone that's making less money, has property whose value has dropped quite a bit, and who's having trouble selling or renting their property as a result, right? I mean... UNLESS THEY'RE JUST REGULAR OLD HOMEOWNERS, THAT IS! If you're a homeowner in exactly that SAME position, for exactly the SAME reasons... well, excuse my French, but vous êtes baisé.
The guidelines also point out that "restructurings are often in the best interest of both lenders and borrowers," so what do you know about that?
Up until now, it seems, banks have been suppressing losses on commercial real estate the traditional way, which is by using a methodology known in financial circles as "extending and pretending," or as my mother would call it... "LYING". Basically, when a loan on commercial property comes due, the bank just pretends it hasn't come due yet. Analysts and investors criticize the practice of "extending and pretending" because they say that pretending the maturity date hasn't arrived will only put the pain off into the future.
Ya' think? You don't mean to say that pretending that a certain date hasn't yet arrived doesn't permanently stop that date from arriving, do you? Heaven forefend. I pretend that my birthday hasn't arrived every year, and I'm still not yet 24. Morons.
The Rush to Fabrication
I think "Mish" Shedlock said it best this past week when, commenting on the new rules that allow banks to ignore losses on commercial real estate, he said: "It should come as no surprise that the banks are rushing to adopt the new rules." And the Wall Street Journal concurred:
Banks are moving quickly to restructure commercial mortgages under new U.S. guidelines that are more forgiving of battered property values and can help banks avoid bigger losses."
Citigroup Inc., regional bank Whitney Holding Corp. and other lenders around the country are planning to review loans now considered nonperforming to determine if they can be reclassified under the guidelines announced Oct. 30 by bank, thrift and credit-union regulators, according to bank executives and people familiar with the matter. The moves could help the banks absorb fewer losses on troubled real-estate loans and preserve capital.
"It's a positive all the way around," said James Smith, chief credit officer for National Bank of South Carolina, a unit of Synovus Financial Corp.
"Regional and small banks are the most likely financial institutions to benefit from the guidelines because of their exposure to commercial real estate.2,600 banks and thrifts have commercial real-estate-loan portfolios that exceed 300% of total risk-based capital and regulators ignored it every step of the way. Now that loan losses are soaring, regulators came up with new rules so that banks can pretend the losses are not real."
Regulators consider the 300% threshold a red flag, though it doesn't necessarily mean the banks are in danger of failing. Risk-based capital is a cushion that banks use to cover losses. Commercial real-estate woes contributed to 100 of the 120 bank failures this year, according to Foresight Analytics.
Responds "Mish"...
These kind of reporting games do not really help anyone. All the pretending does is prolong the agony. Banks know the true score even if investors don't. Thus, such measures to free up capital for banks to lend will not work here anymore than the same shell games encouraged lending in Japan.
The fact that regulators are resorting to such shell games is just further proof as to how weak the financial system is. This is an effort by Bair to stem the tide of bank takeovers. However, the time to do that was before (not after) 2,600 banks accumulated commercial real-estate-loan portfolios exceeding 300% of total risk-based capital.
The Response to the Criticism...
I should not have been the least bit surprised to find out that banking regulators responded by saying that in their view, they are in fact, being "prudent," and that any banks that misinterpret the new rules to mean that there is an opportunity for leniency will be in big trouble.
Exactly what I was thinking... I better not hear about any bankers that think just because the government is allowing them to not recognize billions in losses, that the government's being in any way lenient with them. No leniency here, Boy-O... that's the absolute last thing anyone should take away from these new rules. Strictness... that's what the government's trying to impart as far as any message goes... total strictness.
I do have one more thing to say: Why did I not become a banker? I don't remember anyone telling me about any of the fringe benefits involved. I mean, had I understood that bankers get all the profits and the government picks up the losses, or at least doesn't make the bankers recognize them, I might have said... "Well, alrighty then..."
A Hundred Thousand Homeowners - Voices of Hope & Change Posted: 13 Nov 2009 05:12 PM PST
I spend time talking with homeowners every single day. I listen to their stories day after day and it's so painful, because I feel so helpless. Many times I want to scream. The foreclosure crisis that has been allowed to continue in this country must be stopped, and I'm quite sure it would have been months ago... if homeowners had a powerful lobby in Washington... if America's homeowners had a voice that could be heard. Well, this next year is a very important election year on both sides of the aisle, and to the Obama Administration. And it's time for the voices of homeowners to be heard. I'd like to think that there is no stronger or more outspoken advocate for homeowners in this country than Mandelman Matters, and we started filming homeowners at risk of foreclosure for a documentary on the crisis over a year ago. Since then, we've been looking for the "right" project... one that would carry the voices of distressed homeowners to the politicians on both sides of the aisle, to the bankers and mortgage servicers, to the media, and to the nation as a whole... and we've now found that "right" project in "A Hundred Thousand Homeowners - Voices of Hope & Change". "A Hundred Thousand Homeowners" is a documentary that will deliver a cacophony of outrage at the way our government has addressed the foreclosure crisis. It will make loud the voices of a hundred thousand homeowners.
The finished documentary, will be distributed using the power of the Internet, but it will also be distributed on DVD, wrapped in high-impact "A Hundred Thousand Homeowners" packaging. It will land on the desks of every single elected representative in the House of representatives and the U.S. Senate. It will be sent to the governors of all 50 states... to every single banking industry CEO... to every major media outlet. It will be seen, the voices it represents will be heard, and the story will be told. We need everyone's help to make this happen, and it's far too important to be allowed to fail. People ask me all the time how they can help. Well, here's how. Together we can be heard... together we will make a difference. The Documentary: A Hundred Thousand Homeowners A Hundred Thousand Homeowners will open with President Obama's speech introducing his Making Home Affordable program, which was to help millions, but has fallen far short of its goals. It will include interviews with real homeowners... unscripted... as they share what they've been forced to endure trying to save, or losing their homes. It will deliver the real numbers of loan modifications, the real costs of the failed program, and the real need to do something to fix what's so clearly broken... NOW. It will illustrate why it's not homeowners who are at fault, for it was not they that caused this catastrophe... without question it was the banks and investment banks that brought us to where we are today. The federal programs that have been put in place to rescue those banks and their shareholders and investors, have cost the American taxpayer trillions. While the American homeowner has received little more than a series of broken promises and outright lies. I've written close to 200 articles on Mandelman Matters to-date, and if you've read even one, you know that I'm quite capable of breaking eggs when an omelet is ordered. I don't pull any punches, and I'm not beholding to anyone but myself. A Hundred Thousand Homeowners will be a wake-up call in Washington D.C. It will send the very clear message that doing nothing is not an option... that favoring the banks over the American people, at a time like this, can only result in being voted out of office. The voices any one American homeowner may be faint to the point of being inaudible, but the voices of A Hundred Thousand Homeowners will be deafening as the sound echoes through the halls of our legislature, and into the Oval Office.
A Virtual March on Washington... Everyone can join this virtual march on Washington but there is a minimum cost to participate: $1.00. That's "one dollar," just so everyone's clear about this. And by contributing one dollar, you're name will be listed as one of the 100,000 voices, if you want it to be... or kept anonymous, if you'd prefer it that way. By contributing $1.00, you'll be supporting something important... something that will be heard... something that has to at least start to make a difference, because when politicians see that 100,000 people have taken the time to support something, they know that behind those 100,000 are many more who feel the same way.
Of course, you can decide to send more... you could send $5, or $10, or even $20 in support of the project. The thing about producing a video program is that you can always do more... interview more people, increase its production values, license music. And you can trust that we will use as much as we receive to make the documentary have that much more impact. If we receive $150,000, we'll be able to use a celebrity host or voice... if we receive more, we may be able to air the program on cable. But, all we need to make it happen is $1.00 from 100,000 people who understand what Mandelman Matters is all about, and want their voice to be heard. Who knows... if everyone loves what we accomplish, maybe we'll do it again... and again. I have to believe that at some point... the madness of the foreclosure crisis will have to be stopped, because in the end, this is still very much a country of the people, by the people, and for the people. Please take the time to send in your $1.00 today. Time is of the essence, and it's not easy to get 100,000 people to do anything. So, send your dollar now, and help spread the word by asking others to do the same. We plan to have the documentary program completed and distributed by Valentine's Day, but we can't do it without everyone's support. You can send your dollar via credit card and Pay Pal by clicking on the "Contribute to the Cause" button, which you'll find at the top right of the Mandelman Matters site. Or you can send a check to: Mandelman Matters/A Hundred Thousand Homeowners 1472 Marelen Drive Fullerton, CA 92835 Performance Guarantee: Although I don't foresee this being an issue, in the unlikely event that we do not receive sufficient funds to complete and distribute the project, we will donate all excess proceeds to Homes for Our Troops, which assists severely injured service men and women and their immediate families, supplying building materials and professional labor and coordinating the process of building new adapting existing homes with handicapped accessibility.
I can't think of any subject that has been so widely and frequently discussed and studied, over such a long period of time, by such a large number of experts and observers, who continually espouse such a diverse range of opinions and cite such a large number of conflicting facts, that is still is so misunderstood... or understood differently by different people... or in short, is such a mess... that affects so many people... and is so important to our government and our economy... yet remains pretty much unsolvable... AS LOAN MODIFICATIONS.
See... loan modifications today represent such a complex subject that even writing a sentence describing the situation surrounding them, such as the one above, was a pain in the neck.
Let's start with the questions on everyone's mind... Why aren't more loans getting modified? Why is it so difficult to get the bank to modify a mortgage? Why are trial modifications ending in foreclosure? Why is it that people are consistently treated so poorly by the banks? Is it the investors that are making it hard to get a loan modification? Is the government doing enough to get banks to modify loans? And should people hire an attorney to help them obtain a loan modification, or go it alone? That's at least a pretty good start, right?
I think the fundamental thing that almost no one understands involves how a bank views a borrower's request for a loan modification. Lot's of people, including me in past articles, have said that banks simply don't want to modify mortgages. Lot's of people, including me, have also pointed out that servicers make more money by foreclosing than modifying loans.
All of those points apply in certain circumstances, but they're also beside the point to some degree.
A Banker's View...
Your bank views you calling to request that your mortgage be modified as the beginning of a process. Maybe you truly need and deserve a loan modification, but maybe not. The only way the bank will be able to tell one way or the other is by putting you through that process, and it's not a pleasant process in the least.
Let's say that you're someone that has good credit, you've never missed a payment, and now are saying that you need your loan modified or you may lose your home to foreclosure. When you call your bank to ask about a loan modification, they're going to tell you that they can't talk to you until your payment is delinquent by at least 30 days.
You hang up the phone. You're disappointed. And you now have your first decision to make: Do you let your credit score get trashed by going 30 days late on your mortgage? It's not easy decision. Once you head down that path it'll be years before your credit score is back up where it's always been, and if you need your credit to be good for other reasons, chances are you'll decide that you no longer want a loan modification because the cost of trying to get one... sacrificing your credit score... is too high.
The bank's process has just saved the bank quite a bit of money. Had the bank agreed to modify your loan, it would have been like throwing money away unnecessarily because you kept making your payments without them having to modify your loan.
Now, let's say that you decide to go 30 days delinquent on your mortgage. You call back, now 30 days late, but now your bank tells you that you have to be 90 days late before you can be transferred to a negotiator. You hang up the phone. Again, you're disappointed. Do you go 90 days late, or do you bring your loan current and forget the whole thing? Some bring their loans current, others don't.
If you don't bring your loan back to current status, you're about to start receiving a series of letters and phone calls designed to make you feel ashamed, guilty and scared. And those letters will come more and more frequently, and they'll be written using stronger and stronger terms. And chances are you'll feel worse and worse as time goes by.
Then in 90 days, assuming you've gone the distance, you call the bank again. This time they'll tell you that your credit score is now too low to qualify for a loan modification. Now you're enraged. You stomp your feet. And then, if there's anyway you can do it, chances are you bring your loan current and try to forget the whole idea of a loan modification. Maybe you get rid of a car payment to do it, maybe you rent out a room or take on a part-time job to generate the extra income you need, or maybe you borrow the money from a relative.
You never even bring up the whole experience to your friends or family members because you're ashamed that it even happened. You're ashamed that you were having trouble making the mortgage payment that you signed up for, and you're ashamed about having gone 90 days late on your mortgage payment and almost losing your home. The whole thing becomes one of those skeletons that you hope will soon fade away in your closet of memories.
Besides, what would your friends or family members even say if you did tell them? Do you think they'd be on your side and angry at the way your bank treated you? Or would they take the view that the bank had every right to handle your situation the way they did, because after all, you signed the mortgage and agreed to make the payments... the bank has no obligation to lower your payment just because you having trouble making it. You're lucky the bank didn't foreclose, in the eyes of your friends or family members.
Oh, and one or two more things, while we're at it... maybe you should have opted for a little less house and not gone quite so far out on a limb... maybe you should have spent a little less on your car too, and not used your credit cards for all those nice clothes you wear... maybe you're just living way beyond your means. You're probably not saving for retirement either. You're one of THOSE irresponsible people and maybe losing your home to foreclosure would teach you a lesson.
Whew... it's exhausting, isn't it?
But, let's say for a moment that you could not find a way to bring your mortgage payment current when told, when you were 90 days delinquent, that your score was now to low to qualify for a modification. Now you're 120 days behind, and soon it's been six months since you've made a payment to your bank on your loan.
By now the bank is sending you the most threatening letters imaginable. They could foreclose at any moment, according to the letters and their tone tells you that you are basically an irresponsible failure who cannot be trusted because your word means nothing. You promised to make the payment and now you're not living up to that promise. You're a promise breaker... a liar. How do you sleep at night? You shouldn't even have friends, because if your friends knew what you were up to, they likely wouldn't want to be your friend anymore.
Nonetheless, you're now seven months late, then eight, and then nine. Now the bank is calling you almost daily, the pressure is becoming unbearable, you're trying everything to make more money so that you can make the payment. If you do find a way to come up with the cash, you bring your mortgage payment current immediately. If you get a new job that pays more, you call your bank and start begging and explaining that everything is going to be okay... you're working again... if they'd just please understand... you're a good person... you'll pay your payment every month and on time from now on... you're sooooo sorry to have gotten behind... How about $1200 this week, and then $1200 the following week, and then $2000 by the end of the... blah, blah, blah.
You're a babbling fool that will agree to just about anything the bank says at that moment. If the person you're talking to at the bank acts the slightest bit nice to you, or comes off as even a little bit understanding of your situation... you gush with appreciation and feel like you want to be their BFF. Thank you, thank you, thank you, thank you, thank you, thank you... really... thank you so much. My husband thanks you, my children thanks you... my dog thanks you. Yuck. It's disgusting, really. I just threw up in my mouth a little.
Or, maybe that's not what happens. And now you're almost eleven months late. You're working. You could make a reasonable payment if you weren't so far behind. You'll never be able to pay off the arrears though, so what's the point. You're desperate... you're about to give up and resign yourself to the fact that you're going to lose your home to foreclosure. You're trying to get used to the idea that you'll soon be packing and calling the moving truck... its heart wrenching for anyone to watch.
Well, guess what? Depending on the specifics of your situation... whether there's any equity in your home... how far underwater you are... how long are homes like yours and in your area remaining on the market before being sold? Things like that.
Do you see what's going on?
Since foreclosure is now imminent, the bank can't threaten to ruin your credit score anymore, as it's already ‘F' and would be ‘G' if scores went that low. The bank is now trying to figure out two things:
1. What is the likelihood of you being able to make the payment if the bank modifies your loan? What if they take the amount in arrears, tack it on to the back end of the loan, and reduce your monthly payment by a couple hundred a month? Would that do it? Or would you agree to the deal and then not be able to make the modified payment... and again in six months end up right back in foreclosure where you are now.
If the bank thinks that might happen, they won't modify your loan. They'd rather foreclose now than go through this same thing next year and end up foreclosing then. Real estate values will likely be lower next year, so by waiting the bank just assures itself of a bigger loss on the property.
The cost of foreclosure to your bank is going to be 30% to 50%, or even more in the worst of instances. But that's not the most important factor to your bank... this is all about your bank's degree of certainty that if they modify your loan, you won't be back in foreclosure anytime soon, and likely never. Your bank views a loan modification as pretty close to unthinkable in the first place, so it's unquestionable that it's a once in a lifetime thing in their eyes. You should be too embarrassed to even ask a bank to modify a loan a second time, according to your bank. It's almost like... if that happens, you'll probably want to change your name and move to another state. What a load of crap the banks have peddled our way all these years.
So, you see... it's a range. In order to get your loan modified, you need to fall somewhere between "Definitely won't default again if loan reasonably modified," and "Will self-cure the mortgage before home is actually taken back by the bank". Get it?
I talk to people all the time that have recently applied for a loan modification, and they always talk to me about how it will cost the bank more to foreclose on their particular house, so they expect the bank to modify the loan. But then the bank refuses, and I hear people say that they can't understand it because the bank should do what's in the best interests of investors. Then we start talking about how servicers make more money foreclosing, all of which is true.
The problem with this line of thinking, however, is that it fails to incorporate all the data... it's not just a numbers game to the bank. First they need to know, if they offer you nothing, will you really end up losing the home to foreclosure, or will you let the Devil himself rent out a room to avoid that shameful outcome? Then they need to know that if they do accommodate you and provide you with a modification, chances are good that you'll never miss a payment for the rest of your life.
Shame, shame, shame...
So, how should a bank go about getting the answer to either or both of those key questions? Self-cure and/or re-default? It's not like you can find the answer to either of those questions from looking at an application or a credit report. You certainly can't tell by talking to someone on the phone.
The only way a bank can know for sure whether you're going to self-cure and eject yourself from the foreclosure process, is to let you get to that point and see what you do.
It's like a game of poker... will you fold under extreme stress and pressure and show up with the money to save your home, or will the bank actually be forced to foreclose, and therefore better off to modify your loan... and if they do approve your "mod," as they say in the biz, will you make it just fine for a long, long time, or will you end up right back where you next year at this time, if not sooner?
Once a bank knows the answer to those two questions about you, then the bank's cost comparison between modification and foreclosure becomes pivotal, but until then, chances are the bank will play out its inherently superior hand and count on you folding your cards before foreclosure by coming up with the money you said you could not possibly come up with when you were talking with your bank's representative about a loan modification.
I talked to a woman a few days ago, she said she was in her early sixties, said she owned two homes, desperately needed at least one loan modified and probably both, otherwise she's going to be on the street. She wanted me to recommend a few attorneys for her to talk to, and I gave her the contact information for the lawyers I knew in reasonably close proximity to her home. Then she asked me a few questions, and the last one I'll always remember. Referring to the lawyer, she said:
"Do you think I have to tell him about my trust account?" (Adorable, right?)
I answered as honestly as I could. I said: "I wouldn't." (It's probably not the right answer, I realize, but I'm just saying...)
If this were a tennis match, the score would always read: Advantage - Banks & Servicers
The reason that, other things being equal, I advise people to hire an attorney to help them negotiate a loan modification is that their lender or servicer will ALWAYS have a huge built in advantage in any negotiation over the settlement of a debt you contracted to repay, because the moral norms for borrowers work against them, and the market norms that apply to banks, support the bank doing pretty much whatever it thinks it needs to do to get the borrower into compliance with the terms of his or her loan... or reclaim the property.
Even when people hear that a bank did something really egregious or even illegal, many of them just say: "Yeah, well, I guess that can happen." It's as if to say that perhaps the bank went too far, but the borrowers were juggling flaming chainsaws in terms of risk, and the bank still has the right to take back its home and punish the irresponsible homeowner who fell outside of our society's norms by failing to fulfill his or her promise to repay a debt.
See, there are some things in our society that work the way they do only because we believe they will work the way they do. The FDIC, or Federal Deposit Insurance Corporation, is a commonly offered example of this principle at work. The FDIC "guarantees" cash deposits up to $250,000 per account, as of last year, I believe. So, no one has to worry about rushing down to the bank to get their money out if there's a problem at the bank, the FDIC will cover any loss up to $250,000 per account.
Except, even in the best of times, the FDIC could not possibly come up with the money to cover even a small fraction of bank deposits in this country. If there ever were a disaster that caused all the banks to fail, the FDIC would be meaningless. The FDIC is an independent agency of the federal government and you might call it a "faith based" organization because it only exists to give us faith in our banking system, and only works as intended because of that faith.
Well, loan modification negotiations are a little bit like that. The bank gets to use shame, guilt and fear to get you into compliance with your loan. Once you're deeply ashamed, you won't tell anyone what's going on... and you'll feel worse every day. Then you become afraid to answer the phone. Then you're turning off the machine... you won't even want to hear the phone ring.
Your bank will also greatly exaggerate what it will cost you to lose your property to foreclosure. You'll be told that you won't be able to buy anything for a decade, and all kinds of other nonsense. By the time you're done reading a few of the letters you get from your lender each week, you can easily become convinced that losing your home is almost the end of all opportunity in your life. Might as well be a bum after that. It's absurd of course... you can buy another home in 2-3 years, if that's even what you want to do. There'll be so many foreclosures on the market... you're going to be hearing about foreclosures selling ten years from now.
The Point Is...
The point is, that when homeowners start the process of negotiating with their lender, they're not only subject to being made to feel guilty and ashamed, but they are also likely to over-estimate the personal cost of foreclosure, all as a result of the bank's and our society's intentional efforts to make borrowers feel that way. It's no accident, is what I'm trying to say.
You see, we keep the banks open and safe by believing in the FDIC, and we keep people from walking away from their homes when the value of those homes drops significantly by imposing our society's moral norms, which include shame, guilt and fear, related to repaying debts. If the government and the banks can make homeowners deeply ashamed and afraid to lose their homes, then fewer people will even ever ask for a modification in the first place. With me?
Why the Bank Doesn't Want You to Hire a Lawyer or other Expert...
When a homeowner hires an attorney to help negotiate a loan modification, that attorney is not going to being made to feel ashamed, guilty, or afraid... the borrower can be made to feel all of those things and more, but the lawyer, not so much. He or she is a hired gun, if you will. That's why the banks don't want homeowners to be represented, and why they want homeowners to call them directly.
Treasury looks the other way on this "put-the-borrower-through-hell" process because it understands that banks have to make sure that they are not throwing away money by modifying loans for borrowers who would have self-cured. Nor does the government want the banks to modify loans for people who won't be able to make the modified payment. And since the only way for the bank to really know either of those things is to put the borrowers through their paces, as it were. Many will self-cure, some should be foreclosed upon... blend, shake, stir and pour,,, see what comes out. And of those that fall somewhere in the middle, some will have more or less equity, and some will be in markets where houses are selling relatively faster than others.
Out of that psycho-social-financial-market analysis, the bank will modify some loans... but the process used to conduct the so-called analysis is guaranteed to frustrate the hell out of everyone who enters it that's determined to obtain a loan modification.
Being represented by an attorney or other expert throughout the process is unquestionably better than not being represented, mostly because that attorney won't be subject to the bank's tactics of trying to shame, guilt or scare, and as a result of that, is likely to think more clearly than you would be able to. And also because of the attorney's or other expert's knowledge of the law related to the foreclosure process and the HAMP guidelines, that attorney is more likely to get a result that's acceptable to you, the homeowner... and by acceptable, I mean a modification that's sustainable over time.
Is This How Things Should Be Done Today?
Absolutely not. The situation we're in today is NOT a normal market correction, and I thought I'd better make it clear how I feel about how the banks are handling loan modifications: I hate everything about it, and I think it could not be more wrong. The Obama Administration has continued our government's tradition of implementing pointless programs designed to help stop the foreclosure crisis. Nothing our government has done has helped in the least... they've failed us at every turn.
It's not today's homeowners that are responsible for the position in which they find themselves... no matter what anyone tells you... it is NOT your fault. If someone would like to debate that point with me, bring it. I'm easy to find and can be emailed at mandelman@mac.com. But come to the discussion prepared, because I am.
This meltdown was caused by this country's financial institutions, and not by people with mediocre credit scores who wanted to buy houses. It's the banks that did this, but no one is making them do anything to fix what they've clearly broken.
We've given the banks in this country something like $11 TRILLION so far, and we're going to have to give them a lot more. The so-called toxic assets are still right where they were last fall, and the banks that were too big to fail last year, are now bigger. They have an obligation to act in the best interests of the homeowners they screwed, and in the best interests of our nation's economy because without American taxpayers, they wouldn't even be open for business.
So, don't read what I've written and come away thinking that I approve of the way banks view borrowers asking for loan modifications... I don't. I've only written what you've just read because I think it's important that people understand the dynamics of what's going on... that the reason they feel guilty and ashamed is because the banks and our government want them to feel that way, so that people don't just start walking away from their mortgages because they're so far underwater.
They're manipulating you into feeling ashamed for being in trouble on your mortgage... but don't let them make you feel that way. It's not your fault... it's the banks that wear the black hats in this horror movie, make no mistake about that.
And, in the event that you've already lost a home to foreclosure, don't believe the crap about how your life will be ruined for another ten years. It's simply not true. You may not be able to buy another house for the next few years, but so what? We haven't come close to hitting bottom, so you wouldn't want to buy another home in the near future anyway.
All forecasts say that we'll have 12 million more foreclosures in the next two years, and that number is probably low, so don't feel alone and ashamed about your situation. The people you're talking to down the street have problems too, they're just too ashamed to tell anyone about their situation, just like you've been afraid to talk about yours.
Let it go... and let's turn up the heat on exposing what the banks have done and continue to do. Next year the mid-term elections will mean that every single representative in the House is up for re-election. Let's just see if we can't send a message they'll hear and listen to... I'm sure we can, if we want to.
It's not over until it's over. Don't give up the fight. Knowledge is power. As Winston Churchill once said:
"Never give up. Never give up. Never. Never. Never."
A Tale of Four Trial Modifications at IndyMac Bank
It was the best of times and then it was the worst of times, until it was the best of times again, before returning to the worst of times, which lasted until it was the best of times once more, and then settling into being the worst of times... which became the best of times and then...
The Story You Are About to Read is 100% TRUE...
IndyMac Bank, now One West Bank, whose major shareholders include liberal billionaire George Soros and his young ward, computer industry all-around good guy, Michael Dell, appears to have embarked on a mission to defraud as many people as possible out of their homes through a clever trial loan modification scheme. Here's how one homeowner was introduced to the bank's underhanded tactics.
This is the story of how IndyMac offered a homeowner in the Inland Empire region of Southern California four separate trial loan modifications over the past six months. Let's say that they're family name is Geithner, just for fun... The Geithner Family. They have two kids. We'll call them Danny and Fanny.
The Geithners had owned their home for a decade, having purchased it with 6% down back in 1999. Their 700 FICO score, as of six months ago, showed that they always made their payments on time. They refinanced a few years back with a loan from IndyMac, who apparently felt that the Option ARM mortgage design was the young family's ideal option.
Their starting payment was around $1800, but roughly a year later had jumped up unexpectedly to $2200. When Mrs. Geithner's father fell, injuring his neck quite seriously, what else could the family do but invite him to move in with them where he could be waited on hand and foot and ultimately nursed back to health. They decided perhaps they could qualify for the President's loan modification program.
Since they started working towards getting IndyMac to approve a loan modification, they've done absolutely everything the bank asked them to do, made every single one of their payments on time and as agreed, and never touched their noses unless the bank said "Simon Says." But now, regardless of all that, their home is due to be sold out from under them on November 19th.
Our story begins last February...
It was February of this year when the Geithners retained an attorney to help them negotiate a loan modification with IndyMac Bank. His name was Robert Scurrah of CDA Law Center, and he had been practicing for roughly thirty years. On March 3rd, Mr. Scurrah's office arranged for a conference call with the nice folks at IndyMac Bank to review the family's financial situation. The bank offered the Geithners a two-month trial modification with a trial payment of $1469.99, and the Geithners agreed. (Yay!)
The very next day, the Geithners received a letter in the mail from IndyMac Bank. It read: "We want to help you stay in your home." The letter offered a trial payment of $1711.52, so imagine how pleased the Geithners were that they had been offered and agreed to a payment of $1469.99 only one day earlier and they continued making their agreed to payment.
On April 20th, the Geithners received another letter in the mail from IndyMac. This time the letter said that the bank was denying their request for a loan modification. Apparently, the bank believed their home to be vacant, which as you might imagine came as quite the shock to the Geithner family who was living there at the time. (Oh no.)
Two weeks later, however, on May 6th, the Geithners received another friendly letter from IndyMac, with the now familiar headline, "We want to help you stay in your home". Thank goodness for that, the family thought. This time the trial payment offered was $1467.32. (So, yay! Again.)
That very same day the Geithners received an agreement in the mail. It was the "Stipulated Forbearance to Loan Modification Agreement," and it outlined the terms of the loan modification. The Geithners mortgage would start at 3% fixed and remain there for five years. In year six the interest rate would go up a point to 4% fixed, and after that, it would increase to 4.75% for the remainder of the loan. (Again, yay!)
The Geithners readily agreed to the terms of the loan modification IndyMac had offered, so they signed and dated the modification agreement and returned it to the bank on May 11th along with their cashier's check in the amount of the modified payment, which IndyMac deposited. And everything was good. (Major yay!)
But then on July 9th, the Geithners received another letter from IndyMac. It said they had been declined for their loan modification yet again because the bank said they never received the check they deposited, nor did they receive the signed agreement they had received with the check they deposited but never received. (Oh no.)
Then on August 11th, they went to their mailbox to find another letter from IndyMac, and again read that the nice folks at the bank were saying: "We want to help you stay in your home". This time the letter offered a trial modification with a trial payment of $1395.98. (So... yay?)
The Geithners, figured they might as well give it another trial, so they made both the August and September payments on time and in the amount of $1395.98. (Okay... one more time, yay.)
But on October 2nd, the Geithners, who had by now developed a case of letteraphobia, a fear of receiving anything in the U.S. Mail, received yet another letter from good old IndyMac Bank. Again, they were being denied a loan modification. This time, however, no reason was given.
They called their attorney immediately who in turn contacted IndyMac Bank. Not too worry, Mr. Scurrah was told by the bank's representative, it was just a mistake... must have crossed in the mail, or in the system, or something like that. You can just imagine the Geithner's relief upon hearing the news... I'm sure everyone had a good laugh. (Oh what the hell... yay.)
Except that a few days later, upon returning home at the end of a long October day at the office, the Geithners found a notice pinned to their door saying that their home would be sold out from under them on November 19, 2009. (You've got to be kidding me.)
Again, they placed a call to their attorney, who again contacted IndyMac Bank. This time he asked two things: Whether the bank's bipolar disorder was causing it much trouble when socializing with the other banks. And why... this time around... had the evidently schizophrenic financial institution denied the Geithner's loan modification, after approving it, before they had denied it, before they had approved it, which was before they had denied it, which was right before they had approved it, only to deny it.
Scurrah inquired as to why the modification was being declined again. After all, he explained, they had signed and paid as agreed all four times they had been granted trial payments and modifications. IndyMac's representative explained that it was all quite simple really. At $6,100 a month, Mrs. Geithner made too much money to qualify for a loan modification.
"Well," said Mrs. Geithner, "that's a relief. Why didn't you say so sooner? When do I start making the $6,100 a month? Because as soon as I do, the payments will be no problem." Unfortunately, IndyMac was wrong. Mrs. Geithner's paycheck stubs and W2 showed that she only made $4,100 a month, but she was perfectly willing to forego the whole loan modification thing in exchange for a two grand a month raise.
Mrs. Geithner explained that she still made $4,100 a month, just like she had since last February when she sent in the paperwork IndyMac required when applying for a loan modification, although for the life of her at that moment, she couldn't imagine why.
Their attorney asked where the bank could have gotten the $6,100 figure when they had received the paycheck stubs and W2 last February and they showed $4,100 a month. IndyMac replied that they had received the $6,100 figure "orally". Under his breath, Mr. Geithner asked if they could resubmit the correct figures to the bank anally.
The nice woman at IndyMac, the bank that had "wanted to help the Geithners keep their home," on so many occasions that no one could remember, responded that it didn't matter at this point. It was too late. The Geithners would need to come up with $29,200 in the next five days to save their home. Otherwise, it would be auctioned off on November 19, 2009... just seventeen days from now.
The irony of the story is that the new owner will likely pay about half as much as the balance on the Geithner's loan, so in a way IndyMac will be granting the new buyer a principal reduction right off the bat, but don't worry about the bank... they only paid about 20¢ on the dollar to buy the Geithner's mortgage in the first place.
Alright... that is Goddamn enough! Did you enjoy that 100% TRUE STORY? Did you?
What are we going to do about IndyMac/One West Bank? I've now interviewed a dozen law firms and dozens of homeowners; all are currently being lied to and jerked around by IndyMac/One West Bank. The way things look all will end up losing their homes to foreclosure, even though they all should qualify for loan modifications under the President's Making Home Affordable program.
I am convinced there are hundreds of others in this situation with IndyMac/One West Bank... to say nothing of the myriad of other lenders and servicers who continue to break the rules, deceive our government, and destroy our economy after we the tax payers bailed them out to the tune of $11 billion in Indy Mac/One West's case alone.
So, what do we do about this? Nothing, I suppose? Because doing nothing seems to have become a tradition in this country ever since Barack Obama went on television to tell the country that he would do better than his predecessor. Did he lie? Or he is incompetent. You are free to choose between the two, but those are the options... A or B.
And speaking of Mr. Obama... where the hell is he on this issue. The last time we heard from him on this subject was last February and here we are about to rob a liquor store to put a turkey on the country's table. How he sleeps at night I could not tell you. I could not, were I in his shoes.
Obama told me and everyone else that watched his speech last February that he had a plan that would help save 7-9 million homes. Yet this year, we're on track to hit five million foreclosures. He was going to create jobs, too. Well, absolutely cracker jack work so far, Mr. President.
I did get an email from Joe Biden today... I'm sure millions got it as well. He wanted me to help fight the war related to the president's health care proposal. I replied: NO! Why would anyone in their right mind trust this administration to fix health care after proving themselves completely incompetent and uncaring about the housing crisis... a crisis much worse than anything this country has ever seen in health care?
I won't and no one else should either.
I'm announcing today that I will write and publish every story I receive about a homeowner being jerked around by IndyMac/One West Bank. Every single one. Write to me and I'll put it out there. And I'll ask everyone to forward it along to friends online. And maybe... just maybe... someone will be listening... someone will care... and someone will force this despicable failed bank's hand... force them to do what the president's plan requires them to do: modify a loan when it makes more sense to do so than it does to foreclose.
I'd also like to call for a boycott on Indy Mac/One West Bank... if you bank there... please move. There are plenty of other choices, why would you want to give your money to a bank that is lying, cheating and stealing from the American people and from our government. Congress continues to meet and talk. Vote with your wallet and bank somewhere else. Please... do this for the people being so totally jerked around every day by Indy Mac/One West Bank. Show them that this is still a country of laws and rules... still a country where the people have the power.
The despair and desperation that often accompanies a foreclosure seems to have gotten the best of one California couple - but it turned to outright violence when they kidnapped the loan modification consultants they'd hired to help them.
Daniel Weston and Mary Ann Parmelee, aided by three accomplices, are said to have lured loan agents Lamond Dean and Gustavo Canez to a home in Glendale, where they imprisoned the pair, robbed them, and beat them - an attack that the Los Angeles Times said involved wooden knuckles and a handgun.
Weston and Parmelee, both 52, live in a home in La Canada-Flintridge, a suburb outside of Los Angeles. When the home went into foreclosure, the couple "allegedly sought loan modification assistance from the victims but believed that nothing was being done and wanted their money back," according to a statement from the Los Angeles County district attorney's office.
Local police said the victims had worked with Parmalee, a real estate agent, on other foreclosure cases. Parmalee often sent loan modification referrals to the agents to help other troubled homeowners.
According to court documents, the five assailants, all of which have been arrested, set out to "cause cruel and extreme pain and suffering for the purpose of revenge, extortion, persuasion and for a sadistic purpose, inflict great bodily injury."
Both victims were treated at a local hospital and have now been released.
The case became public the same week Los Angeles officials and federal housing agencies kicked off a nationwide public-awareness campaign urging homeowners to be on alert for phony foreclosure rescue scams and to report suspicious activity to authorities. NeighborWorks America said it had selected Los Angeles for the program's launch because it is consistently ranked among cities with the highest foreclosure rates.
This is starting to get interesting, at least for those living in a judicial foreclosure state.
MassachusettsLand Court Judge Keith Long has refused to reverse a ruling that opens up the very real possibility that tens of thousands of foreclosures in the state, dating as far back as 1989, could be invalidated. The judge denied a request made by Wells Fargo and U.S. Bank to reinstate two foreclosures that he had invalidated last March because of problems with the paperwork presented by the banks.
As reported by Jerry Kronenberg in the Boston Herald this morning:
"The foreclosure sales (in question are) invalid because they failed to meet the requirements of (Massachusetts law)," Land Court Judge Keith Long wrote yesterday in reaffirming a decision he originally reached in March.
It should go without saying that the banks were very unhappy with the ruling.
"The judge has thrown into question every foreclosure performed in the Commonwealth over the last 20 years," said lawyer Lawrence Scofield, who represents both Wells Fargo and U.S. Bank.
And Scofield may just be right, darn the luck. It may just be that the lenders and servicers won't be able to continue foreclosing without being able to prove chain of title.
The core issue has to do with filings that banks are required to make any time they sell a mortgage to a new investor... filings they neglected in hundreds of thousands if not millions of instances, as mortgages changed hands more times than the penny I have in my pocket. Judge Long ruled that a bank cannot foreclose on a home unless it can present the documents that show who owned the mortgage each time the loan changed hands.
The judge also said that fixing the documents after the fact, which is what Wells Fargo and U.S. Bank did in the case he was ruling on, isn't kosher, and I can't believe that Wells or U.S. Bank would think that fixing things after the fact would be okay.
In Kronenberg's article, he quoted Judge Long who wrote:
"The issues in this case are not merely . . . a matter of dotting i's and crossing t's. Instead, they lie at the heart of the protections given to homeowners and borrowers."
Bravo, Judge Long!
Many attorneys and other experts have weighed in on Judge Long's decision, saying that it will make it possible for thousands of people that have lost homes to foreclosure to challenge those foreclosures and potentially have them reversed. The only foreclosures that would be out of bounds would be those that occurred before 1989, per the state's statute.
But, the ruling affects homeowners who have bought foreclosed properties, as well, as they may find the homeowner who owned the house previously coming back to sue to have it invalidated. And that may make it difficult for those who have bought a foreclosed home to sell it or refinance it, because of titles that the courts will likely see as being "clouded". According to Kronenberg, some homeowners who have bought foreclosed homes have already been unable to get mortgages or obtain insurance as a result of Judge Long's ruling.
Scofield, the lawyer representing the banks in this case makes the case that the Judge's ruling will push the economy deeper into its recession, which is exactly what I'd expect a bank attorney to say.
However... Memo to Mr. Scofield: It's your clients and their pals on Wall St. that caused this recession you're now so worried about. And if you want to see it end, the answer isn't to allow banks to fail to comply with the law... the answer is for the banks to stop foreclosing and start modifying in earnest those mortgages on which they're now foreclosing. Like they said they would, remember?
Here's a link to Kronenberg's article in the Boston Herald:
http://mandelman.ml-implode.com/2009/10/spotlight-on-arizona-firm-real-estate-consulting-services/
http://mandelman.ml-implode.com/
SPOTLIGHT ON ARIZONA FIRM: Real Estate Consulting Services
Real Estate Consulting Services (REC) is the Glendale Arizona firm where you’ll find Mark Archer and Donna Gribben. I’ve known these two for over six months now, I talk with them all the time, and never miss having dinner with them when I’m in the Phoenix area.
Mark’s been in the real estate industry for years as an investor and licensed agent and Donna has a background in banking and venture capital. If I was trying to get my own mortgage modified in Arizona, I’d call them for sure. Here’s why:
They’re really good people. I know, you probably thought that I was going to say something about their level of expertise or how effective they are… but that would be besides the point, I think. Mark and Donna are as straight as straight can be, and that’s important today when it comes to choosing someone to help you get your mortgage modified.
They truly care about their clients. No question about it. These two don’t just take on clients, they help new friends. I can’t imagine anyone not becoming friends with these two. And they truly care about every homeowner they work to help… a lot, actually.
They’re tough and they’re smart. Mark Archer is not someone that gets pushed around by lenders or servicers. And Donna knows all of the rules and regulations that the banks are supposed to follow, so together they make a very effective team.
REC is an Authorized Affiliate of a national company called PCAG, which is a group of attorneys who will support and aggressively negotiate on your behalf. In addition, REC has relationships with Arizona attorneys that can litigate or facilitate bankruptcy filings, when that’s the best option.
All in all, I wanted to list REC because I’ve heard from quite a few people that its become hard to tell who you can trust in the Phoenix area, and when you need a loan modification, the last thing you need is to worry about getting ripped off. And in my opinion, there’s no way Mark Archer or Donna Gribben have ever or would ever take a dime from anyone they didn’t earn.
But I don’t have to sell these two… you’ll see what they’re like within five minutes of talking to them… Call them and see for yourself… And for sure tell them I said hi.
Real Estate Consulting Services
7942 West Bell Road
Glendale, AZ 85308
Ph. 623-444-4498
You can also visit them online at:
www.realestateconsultingservices.com
http://mandelman.ml-implode.com/
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