Many of the loan modifications in process are running into challenges when the second mortgage holder is asked to cooperate. Homeowners trying to stop foreclosure in Maple Valley are having success with their first lien holders just to find out that the second mortgage holder is refusing to cooperate. House Financial Services Committee Chairman Barney Frank (D- Massachusetts) has sent out a petition to some of the nation's largest junior lien holders demanding that they take "immediate steps to write down second mortgages" to create a clear path for sustainable loan restructurings.

Reducing a homeowner's overall debt to 31% of their monthly income so that modified payments are within their budgets requires cooperation from both the first and second lien holders.

In a letter to the CEOs of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo, Frank wrote, "Many homeowners are eager to save their homes despite being ‘underwater,' but find that lenders and servicers are unable or unwilling to make necessary modifications. These homeowners are increasingly forced to short sale their homes or walk away and let the first lien holder foreclose due to the lack of cooperation.  In many cases where the homeowner and the first lien holder are in alignment with both benefiting from a modification, the junior lien holder holds veto power over the agreement and is often exercising their right to cast the deciding vote for no deal. Frank wrote. "According to investors, administration officials, and other experts I have consulted...the problem of second-lien mortgages standing in the way of successful principal reduction modifications has reached a critical stage and requires immediate attention from your institutions."

Frank argues that most of these second liens have "no real economic value," since the first liens are well underwater, and the prospect for any real return on the seconds is "negligible."

But he notes, "Because accounting rules allow holders of these seconds to carry the loans at artificially high values, many refuse to acknowledge the losses and write down the loans, which would allow willing first lien holders to reduce principal and keep borrowers in their homes." So in the end the homeowner loses their home over an accounting strategy that allows the second lienholder to keep their book values artificially high.

Frank is demanding a quick response from the four banks in his line of sight. "I will be calling you within the week to discuss what your institutions plan to do to remove the second liens you own or control as impediments to principal reduction modifications," he said in the letter.

"To save homes on a large scale, we must move past temporary modifications in interest rates or terms and focus on permanent principal reductions that result in truly sustainable mortgages," Frank wrote. "There is no more important priority for me in our efforts to restore stability to our mortgage market."

The administration has incorporated a second lien component into its Home Affordable Modification Program (HAMP), which is slated to begin within the next few weeks. It includes a payment schedule for extinguishing second mortgages and the automatic modification of a second lien when a first lien is modified. Bank of America signed on to the program in January, but none of the other major servicers have agreed to participate.

Second liens can also prove to be an obstacle for short sales, the focal point of the administration's Home Affordable Foreclosure Alternatives program set to take effect April 5. Although the first lien holder may agree to the sale of a home for less than the outstanding mortgage balance in order to circumvent a foreclosure, if there is also a second lien on the property, the sale can fall through if the junior lien holder will not relinquish their claim.

The debate over banking reform rages as President Obama's efforts to reign in the "too big to fail" institutions are endlessly debated. Capitalism vs. over reaching government is the debate of the day.

A comment on the topic by a friend brings some focus to me as to why I became a Short Sale Specialist and launched StopForeclosureinMapleValley.com.
The question posed was "Why do people hate the rich? Would you give up 1/2 your income in order for all to be equal?". My response is I would not give up 1/2 my income to make every one equal. The possibility of becoming wealthy keeps me striving to become more than I am. In that endeavor I serve more people and society benefits as a whole. It's the essence of Capitalism.

I'll confess that my primary objective is to provide for my family. My intention is to do very well. However, I could not engage in the daily battle that is involved in short sale transactions without the deeper more altruistic commitment to bettering the community I live in. I am absolutely committed to stopping foreclosure in Maple Valley. Why? The why is in the eyes and souls of the people I meet with every day. Foreclosure and financial hardships are a terrible thing. It tears apart families and marriages, creates despair, anxiety, stress and generally makes life miserable for those involved. It's Painful. Bringing relief to those good people when they are most in need is deeply satisfying.

Everything I have created from the video series on financial hardship, to the reports on how to talk to your lender, the homeowner loan modification kit, and the creation of our team is all to diminish and minimize the pain the our clients are feeling. All if the loan modification reports, homeowner kits, the loan modification calculator, or any of the videos are free for the general public to use and I highly encourage them to be used. Why was so much time and energy put into creating them? I get a great deal out of them if you use them to better your life. Service to the community is a rich reward and that is why I want to hear from you who have used these tools and found them helpful.

Short sales provide the same benefit. Hire me, and my team takes over. We take the calls from the bank, no more trying to figure out what to do, you have a lot less stress from day one because we are on the job, and now you can kick back and let us work. For short sales our service is completely free to our clients. From day one their lives are better, less stressful, and more certain than before. For that I am grateful. Maybe that's why our customers are so happy with our service. Excellent service is never appreciated more than when you are most vulnerable and need it urgently. To be sure there is still some stress because of the gravity of the situation but the stress of not knowing what to dois gone since you are doing the most you can by engaging experienced professionals.

I have a great team, we provide a great service and if you are reading this and have questions, please, call or email. Our commitment to bettering your life will quickly become evident as we take the first steps towards financial stability together.

Ken Crotts
Broker
Windermere Real Estate
Certified Short Sale Specialist

Loan Modifications are supposed to allow a borrower to redeem themselves and regain their financial footing long enough to survive their hardship. Short sales are supposed to help lenders reduce their losses and help homeowners stop foreclosure. These transactions make up a significant percentage of the current real estate market and should be helping us to recover from the economic woes we all face.

Short sales and loan modifications are very similar in their execution in that the lender requires a financial disclosure, copies of bank statements and proof of income. In each case the borrower and lender come together for a mutual benefit which is to mitigate the lenders financial losses and limit the damage to the borrower's credit and finances. It seems to be symbiotic relationship in theory. Anyone who has been involved in them knows it is anything but pleasant or short lived.

It is common knowledge that lenders will often refuse to consider a loan modification unless the borrower is delinquent. What happens to the borrowers who are advised to miss a payment, or two, or three in order to be considered for a loan modification and are then turned down? It happens with short sales as well. The borrower keeps up on the payment and the lender refuses to consider the deal unless they are delinquent. The borrower may have no choice but to sell the house due to a forced relocation, rather than a lost job or medical disaster, yet they cannot rent the property and must sell it short or it will certainly go to foreclosure eventually.

The bank directs to borrower to stop paying on the mortgage which immediately damages their credit without the bank taking any obligation or liability for their advice. Regardless of the eventual outcome the borrower's credit score ends up with greater damage as a result of this advice. A short sale should have a lower impact on a borrower's credit if they were never late versus 12 to 15 months of missed payments.

The worst scenario involves borrowers who contact the bank before being late, are told to stop paying their mortgage, and then are turned down for the modification. Ultimately their credit is ruined; all for contacting their lender for assistance in avoid loss on both sides. I know of a case where the borrower contacted their lender for a loan modification. The lender insisted they stop paying and become delinquent. They even told the borrower they didn't know where to credit payments he did make since his loan was in the modification process. They turned him down for the modification. Unfortunately the borrower will not be able to save the existing house and will have to sell. Even more unfortunately they have 3 mortgage lates on their credit record. Had the lenders advice not been taken they could have sold the house and bought another less expensive home since their credit was excellent credit prior to this experience.

This all came to light for me when I read the new FHA guidelines that allow a home buyer to immediately buy another home after a short sale IF they had not missed or been late on their mortgage payment. I almost laughed when I initially read it.

How is it banks can tell their customer to take a course of action that is so damaging and remain insulated from liability for their advice. I believe attorneys are liable for their advice and so are real estate agents. It seems to me that lenders are creating yet another class of victims to their narcissistic pursuits while remaining completely immune to the damage they are creating. Conspiracy theorists might think they are doing it on purpose to set up increased future profits by creating future customers that can be charged higher rates for the next 10 years.

What are your thoughts?

The National Short Sale Center sent out a notice 3 days before Christmas that they are closing up shop.This is going to leave a significant number of homeowners who are currently in process with NSSC out in the cold after having wasted precious months trying to avoid foreclosures by relying on the services of this company. MY mission is to stop foreclosure in Maple Valley to the extent possible and any assistance to that end is welcomed.

I personally have a listing in Renton Washington with NSSC which was put on the market in June of this year and was sold in July. The property has been pending ever since. On 12 /22/09 I received a formal notice that the NSSC will be closing up operations as of January 15th 2010. It is very unfortunate that the customers relying on their services are going to be left in the cold and have to restart a new negotiation with another company or lose their property to foreclosure.

I have other resources and as such will be able to make the transition to another negotiator.If NSSC is willing to facilitate the transition with their negotiators notes and bank contacts there should be a minimal impact on the client. This is not the first company to take on the very difficult task of negotiating short sales on a large scale basis just to find that the profits are too difficult to realize. Other companies have seen a profit potential in the vast short sale and foreclosure markets just to realize that the process is too unpredictable to build a business model on.

The treasury department has new rules under review that would streamline the approval process for short sales and facilitate the liquidation of non-performing assets through short sales less laborious.This is a ray of hope for those of us who are involved in short sale but there will be hitches. First of all the program is voluntary. Secondly it will not apply to second mortgages so many of the existing sticking points will apply. Thirdly, the lender will have to approve the minimum listing price prior to the property going on the market. While we can pick apart the proposed rules I am taking heart that someone at the treasury department is at least recognizing the existence of the short sale problem and attempting to do something with it.

For the National Short Sale Center it may be too late. My hope is that the short sale process for my properties in Maple Vally and King County will become a little easier.

For decades to come business students will study the events that led up to the great recession of 2008. There will be a lot of debate and finger pointing. Politicians will attempt to make fall guys of their opponents in the rewrites of history, and corporate leaders will attempt to devise new rules and systems to avoid another situation like this.

In the broadest sense we are in our current morass because both short term profits and gains blinded banking elites to the longer term ramifications of their actions (its called greed). With a blind eye towards their customers well being, and actual ability to repay the money that they were lending them, they flooded the market with lending capital to fund their highly profitable mortgage backed securities. Lending standards were relaxed (eliminated) and oversight of underwriting practices all but disappeared. Anything that stood in the way of filling out another tranche of mortgages for the next round of securities was eliminated. In the rarified air of elite mortgage banking all was good as long as no one pointed out the elephant in the china cabinet.

Fast forward to today and the banks are dealing with the resulting financial collapse and trillions in losses by demonstrating a similar lack of understanding of how the real estate market really works. The elites (both corporate and political) are attempting to put a tourniquet on the losses they are suffering by rewriting their underwriting standards, putting new systems in place to stem the losses, and focusing on the general recovery of the institution. While it all sounds good they are demonstrating the same lack of concern for the little customers who are defaulting on their mortgages and, the same lack of understanding of the real estate market and the players in it.

As a short sale specialist I get to see the resulting policies and actions of the bank's efforts on a daily basis. The thing I find striking is their inability to accept their role in the problem and as a result their inability to deal effectively with it. This is primarily reflected in their attitudes towards the other participants in the transaction.

Banker Attitude: We're losing thousands of dollars on this house so the Realtors commission should be cut as much as possible to minimize our losses!

Reality: The Realtor bringing you the sale on your non performing asset is a part of the solution, not part of the problem. The agent did not make the bad loan, is not increasing your losses and in fact is helping the bank to lose less! It is a fact; banks lose less money on short sales than they do when they take the property back in a foreclosure action. The real estate industry represents a sale force of hundreds of thousands of sales people that have the capacity to move billions of dollars in non-performing assets and they cost the banks zero until the asset is liquidated. That's ZERO Dollars. Mr. Banker are you listening? What exactly is the point in flogging them for doing business with you?

Your current approach is to make short sales as difficult as possible, as time consuming and confusing as possible, and to punish the people responsible for participating in reducing your losses. As a result short sale properties are unattractive to both buyers and agents resulting in fewer showings, and lower prices. No one wants to deal with the banks bad behavior and as a result the banks are losing billions more than necessary. The reality is the bad loan is YOURS and if you want to lose less make selling the non-performing property easy by approving the short sales and paying your sales force well for performing. This is not rocket science, just common sense. Get over yourself and start earning your millions in bonuses by seeking solutions rather than being a part of the problem. Here's a hint; start with your attitude first and then seek a solution.

Banker Attitude: Investors and flippers are bad. They are stealing money that is rightfully ours and should be stopped.

Reality: Investors and flippers are the single most potent potential solution to the housing dilemma we are in. All of the policies that have been put into place to stymie their involvement in the current market are prolonging the downturn. An investor who buys a house in bad condition, fixes it up and then sells it for a profit is a credit to our society. They spend thousands on materials and wages, improve dilapidated properties, increases values, pay taxes, and speed the movement of capital through our economy. This is what is needed to get the housing market moving. Banker are actively holding this potential force back with title seasoning policies for buyers looking to purchase these homes and loss mitigation policies designed to shut down approvals for non owner purchasers. Politicians are holding them back with legislation and regulations designed specifically the thwart the profit potential of buying, fixing and selling properties. Why?

With investors branded as bad by the banks, government and media this force for recovery is all but dormant in our economy. The ironic aspect of this is no dollars are needed to unleash this force and it produces dollars as a result. The short term affect? Immediate tax revenue and mitigated loss on non-performing loans. The long term effect? Increased property values, increased employment, increased capital spending on housing related goods, lower losses for the banks and more tax revenue for the politicians. Hmmm.

Banker Attitude: Homeowners defaulting on their debt are deadbeats and should pay back everything they have and then live with the possibility that we will come back and take anything else they make in the next 6 years.

Reality: Defaulting customers, in many cases, are victims of your lending institutions. When the loan was made they met your (nonexistent) underwriting guidelines. The approval was subject to review and scrutiny of your (nonexistent) quality control and oversight. Many of the rest are victims of the near complete economic collapse you initiated, and the rest is a mix of bad luck and (rarely) bad faith. Putting the finger pointing aside what is the real solution?

You have millions of defaulting customers who have a history of wanting to be homeowners. The sooner they recover financially the sooner they will borrow again. Because of their credit history their new loans will be at higher rates. Taking a longer view at a solution means helping these clients recover sooner rather than later. It would suggest that this is the perfect time to engender an undying sense of loyalty from them as a result of taking an understanding, helpful approach in your dealings. I'm not suggesting you take less than you are getting now, just remember they are YOUR CUSTOMERS. When this is over they will be someone's customers again, why not yours. Continuing to treat them like deadbeats only ensures they will not be your customer when the dust settles. Even the ivy leaguers know it is cheaper to keep a customer than develop a new one.

This all seems so easy to understand and yet I get the feeling I am the boy pointing and yelling "the king has no clothes!". So to wrap up this lengthy blog here's your bankers to do list;

1. Wake up and check your attitude, it's showing!
2. Work with Realtors instead of against them!
3. Encourage investors to invest in your bad assets!
4. Be nice to your customers, it won't cost you anything!

If you are thinking of short selling your home, or are already in the process DON'T MOVE! Why? President Obama passed legislation earlier this year which allows you to stay in your home for 90 days AFTER a foreclosure sale. You may be thinking "the entire reason we are short selling is to avoid foreclosure so how does this affect us?".

Here's how it affects you. Your lenders motivation to grant a short sale is based purely on weighting whether taking the house back at auction is going to cost them more than granting a short sale. For them it is not a matter of making or losing money, it's a matter of how much. For them it is a matter simply of short sale or foreclose, short sale or foreclose.

By staying in your primary residence while you are marketing the property for a short sale you retain the right to stay in the property for 90 days following foreclosure. That makes foreclosing that much more expensive for the bank and gives additional incentive to approving a short sale. That is 90 days more interest they cannot make, 90 days more deferred maintenance, 90 days for something bad to happen on the property, 90 days more liability and exposure that could cost them.

I represent allot of short sale clients and can say with certainty that if you allow the lender to take your property with little or no hassle, they will! When negotiating a short sale it is my job to take positions that make approving the short sale much more attractive than taking the property back at foreclosure. For clients that move and leave the property sparkling clean the lender has the least amount of incentive to negotiate. For properties where the homeowners stay they have to account for the added cost and uncertainty in their calculations.

Financially is makes sense for you as well. 3 more months of free rent gives you the chance to save up money for the move and allows you some relief. Emotionally many homeowners are at their wit's end and just want to put the whole experience behind them. I understand that, and know that moving is the first steps towards healing. My goal is to help you get through this process and back on the road to financial stability and a happier life so if you must move, go ahead. If you don't have to, consider staying for a few more months, payment free!

When you present your preapproval letter to the listing agent does it help, or hinder your chances of getting an accepted offer? Financing preapproval letters are widely dismissed by the real estate industry as not being worth the paper they are written on. The reason is there are no consequences for the loan officer who issues a preapproval letter and is unable to follow it up with a full approval. It's especially true in this market when underwriters (the people who actually approve your loan) are under strict scrutiny and are nitpicking every detail of every potential loan looking for potential problems.

This is also the result of earlier years when loan officers were disinclined to spend allot of time getting initial approvals and would produce letters like flyer's knowing some would stick. I'm not throwing good loan officers under the bus here. This was a market reality born from too many poor loan officers and fickle buyers who would drop you for a $20 difference in closing costs.

Here is the verbiage from a B of A Approval letter;

Not too inspiring. My first reaction as a listing agent was B of A?  I have the unfortunate task of dealing with them daily on short sales. I recovered from the initial reaction and had a few questions.

1. Did the buyer actually make a loan application?
2. Has the credit been pulled and reviewed?
3. Have they provided bank statements and other required documentation?
4. Has the buyer provided income verification yet?
5. Do they actually have a loan program picked out yet?
6. Do they actually meet the underwriting guidelines for that loan program now?
7. Has an underwriter actually looked at the file or has the loan officer talked to an underwriter regarding this file.

This example instills no confidence that anything has been done beyond a phone interview from a too big to care banks call center. It's not really worth the paper it was written on.

In order for your pre-approval to have some weight have your loan officer include the following elements;

1. A statement that loan application has actually been made.
2. Income documentation has been provided and reviewed.
3. Asset documentation has been provided and reviewed.
4. Credit has been pulled and reviewed.
5. Based upon the provided documentation the borrower meets the underwriting guidelines for the FHA/VA/Conventional loan program selected.
6. There are no outstanding issues that would prevent the borrower from obtaining a loan (like a bankruptcy).

The typical disclaimers are going to follow but at least the listing agent reviewing the letter knows the buyer has actually met with the loan officer and brought bank statements, pay stubs and other basic documentation in for review. It is more of a hassle for the borrower to provide this information but it demonstrates they are more serious, committed and thoughtful about what they are doing. In the current real estate and lending market this carries allot of weight with regards to how your offer is viewed.

If you really want to have your letter seriously considered have a well known, veteran loan officer take your application and put their name to the letter. Bringing in a computer generated pre-approval letter from some online lender is not going to help your offer get accepted and suggests to the listing agent that you are not serious, possibly flighty, and probably have qualification issues. You may not, but history suggests there is a probability that you do.

If you really want to get a great deal in this buyers market take the time to sit down with a great loan officer and thoroughly review your financing options BEFORE you go out and tie up a property. Take the time to provide them every thing they need to really preapprove you. Your time and energy will be well spent. You will be more confident and capable and the seller who's house you are buying will have more confidence in you as well. That alone should help you get a better deal. Even in this market....especially in this market, well qualified buyers have a distinct advantage over their competition. In my market the best properties are still getting multiple offers and preference goes to the best qualified buyers.

Are you thinking of buying? Call me and I will set you up with a great loan officer that will be an asset to your offer and go the extra mile thoughout the transaction.