Forces Facing The Housing Market

Comments

1. pete says:

   August 3, 2011 at 3:44 pm

   take a look at our blog we have a unique take on the banking crisis

   Capital2risk.wordpress.com

   I agree with your writeup
2. Ohio FRAUDclosure says:

   August 3, 2011 at 9:56 pm

   Well written with accurate numbers and assumption….unlike most main-stream media and rah rah entities like NAR and MBA. However a legal factor left out (FRAUDclosure) and is NOT factored, is in your number of homes estimated to be available (6 million) that “may” enter into foreclosure and therefore ASSUMED will be lost…..
   You stated at factor #1)….once a home goes into delinquency by 30 days, there is only 10% likelihood of the homeowner catching up on the payment. Therefore, let’s assume that 6 million homes will be foreclosed upon of this current batch…..)
   I say let’s assume more and more homeowners NOW have realized that it is a FRAUDclosure and therefore invalid and will fight and beat the BANK ROBO-Signed, FRAUD trusts, and Pretend BABK induced FRAUDclosures. Then maybe….1 to 2 million of these homes ….will NEVER be available ….and even more with forever clouded titles due to overturned court cases, FRAUD, unsecured liens lost by FRAUDulent transfers, MERS meltdown…and other issues exposed daily in our great courtrooms…..more and more people….everyday ….are keeping the “Pretend Lender” (Banks)from getting a Free House …they are not legally entitled to own or sell.
   Sorry NAR and MBA….years and years to go of only 1 or 2 million REAL home sales.
3. Patrick says:

   August 3, 2011 at 11:03 pm

   Ohio,

   Unfortunately, I believe that you are being far too optimistic in projecting that maybe 1-2 million will never be available due to homeowner defenses. A few points:

   Robo-signing has many people confused as to what it actually is. To meet robo-signing ”standards”, forgery of the signature must be present, or, dependent upon the document, the person not having actual knowledge of the events , or finally, that a legitimate agency relationship does not exist with the signer. Anything else does not meet the standard for robo-signing.

   MERS is also another issue that has been “clouded” with misrepresentations that have confused the public. MERS issues are “state specific”. Whether MERS actions are lawful is first and foremost based upon state agency laws. If MERS meets the definition of an agent under state law, then most actions will be lawful. If MERS does not meet agency laws, as there may appear to be a conflict in New York law, then MERS operations may be unlawful.

   Michigan presents an interesting situation for MERS. MERS appears to have legitimate agency status. But a Michigan statute states that it must be the actual beneficiary to initiate foreclosure and to foreclosure. Therefore, MERS cannot foreclose in Michigan and that is why Fannie is redoing many foreclosures.

   You mention overturned court cases. You must read the rulings carefully. Overturned cases do not mean that the note and deed are void. Instead, it simply means that there was a flaw in the foreclosure process, and that flaw can be corrected and the foreclosure started again.

   The “pretender lender” arguments also have major flaws. Pretender lender usually involves an allegation that the lender on the loan documents was not the true lender, and it was the Warehouse Lender or Wall Street who was the actual lender. So, all the disclosures were inaccurate under TILA, and that gives to both TILA issues and fraud issues.

   The problem with this argument is that those who promote it have not carefully read FDIC 3500 and other statutes. Those statutes specifically outline which entities should be on all the disclosures, and the “pretender lender” argument fails when FDIC 3500 is read.
   The Trusts pose an entirely different issue yet again. Yes, there are issues related to assignments to the Trusts, but usually it is dependent upon the actual wording of the particular Trust. The Alabama case is on point for that argument. It was a Bear Stearns Trust which called for a complete and recorded Chain of Title to all entities involved. Therefore, the court ruled in favor of the homeowner. But, the Note was not ruled void, so other options are available.

   Ibanez in Mass, was a different situation. In Ibanez, MERS was not an issue. The issue was an assignment occurring after the foreclosure. The homeowner won the appeal, but what is noteworthy is that the court ruled that there were other ways the loan could have been shown to be in the Trust, without a recorded assignment. Ultimately, securitization and MERS will be settled by either legislation or by the US Supreme Court.

   Now, I fully expect that you will take exception with what I just wrote, and that is your right. But so you know, I have been involved in foreclosure activities since Oct 07, and generally on the side of the homeowner. But, I look at events and court rulings with an unbiased mind, looking at the good and the bad in each ruling.

   Most homeowners are going to lose. It is that simple. The best that can generally be hoped for is a decent loan modification. Unfortunately, modifications have been hard to achieve because there is an adversarial relationship between the homeowner and the lender. When each party understands that it must be a cooperative effort, a “win/win” for all, then we will start seeing more modifications, at least for homeowners who will have a reasonable chance of not defaulting again.
4. Friday 05.08.11 | The Inner Circle Group says:

   August 5, 2011 at 5:30 am

   [...] FORCES FACING THE HOUSING MARKET By Patrick Pulatie – Ml-explode.com Day after day, week after week, and month after month, there are media reports concerning the status of housing in the US. Depending upon the source, housing values are increasing, or decreasing. Home sales are increasing, or decreasing. The Housing recovery has started, stalled, or in a state of further decline. Does anyone really know what is going on? Who can you trust? At this time, no one knows with any certainty what is going to happen. The economy, governmental regulation, lending issues, foreclosure issues, borrower qualifications and other issues are all contributing to the uncertainty in the housing market. Until such time as these issues begin to be resolved, recovery cannot begin. But, taking the different data points that exist in the continuing reports, some general assumptions can be made. [...]
5. Chris says:

   August 5, 2011 at 11:40 am

   Hello
   You guys are missing 1 big point. Jobs, Jobs. Without jobs there is no recovery.
6. Patrick says:

   August 5, 2011 at 12:13 pm

   Chris,

   I could easily have put jobs into the mix. As well, I could have noted that JP Morgan Chase, B of A and Wells Fargo each have over $20b of REO properties sitting on their books, and for all purposes, as events continue, this will only increase. They cannot absorb much more REO and associated losses.

   But if all related factors were written about, then I would still be writing.

   Many believe that if we solve the foreclosure problems, that housing will magically recover. They miss the point that there are many other factors that will continue to hamper housing for a generation, even if the foreclosure issues are solved.

   Those who predict recovery this year, or in the near term are simply “blowing smoke”. Usually, they have vested in promoting recovery, to the detriment of others. (The National Association of Realtors would be the perfect example of such. They promote that “it is a great time to buy”, but neglect to mention that home values are going to fall further.)

   What needs to occur is for a comprehensive action plan to be developed and implemented by private industry, in cooperation with the lenders, to help resolve the issues. I shall address such next week.
7. Patrick says:

   August 5, 2011 at 12:55 pm

   Pete,

   The banks listed on your website all are suffering from liquidity reserve issues, as you are likely aware, since you mention the Texas Ratio. (FYI, the Texas Ratio is really not a reliable guide to enforcement actions. The OCC uses a different gauge and they do not reveal those results.) The OCC is aggressively after the banks to increase capitalization and to bring in new investors for all on their problem bank list.

   I actually have a plan developed that could assist many small banks in crisis like the ones you mention on the blog.This plan would assist reducing bad loans, increasing liquidity, and making investors more interested in bringing new capital into the banks.

   The plan was developed in cooperation with a former “good bank/bad bank” team member who worked with the FDIC in the early 90′s rescuing banks. It can be implemented now with small banks, but certain “parties” must be present to make it work, and the banks must have an open mind and be willing to make it work.
8. Susan Minerly says:

   August 8, 2011 at 2:11 am

   Hi Patrick,

   Most of what you wrote could have been taken from my proposal sent to the government over a year ago, except that the percentage of negative equity homeowners would be 48% of all homeowners when the decrease in housing values of 10-15% occurs from the above reasons, we were at 23% at the time.

   There is a solution, the Negative Equity Streamlined Uniform Modification System based on:

   *the law, all similiarly situated parties are legally entitled to a similar and consistent financial benefit without undue influence of outside unrelated factors or stipulations designed to enhance the servicers profits The financial loss to the investor or the homeowner is not changed, influenced or reduced based on the homeowners social economic status, it is a form of discrimination with intent to defraud if any unrelated factors are considered when there has been an industry wide change made.

   * the principles of capitalism, A homeowner borrows the money, the investors gives the money, if the homeowner doesn’t pay, the investors gets the collateral security interest returned. Unfortunately for the investors the security interest of the collateral can not return their capital investment when negative equity is involved, the capitalistic result was to change the contract terms agreed to by financailly incentivized the negative equity homeowner to remain a negative equity homeowner paying the investors the principal borrowed back by reducing the anticipated profits the investors had planned to earn on the negative equity homeowner, both sides win and both sides lose, capitalism. (Agreed, it wasn’t unilateral as the law dicates because of Unfair amd Deceptives Business Practices occurring)

   * and the legal precedent set, there has been 3.6 million modifications issued SOLELY to negative equity homeowners to avoid the investors financial loss of negative equity that created a legal reliance of the equal entitlement to a similar financial advantage or undue financial disadvantage is placed on the restricted or excluded homeowner the 3rd party beneficiary of the PSA’s and entire servicing industry.

   The argument about 5% cap for modifying of the PSA’s is null and void, first because over 5% were modified with many and second the rights of the primary contract takes first precedence over the rights of any secondary contract, that is the MAIN reason for all the investor law suits taking place to beat the homeowners from winning.
9. Patrick says:

   August 8, 2011 at 10:31 am

   Susan,
   I have seen the United For Prosperity website and have real issues with what is presented and how it is argued. Some comments:

   1. The claim is made that by modifying 3.6m mortgages, all negative equity, that a legal precedent has been set that requires all negative equity loans to be modified. No actual statute or case law is mentioned, and each time I ask this question, I get no answer. So, please show me the statute or case law, and not just some “conceptual idea”.

   2. Each mortgage is a separate contract, between two private parties, as well as a modification of loan terms. The circumstances of each are different, and therefore, not applicable “across the board”.

   3. Not all modifications were Negative Equity. I know because I have seen non Negative Equity Modifications.

   4. Affordability was the issue in modifications, based upon NPV tests. It was not Negative Equity. Negative Equity was simply a common factor in most loans modified.

   5. What about all the loans with Negative Equity that were not modified? They were not modified because the needed terms would have presented a Negative NPV test result. The website does not even mention this.

   6. You make the assumption that simply reducing the loan amount to Fair Market Value would solve all default issues. I can absolutely tell you that for large numbers, reducing the loan amount to Fair Market Value and reducing the interest rate will still not result in them being able to repay the loan.

   7. What about all the people who used their homes as ATM’s, refinancing time and again, taking money out and using it for their toys or to buy other properties? So your plan rewards their own fiscal irresponsibility. Why should they be rewarded?

   8. What about the homeowners not underwater, but who make their payments? They get penalized by getting nothing.

   9. What about the homeowners with no mortgage? They get penalized as well.

   10. What about those who took out Neg Am Mortgages, knowing what they were doing, and making only the Neg Am payment? Their actions contributed to greater Negative Equity. Should they be rewarded?

   11. Nor does your program address falling values in the future, from various factors as over-built housing units, baby boomer issues, economic conditions, true affordability of homes, etc.

   Your program makes a blanket assumption that if a modification is done to Fair Market Value, and a 3.5% interest rate, that the homeowner will be able to make the payments, housing will recover, and all will be “hunky-dory”. It is a “one size fits all” program. And, the program is based upon highly questionable “legal conclusions”, to be diplomatic.

   The reality is that every modification effort must be undertaken using the homeowner’s current and complete financial situation. All factors must be considered, along with previous credit usage, local housing market conditions, NPV, and other related factors. All must be integrated to provide a wide angle view of the situation, and then true Default Risk determined. At that point, then a decision could be made whether the loan should be modified.

   The circumstances of each and every borrower seeking a modification are different. Each must be evaluated upon the merits of their situation. A one size fits all program will not work and will only postpone loan defaults to a later date. (That is why HAMP is a failure. It does not take into consideration all various factors.)
10. Susan Minerly says:

    August 8, 2011 at 11:55 am

    Hi Patrick:

    In response:

    1- there is no case law except for the reasonable and legal reliance of homeowners that the product they bought capitalistically would be treated with the same rules and laws, that is why the use of the legal concept PRECEDENCE. It is the same concept and word behind the UBS lawsuit and every other investor law suit. And it this case, issuing 3.6 million modifications to avoid the investors financial loss SET THE PRECEDENCE.

    2- Each mortgage is a separate contract but they are all governed by standard rules and laws on the State and Federal level. The “don’t pay be foreclosed on” rule is the number one capitalistic rule protecting the investors and the integrity of the product. The investors or servicers do not have the legal right to openly discriminate against homeowners who earn more money and can afford what they purchased BY NOT MODIFYING these homeowners when the investors financial loss is not different or the laws about unfair and deceptive business practices comes into play.

    3- Modifications are only issued when the investor would receive a financial benefit over foreclosing, it is and was a capitalistic business decision. There is no reason why a servicer would issue a modification for a homeowner with sufficient equity unless the equity wasn’t sufficient and the investor would still lose in a possible or potential foreclosure situation or the lender/servicer wanted to avoid a larger legal problem from a past action such as predatory lending, loss of the Note, NegAm loan, etc… The same type of concept that the largest lenders now want immunity from, let us modify x amount of homeowners and avoid the civil law suits popping up.

    4- Read what a net present value is, a eligibiilty test to determine if it is the investors best financial interest to modify the homeowner instead of defaulting losing a portion of their principal investment. Let’s be serious if modifications were about affordability and not investor loss, there would be no need for a +NPV, just a debt to income ratio qualification correcting their past lax underwriting decisions but it’s NOT.

    5- The eligibility test is flawed, the investors financial loss does not change based on how much income a homeowner earns, what the credit score is, how many of their neighbors defaulted or any other of the algorithm’s your company creates. A mathematical positive net present value is always present when negative equity is, just like the investors guaranteed negative equity loss is always present when negative equity is.

    6- Obviously you did not read the petition, I do not advocate for principal reductions but giving a consistent and similar financial benefit, advantage, compensation, incentive to all negative equity homeowners to remain negative equity homeowners avoiding the investors financial loss which is fair and just. The concept is I borrowed, you gave, capitalistically the home is a losing proposition that we both gambled on, so lets share the financial loss together, that neither party loses by themself and principal reductions automatically mean the investor loses and the homeowner wins.

    7- That one is like calling the kettle black, the current programs are exclusively geared for the homeowners who did use their home or credit cards as a ATM rewarding them financiallly with a lower payment while financially penalizing the responsible homeowners who are in a similarly situated position of negative equity.

    8- Again, in the proposal if a homeowner with equity believed the lies about modifications being about affordability, they are entitled to a one year temporary modification of 3.5% to help get them back on their feet. The homeowners with equity never LOST their capitalistic ability to refinance at today’s lower rates or sell their home as the negative equity homeowners did.

    9- Housing values will continue to fall affecting existing homeowners with or without mortgages but they will fall faster and longer the longer the housing market takes to correct. It won’t correct without a step by step plan, we will be in the LOST Decade just like Japan.

    10- I believe you answered this with number 3, the banks have realized that NegAm mortgages are really defective in a downward cycle of housing values and have been making every attempt to convert said mortgages to fixed rates. The proposal also will automatically convert all subprime, adjustable and previously modified homeowners with a 3.5% 30 year fix rate mortgage payment and term when the homeowners payment increases to be equal to the 3.5%. The problem with the POA’s is why would any homeowner voluntarily agree to pay a higher payment on a declining asset for the benefit of the investor.

    11- Actually it does, the program is in existence for two years before the old rule of Dont pay be foreclosed on returns, that means all the homeowners who will have negative equity are eligible for a negative equity modification avoiding the Strategic Defaulting occurring and if you read the rules page, the referee will attempt to support the lower value for the homeowners benefit making more homeowners eligible for a reduced payment.

    No, the program is not based on “hunky-dory” principal reductions to fair market value, it instills the responsibility of the homeowner and investor to maintain a capitalistic product a capitalistic product by sharing the financial loss of both their gamble that housing values would increase.

    Bottom line is owning a negative equity home is financial suicide for the homeowner and they are better off financially defaulting leaving the investor holding the bag which is WHY the financial industry changed negative equity homeowners accepted and agreed on contract clause to modify the negative equity homeowner with a financial incentive to STAY paying them instead of defaulting where the investor was left holding the bag.

    HAMP was and is a failure because it allowed the current violations of our laws to exist attempting to protect Wall Street’s profits over the rights of the citizens.
11. Patrick says:

    August 8, 2011 at 1:56 pm

    To address your points:

    1. Your arguments are totally baseless. Under the MBS agreements, all loans covered by the agreement could be actionable for re-purchase by lenders, and through investor actions. But this does not apply to homeowners and modifications. I have even shown the website arguments to my best attorneys, and they agree with me.

    There are no statutory regulations, nor case law, as you admit.

    2. You are making another false argument. An investor or servicer can do whatever they like with an individual loan. If a homeowner can meet the terms of the agreement, then he is obligated to do so. If he cannot, then it up to the investor or servicer to decide options available and to make a decision regarding same. There is no legal requirement to make the same remedy to all.

    Case in point, Mass Tort lawsuits. Remedies are based upon how much each person was harmed. Not everyone gets the same damages. If your arguments were correct, then each party would receive the same damages.

    3. Again, not necessarily true. Modifications are and have been given to people time and again, when they had equity in the home. It is purely a business decision, as you admit, but there are many different factors that go into same. There are factors unrelated to potential and actual litigation that are considered daily.

    I have seen lenders bend over backwards to try and do modifications for homeowners who committed their own fraud, or had brokers who committed fraud for them. It all depends upon the individual characteristics of the loan and borrower.

    4. Read NPV? I have done more NPV calculations than I care to think about. In fact, I have a new methodology for NPV being beta tested right now.

    FYI, an NPV test must also include the determination of the likelihood of re-default of a mortgage loan after modification. And this is where most homeowners fail. They will re-default unless loan terms are sufficiently changed, and when those changes occur to lessen default risk, the investor invariably loses money.

    Debt Ratios? What a joke that is. HAMP and others require a Front End Housing Debt Ratio of 31% for modification. That is acceptable. But no attention is paid to the Back End Debt Ratio where all the consumer debt is. HAMP, with the 31% Front End Ratio, has the median Back End Ratio of 64.5% of gross income, before deductions. These loans are pretty much guaranteed to re-default over time. Furthermore, previous credit usage even before the loan was taken out is not considered.

    5. The eligibility test must be dependent upon borrower characteristics. That determines likelihood of re-default, and also what payments and terms could be applicable. What you desire is to do away with any qualifying, no matter that the homeowner would re-default again anyway.

    6. Here are your terms:

    Tier 1- For loan to values of up to 115%, there is no match equity pay down option available, the under the market reduced interest rate is the only financial incentive offered

    Tier 2- For loan to values of 115.01% to 129.99%, it is a dollar for dollar matched equity pay down

    Tier 3- For loan to values of 130.00% to 144.99%, for every dollar the homeowner pays the investor will match $2.00

    Tier 4- For loan to values above 145.00%, the investor matches $2.00 for every dollar the homeowner pays and the interest rate offered is one half of an interest rate lower to further compensate the homeowner. At no time will lose their principal in modifying the negative equity homeowner, it is a shared financial loss.

    There are your terms. To me, this is principal reduction in a different name.

    Also, it appears that the Investor is going to be assuming the greater loss for 130% or greater loan to values.

    What I do not see is where the borrower must prove an ability to repay the loan. If they can’t repay, what good is any modification?

    7. You are right. The current programs allow the financially irresponsible and the investment homeowner buyer to get away with murder. That is why my new NPV test will factor that into the consideration.

    8. Argument makes no sense. 3.5% for one year would mean nothing. I have seen the financials time and again on homeowners in default, and most could not afford even 3.5%.

    BTW, ask a homeowner who has not paid his mortgage for a year or two about what he has done with the money for the mortgage payment. No one save it. Instead, they spend it, either for fun, or for living expenses. Either way, they would not be able to afford the new and lower payment.

    9. Housing values will continue to fall, even with what you suggest. There are too many other factors depressing the market, inherent weaknesses that must be addressed.

    Primarily, government must get out of the mortgage business. They must quit promoting homeownership to people who cannot afford homes, and quit guaranteeing mortgages. As it is, the new QRM Mortgages only seek to keep Fannie and Freddie as preferred lenders. Yet, Fannie and Freddie were a huge part of the problem.

    10. Again, you are making the assumption that a 3.5% interest rate would solve all problems. The reality is that for subprime and option arms, most loans have already recast to higher rates, or the homes have been foreclosed upon. Only ALT A 5, 7 and 10 year loans are left in considerable numbers.

    When the loans adjust, based upon the current MTA and LIBOR indexes and the typical margins for such loans, 3.5% would be greater than what the homeowner would pay at adjustment. So, do you propose that they keep the lower payment until the index and rate goes up above 3.5%? Is this fair to the investor?

    You are proposing a solution that could only be implemented by Congressional Legislation. Even worse, it would interfere with the Contracts Clause of the Constitution.

    This is perhaps the “worst” case scenario that could happen, letting the government step in and legislate how such a program would be introduced, and then administered. If the government cannot even balance a budget, how could they ever hope to administer such a program as this.
12. Patrick says:

    August 8, 2011 at 2:42 pm

    Giving it some further thought, as long as your program was not mandatory, then I could see that it could benefit a certain segment of the population. Being made mandatory, I would have issues with it, because it would involve Congressional legislation, and government oversight.

    I could actually see that it might work for portfolio lenders, as long as a true determination of the ability to repay a loan was made. If such was not a condition, then re-default risk would be far too great.

    However, there would be an issue for portfolio lenders. Their liquidity issues would make it difficult to accept too many buy-downs at one time. This is because each buydown would involve treating the $2 loss as a loan loss, and at some point could affect liquidity to the point whereby unless new capital could be raised, the lender could fail.

    I will actually place this program into an overall concept that I am working on to address various issues.
13. Susan Minerly says:

    August 10, 2011 at 3:52 am

    Hi Patrick,

    Before I forget, let me thank you for responding much quicker than I, my apologies. And I wanted to state I do understand your dilemna , your job and company is based on holding on to the belief that only one side matters, the financial industries.

    But the law is quite clear that the primary or underlying contract must be in legal standing (without legal issues) or the enforcement of the secondary contract can not be upheld, which is my point the illegal activity being allowed to occur for the benefit of Wall Street is outrageous and must be stopped.

    Common sense if both of the following homeowners do not receive the SAME financial advantage to remain negative equity homeowners, a unfair, deceptive and abusive business practice occurred that should be corrected and enforced by our government or the legal system which does state all similarly situated parties are entitled to the same treatment and compensation within the tort laws as you pointed out.

    Let’s take two homeowners that purchased next door to each other in 2005 for $300,000. on the same day flash forward 5 years with an average 37% decline in housing values both their homes are now worth $189,000 but they both still owe $279,163. or have negative equity of $90,163.(much less than the average negative equity being listed in the media)

    How is their financial loss or damage different? It would take BOTH another 12.5 years of paying the mortgage at 6% with a monthly payment of $1,798.65 to reach the current value of their home. There is no capitalistic benefit for EITHER homeowner to remain, they should default because it is financial suicide for THEM to remain regardless of whether they can afford the payment. The financial industry understands this and it is why they changed some, not all of negative equity homeowners mortgage contracts and standard operating procedure destroying the equal right to equality and equal treatment within the rule of law. Owning a home is not a socialistic opportunity and shouldn’t be treated as one.

    Or how is the investors financial loss different if both homeowners defaulted? The current average investor capital return is between $0.35 and $0.40 on the dollar amount outstanding but it never exceeds the current VALUE of the home minus foreclosure cost and expenses. The value of the home was $189,000 minus a low ball estimate for foreclosure expenses of 10% or $18,900. the investor receives $170,100. back out of $279,163 losing $109,063 of principal and any hope of future anticipated interest profits.

    Instead under my program, http://unitedinprosperity.org the homeowners receives a monthly payment of $1,179.96, a savings of $621.69 a month($7460.28 a yr) and has the option of paying $2554 extra a year that will be matched by the investor paying $2 for every $1 the homeowner pays toward negative equity since the homeowner is in Tier 4 with a LTV of 147.7%.. The capitalistic intention of lowering the payment is to be similar to the monthly expense of renting a similar dwelling or purchasing another property at todays lowered value with the current prevailing interest rate is based on most people do not like to move, they bought their home for a personal reason such as location, school, family, worship, employment etc…and in making a losing financial situation more about here is a way to save face and still have pride of homeownership is a smart business decision, which is how and why the financial industry voluntarily decided to INCENTIVIZED the negative equity homeowner to remain on a massive scale.

    From the investors point of view, the automatic guaranteed loss to THEIR capital and all future interest earnings has been AVOIDED if the homeowner stays and pays, which is all the current modification are a financial incentive (hopefully only losing a little of the anticipated interest profits) being given to the negative equity homeowner to remain and pay the investor the outstanding principal balance owed. (previously modifications were actually a temporary work out plan to get the homeowner back on track in situations of life events (financial hardships) , lets call a spade a spade,a business doesn’t stay in business by giving away profits for no reason and we know Wall Street doesn’t have compassion, it is a business machine)

    The worst case scenario, the investor earns $74,291 in interest payments and $ 65,767 of the outstanding principal balance. And if the homeowner paid the maximum that would be matched of $2554 every year for 10 years, the investor would reduce the principal for $51,080. technically only earning $23,211 in interest after the matched equity was paid to the principal leaving the homeowner with the outstanding principal balance of $136,776. and hopefully in a equity positiion, if the values decreased another 10-15% WHICH I TOTALLY AGREE MUST HAPPEN and will happen, the homeowner would be at 82%LTV)

    But in reality in the current economic situation and the fact that homeowners are overleveraged also, (as you pointed out with the back end DTI) the savings the homeowner received would go toward normal living and spending expenses not to paying down the negative equity, leaving the investor earning the full $74,291 in interest payments and the $65, 767 in principal payments, with the risk of leaving the homeowner at the end of ten years with a principal balance of $213,396 stll in a negative equity position but with a low monthly payment of $1176.96 versus a guaranteed loss in principal NOW. And if the homeowner defaulted within that 10 year period the foreclosure process would not take over 18 months as it does now because the legal system would not look favorably on the homeowner who defaulted on a National Standard Modificaiton, leaving the servicer/investor totally in the RIGHT position, which they aren’t now from their perceived and actual illegal activies.

    Or let’s say that the homeowner who didn’t pay one cent toward the matched equity pay defaulted in 10 years because they still had negative equity and the investor foreclosed, the investor using the same 15% decline in housing value would lose $68,811 in principal and expenses in 10 years but would have been paid $74,291 in interest and $65,767 in principal payment for 10 years actually coming out ahead $71,247.

    And according to my proposal the http://unitedinprosperity.org , if you can’t afford or won’t pay a lower monthly payment of 3.5% you shouldn’t be a homeowner, there are no free lunches or principal reductions taking away from our pension funds and if your payment is currently lower than 3.5%, you have 2 years to convert it to a 3.5% fix rate leaving the problem up to the investor who invested in the POA, if you decide not to . The entire program is based on stopping the violations of existing laws, the principles of capitlism and the precedent set.

    As far as you placing the program into your “operations” I am politely requesting that you not follow the OCC, HUD and the Attorney General’s proposed settlement in borrowing my ideas without the express written authority of me, the founder of the program.

    But most importantly, the program should be mandatory and it is not set up to be administered by the government as the rules page clearly shows. The current system of Wall Street and the GSE’s policing themselves is not working, there needs to be a 3rd party referee with one clear concise set of rules to instill confidence in the housing sector for homeowners and investors and I elect myself with another couple of hundred thousand or so Main Street workers. The program will create a minumum of a six billion dollar monthly stimulus in disposable income on and for Main Street (if values don’t decrease and if they do as predicted, the stimulus increases to be over 15 Billion Dollars a month) which is needed to create jobs fueling the economy recovery.

    PS, if the government really got out of the mortgage industry, there would be no homeowners or investors because who really wants to buy or invest in a declining asset. The financial industry had it right, their only option was to keep the fools oh, I meant homeowners they have at the higher mortgage amounts to avoid losing the negative equity portion of their capital investment.
14. Susan Minerly says:

    August 10, 2011 at 2:36 pm

    Hi Patrick,

    Before I forget, let me thank you for responding much quicker than I, my apologies for the delay.

    But the law is quite clear that the primary or underlying contract must be in legal standing (without legal issues) or the enforcement of the secondary contract can not be upheld, which is my point , the various illegal activity being allowed to occur for the benefit of Wall Street is outrageous and must be stopped. Why would investors be allowed to receive compensation(buy backs) for the illegal and misrepresentations of the mortgages before negative equity homeowners who are the REAL victims are corrected?

    Let’s look at the issue from the homeowners and the investors side with basic mathematical logic.

    Why shouldn’t both of the following homeowners not receive the SAME financial advantage to remain negative equity homeowners, they are similarly situated? Because of investor/servicer imposed unrelated guesses and stipulations such as a prediction of who is likely to default or how much money they earn, neither changes the financial harm/damage the homeowner is experiencing.

    But not giving both negative equity homeowners a consistent and similar modification is in violation of the Unfair, Deceptive and Abusive Business or Trade Practice laws, which can be enforced by our government or the legal system which does state all similarly situated parties are entitled to the same treatment and compensation that can include not only compensatory damages but punitive damages within the tort laws as you pointed out.

    Let’s say the two homeowners purchased next door to each other in 2005 for $300,000. on the same day flash forward 5 years with an average 37% decline in housing values both their homes are now worth $189,000 but they both still owe $279,163. or have negative equity of $90,163.(much less than the average negative equity being listed in the media) And it doesn’t matter to either homeowner whether the investor or servicer is the same entity for both homeowners.

    How is their financial loss or damage different? It would take BOTH homeowners another 12.5 years of paying the mortgage at 6% with a monthly payment of $1,798.65 to reach the current value of their home. There is no capitalistic benefit for EITHER homeowner to remain, they should default because it is financial suicide for THEM to remain regardless of whether they can afford the payment. The financial industry understands this and it is why they changed some, not all of negative equity homeowners mortgage contracts and standard operating procedure destroying the equal right to equality and equal treatment within the rule of law. Owning a home is not a socialistic opportunity and shouldn’t be treated as one.

    Or how is the investors financial loss different if both homeowners defaulted? The current average investor capital return is between $0.35 and $0.40 on the dollar amount of the current VALUE but it never exceeds the current VALUE of the home minus foreclosure cost and expenses. The value of the home was $189,000 minus a low ball estimate for foreclosure expenses of 10% or $18,900. the investor receives $170,100. back out of $279,163 losing $109,063 of principal and any hope of future anticipated interest profits or $0.61 out of every dollar still owed.

    Instead under my program, http://unitedinprosperity.org the homeowners receives a monthly payment of $1,179.96, a savings of $621.69 a month($7460.28 a yr) and has the option of paying $2554 extra a year that will be matched by the investor paying $2 for every $1 the homeowner pays toward negative equity since the homeowner is in Tier 4 with a LTV of 147.7%. The capitalistic intention of lowering the payment is to be similar to the monthly expense of renting a similar dwelling or purchasing another property at todays lowered value with the current prevailing interest rate is based on the fact that most people do not like or want to move, they bought their home for a personal reason such as location, school, family, worship, employment etc…and in making a losing financial situation more about here is a way to save face and still have pride of homeownership for the homeowner is a smart business decision, which is how and why the financial industry voluntarily decided to INCENTIVIZED the negative equity homeowner to remain on a massive scale.

    From the investors point of view, the automatic guaranteed loss to THEIR capital and all future interest earnings has been AVOIDED if the homeowner stays and pays, which is all the current modification are about,a financial incentive (hopefully only losing a little of the anticipated interest profits) being given to the negative equity homeowner to remain and pay the investor the outstanding principal balance owed. (previously modifications were actually a temporary work out plan to get the homeowner back on track in situations of life events (financial hardships) , lets call a spade a spade,a business doesn’t stay in business by giving away profits for no reason and we know Wall Street doesn’t have compassion, it is a capitalistic business machine)

    The worst case scenario, the investor earns $74,291 in interest payments and $ 65,767 of the outstanding principal balance. And if the homeowner paid the maximum that would be matched of $2554 every year for 10 years, the investor would reduce the principal for $51,080. technically only earning $23,211 in interest after the matched equity was paid to the principal leaving the homeowner with the outstanding principal balance of $136,776. and hopefully in a equity positiion, if the values decreased another 10-15% WHICH I TOTALLY AGREE MUST HAPPEN and will happen, the homeowner would be at 82%LTV)

    But in reality in the current economic situation and the fact that homeowners are overleveraged also, (as you pointed out with the back end DTI) the savings the homeowner received would go toward normal living and spending expenses not to paying down the negative equity, leaving the investor earning the full $74,291 in interest payments and the $65, 767 in principal payments, with the risk of leaving the homeowner at the end of ten years with a principal balance of $213,396 stll in a negative equity position but with a low monthly payment of $1176.96 versus a guaranteed loss in principal NOW. And if the homeowner defaulted within that 10 year period the foreclosure process would not take over 18 months as it does now because the legal system would not look favorably on the homeowner who defaulted on a National Standard Modificaiton, leaving the servicer/investor totally in the RIGHT position, which they aren’t now from their perceived and actual illegal activies.

    Or let’s say that the homeowner who didn’t pay one cent toward the matched equity pay defaulted in 10 years because they still had negative equity and the investor foreclosed, the investor using the same 15% decline in housing value would lose $68,811 in principal and expenses in 10 years but would have been paid $74,291 in interest and $65,767 in principal payment for 10 years actually coming out ahead $71,247.

    And according to my proposal the http://unitedinprosperity.org , if you can’t afford or won’t pay a lower monthly payment of 3.5% you shouldn’t be a homeowner, there are no free lunches or principal reductions taking away from our pension funds, the investors of the MBS and if your payment is currently lower than 3.5%, you have 2 years to convert it to a 3.5% fix rate leaving the problem up to the investor who invested in the POA, if you decide not to . The entire program is based on stopping the violations of existing laws, the principles of capitalism and the precedent set by the financial industries actions.

    As far as you placing the program into your “operations” I am politely requesting that you not follow the OCC, HUD and the Attorney General’s proposed settlement in borrowing my ideas without the express written authority of me, the founder of the program.

    But most importantly, the program should be mandatory and it is not set up to be administered by the government as the rules page clearly shows. The current system of Wall Street and the GSE’s policing themselves is not working, there needs to be a 3rd party referee with one clear concise set of rules to instill confidence in the housing sector for homeowners and investors and I elect myself with another couple of hundred thousand or so Main Street workers since it is my program. One of the program is it will create a minumum of a six billion dollar monthly stimulus in disposable income on and for Main Street (if values don’t decrease and if they do as predicted, the stimulus increases to be over 15 Billion Dollars a month) which is needed to create jobs fueling the economy recovery for all.

    PS, if the government really got out of the mortgage industry, there would be no homeowners or investors because who really wants to buy or invest in a declining asset, especially without guarantees or low down payments (FHA). The financial industry had it right, their only option was to keep the fools oh, I meant homeowners they have at the higher mortgage amounts to avoid losing the negative equity portion of their capital investment by modifying them, unfortunately they didn’t do it fairly or within the rule of law including the predatory lending laws. (same interest rate for the same risk factors)
15. Patrick says:

    August 10, 2011 at 5:14 pm

    an,
    My real problems with what you propose are actually quite simply. They are:

    1. The primary contract has legal issues: This poses a real issue for me because it would appear that you are making a blanket statement that the original terms and conditions of each and every loan is unlawful in some manner or another. As a result, all negative equity homeowners should receive some remedy, a la your program.

    Such a blanket determination cannot be made without examination of each and every loan that is taken out. Just because a loan is stated income, or has some other issue does not mean that it is not lawful for the homeowners. Courts across the nation have ruled that a lender has no fiduciary duty to a borrower to determine the ability to repay a loan. That duty only exists with regard to their investors.

    A Trust can file suit for this, based upon the Reps and Warranties section, but that does not give a homeowner the right of private action based upon a Third Party Beneficiary. This is also well established under Court Rulings.

    Since your proposal does not address the circumstances of each individual loan, then it is flawed when you make arguments that the primary contracts are unlawful. (Even Class Action lawsuits by homeowners fail for the reason that each loan is different. That is why the major Class Action firms will not take up such cases.)

    2. Why shouldn’t both the following homeowners receive the same financial advantage.

    This would be a “direct attack” upon the Contract’s Clause of the US Constitution. You are mandating through some form of legislation that all Negative Equity homeowners would be entitled to relief, no matter their financial situation. Then, where would it stop? Would purchasers of autos be entitled to the same terms and price, even though one can negotiate better than another? What about those who purchase stock or sell stock? Are they entitled to the same price though they have not sold or purchased at the same moment in time?

    If a homeowner can make his payments, then he should be held to making them, unless he can negotiate with the servicer to change the payments. And, if a homeowner cannot make his payments, then he should be held to the same standard by defaulting, unless he can negotiate a better deal with the servicer.

    You are trying to “mandate” an equal outcome for all, without regard to what went previously.

    3. You bring up an interesting concept trying to use UDAP laws to guarantee outcome for all. But UDAP laws will almost always require that the particular circumstances of the individual loan be considered. That is why most UDAP Class Actions have failed to be certified as well.

    4. You mention that both homeowners should default rather than face financial suicide without modification. The truth is that I actually agree with this statement.

    If a homeowner is underwater significantly, by greater than 125%, it will often make much more sense to walk away, wait 4-5 years, build up cash, and re-buy a better home, at a much lower price. If they would not be able to re-buy due to some circumstance, then perhaps they should not own a home anyway.

    As you say, and I agree, homeownership is not a right, and, to believe it so would have an appearance of socialism. Yet, under what you propose, would not that be an element of socialism, mandating the same result for all?

    5. Your financial analysis of the investor position:

    On the face of it, you make a pretty good argument for your program. But once again, you make the argument that it must be a Federally Mandated Program. There is no way in the world that I would ever agree to that part of the concept.

    Also, again there is no regard for determination of the ability of a borrower to repay the loan, even after the modification. If the borrower cannot make the payment, what is the use of a modification?

    Look at what the government has done with every other program that they begin or get involved with, whether it is homeownership, Obamacare, or any other sector. It only worsens everything. Yet, you would have the government oversee this type of program?
    If the government can “mandate” or “legislate” such programs that destroys the sanctity of private contracts, then where would they stop? They would not…….and socialism would be here even faster than what it is approaching now.

    Personally, I like the new program being instituted by Ocwen. I have seen the modification documents and run the numbers. It is a great deal for the homeowner, reducing principal to 95% of FMV over a three year period, provided that the homeowner makes the monthly payment per the modification agreement. That program is a part of one of three recommendations that I will make for each client, for the attorney to pursue.

    Don’t worry. I will not even refer to your program as an option. Since it does not require determination of a homeowner’s ability to repay a loan, a lender would not even consider it. It is unfortunate because there are some realistic elements that could make sense under the right circumstances.
16. Aaron Krowne says:

    August 12, 2011 at 9:37 am

    I just want to say, I think we COULD have a large-scale re-factoring of mortgage debt if one or more of the following happened:

    1) repeal the 2005 bankruptcy law which prevents cram-downs. I see no fundamental reasons for this (So now its tax, student loans, and mortgages. We are approaching the day when every major type of consumer debt will somehow be “immune” from bankruptcy, which defeats the point of bankruptcy. This is unjust.)

    2) The government could threaten to remove macro-props from the banks unless they do principal reductions. This could be done in some sort of structured loss-sharing with the Treasury (instead of the ad hoc Treasury draws Fannie and Freddie are doing now).

    3) A program wiping out underwater seconds would not be unreasonable, since nothing makes these “secured” anymore. These could be turned into appreciation equity.

    I think the above are the best we can hope for, given the legal points Patrick makes.
17. Patrick says:

    August 12, 2011 at 10:46 am

    Aaron,

    There are programs available to solve many homeowner issues on an individual basis. The problem is that with each program, there are only a certain subset of homeowners that can utilize the program. Unfortunately, a “one size fits all” solution does not exist.

    For example, you mention “underwater seconds”. I work with a company that actually does that for homeowners on an individual basis. The company will negotiate down the second mortgage so that a homeowner can pay off the mortgage for 10 to 20 cents on the dollar, or negotiate a plan whereby the reduced mortgage is paid off over a years time. This plan is attractive to lenders because it ensures that they will at least get some money repaid, rather than losing all in a foreclosure action. Unfortunately, this plan only works with homeowners who meet certain criteria.

    Portfolio lenders have their own problems in that when they are banks, liquidity reserve plays a major role in any ability to reduce loans balances to Fair Market Value. I am working with another company whereby we have developed a plan to address such issues, and especially when dealing with smaller, local lenders. But, only 15% of loans are held by portfolio lenders.

    What must be kept in mind by advocates is that any resolution of homeowner issues must entail a determination that a borrower has the ability to repay a loan. This ability must take into account not just income and debt issues, but also issues related to financial responsibility. (Hmmm, another idea just generated………..)

    This weekend, I will put together a piece detailing different options and programs that could be implemented to reduce the foreclosure part of the housing crisis.

    However, this only treats the symptoms of the duress in housing. There are greater issues that have distorted the market and that must be resolved in order to bring true stability to the market. I will try to shed more light on these issues.
18. Resolving The Foreclosure Crisis :: ML-Explode.com says:

    August 19, 2011 at 6:11 pm

    [...] I posted an article which discussed stresses upon the housing market, current and future, and how the stresses were [...]
19. Promoting Housing Recovery: Parts I and II :: ML-Explode.com says:

    August 26, 2011 at 4:32 pm

    [...] appears to only look at the short term, and is ignoring many relevant factors that I presented in a previous article. To achieve true affordability, home values must drop another 30-50% in some [...]
20. Susan Minerly says:

    August 31, 2011 at 4:21 pm

    Patrick,

    I am sorry for the delay I lost the page.

    In response to the homeowners right to private action,just because the homeowners mortgage contract was sold into a MBS, the homeowner never lost their legal right to file a private or class action law suit against whoever CURRENTLY holds or services the homeowners orginial mortgage and note, for the current servicer or investors illegal activities such as breach of contract, unjust enrichment, unfair and deceptive business practices, lack of honest and good faith dealing, discrimination and numerous other violations occurring as proven by the recent California class action law suit filed against Bank of America for the above violations including a 3rd party beneficiary violation.

    I never stated the homeowners orginial contract was unlawful but that the actions of the current servicer/investor are unlawful against EXCLUDED or RESTRICTED negative equity homeowners given them the right to sue when the same servicers/investors voluntarily issued 3.7 million negative equity modifications as a change in the industry’s standard practice to avoid the investors guaranteed negative equity loss setting a PRECEDENT for the NEW standard of practice, action and procedure when negative equity is present as shown on the website: http://Unitedinprosperity.org .

    Why would homeowners be excluded from a class action status when some of the excluded investors (Walnut Place, LLC and others) of the 530 trusts from the recently proposed Bank of America 8.5 billion dollar settement just changed their private law suit to a class action law suit on the legal basis of being similiarly situated parties regardless of the individual characteristic’s of the combined loans in the trust opening the door further for negative equity homeowners to file class action law suits.

    In response to the proposal being a form of socialism it isn’t when the entire proposal is based on the principle of capitalism, you bought or invested and lost, so share the loss between the only two parties involved the homeowner and the investor instead of only one party losing or the taxpayer being responsible for the investors that the government has chosen to pay, supplement or guarantee their losses, that is not capitalism.

    Since you used a car as the analogy, let’s agree that the owner of the car has the legal right to expect that the lender would service their car loan in a similar and consistent manner as agreed to and was standard industry practice since there are laws that protect the owner of the car from abusive and unfair practices.

    But if for some reason, such as BLUE cars had a defect that meant the lender of the car loan would lose money if the car owner defaulted, the lender changed the rules by deciding to lower the rate or principal balance for any BLUE car owner that couldn’t afford their payments but not for all BLUE cars owners, why wouldn’t the excluded BLUE car owners have a right to sue and win. What would the lenders defense be?
21. Patrick says:

    August 31, 2011 at 5:25 pm

    Susan,

    Here we go again.

    Homeowners have no private right of action using Trust issues, except when very specific terms exist in the PSA that with absolute clarity, show a complete Chain of Title from Lender to Sponsor to Depositor to Trust. That was the requirement in the Alabama case. But most Trusts do not have the specific wording.

    I believe that you refer to the B of A Lawsuit filed in Oct 2010. Sure, you can allege anything in an initial complaint, but that means nothing. Until the lawsuit survives the demurrer, and is certified for class action, and then litigated, it means nothing. I have seen attorneys use these complaints day in and day out, and the complaints get dismissed at the demurrer.

    I have shown your arguments about Negative Equity and the modifications being done setting a legal precedent for requiring all such Negative Equity loans to be modified, and the most “charitable comment” that is made is that the argument is “nuts”. There simply is no legal precedent, and that is shown by the fact that you have been unable to present case law to that effect, or to statutory law either.

    Your arguments of Negative Equity are akin to the arguments that I see whereby people claim:

    Securitizing the loan changes the terms of the note and makes it not possible to foreclose.

    Selling the loan paid off the debt, so there is no debt owed.

    A refinance of a loan is not a refinance, but instead is a modification of a loan.

    No actual money changed hands, only credits, so that there was no “consideration” and so that there was legal contract.

    When the servicer advances funds to the Trust, per the PSA, then the loan cannot be in default.

    These and other “arguments” are simply myths and nothing else. And your Negative Equity arguments fits in the same category.
    Your program could be beneficial, if you were not trying to claim a legal precedent. But when you make the legal precedent claim, you do more harm than good.

    Any program like what you suggest cannot be implemented by “force” using a false claim of precedent. When you do so, you ignore Constitutional Principles regarding Contracts. If a homeowner wants to approach a lender or investor on their own and propose such, that is fine.

    Your program would also ignore the fact that for large numbers with Negative Equity, even your plan would not help them avoid default. It would simply delay foreclosure for a period of time.

    Your plan does not address issues for portfolio lenders who are subject to liquidity or loan loss requirements for Tier 1 and Tier 2 capital. Each time principal was paid and the 2-1 forgiveness occurred, then the lender would need to write off the amount forgiven as losses. Since most lenders are capital impaired, this would result in many more lenders failing.

    Your program also does not address issues in that most people cannot make the contributions to principal that would allow for the 2-1 reduction. They don’t have the financial means.

    When loans are 125% or more underwater, the majority will at some point default. There is statistical evidence to support this. The reason is that people simply “give up” on being able to ever have equity, so they cut their losses. Your program will not alleviate this, since most will not have the additional funds to make extra payments to principal.

    What about continuing home devaluation? Your program is not going to stop that. If anything, the borrower will make a payment of $2k, and receive a reduction of $4k for a $6k total decrease in the loan amount. What do they get? Further loss in value of the home, placing them in a greater Negative Equity position even after the amount forgiven. At what point do they give up and walk away? That will happen.

    You also ignore the 800 pound elephant in the room. Debt forgiveness results in a report to the IRS as income. That gets taxed. So after one or two tax bills, do you really think that a homeowner will continue with all stacked against him?

    So, you have structural deficiencies, tax issues, borrower disposable income issues, falling home value issues, and homeowner behavioral issues at play, as well as your “dubious” claims of precedent.

    Even omitting your precedent claims, your program would benefit very few people.
22. Susan Minerly says:

    September 2, 2011 at 4:03 am

    Hello Patrick,

    I hope you are well and thank you again for answering me so quickly. I apologize for not expressing myself as well as you, I never said that homeowners have the “blanket” right to sue a Trust for a breach of contract made between the Trust and the homeowner since there is no direct contract between the homeowner and the Trust. But because the investors purchased the homeowners primary mortgage contract and security interest both the financial and legal aspects of the homeowners primary mortgage contracts were assigned to the investors in the purchase contract. The secondary or actually third contract of the investors and Trusts or servicers is BASED upon both the financial and legal aspects of the primary contract of the homeowners being assigned to the investors then the Trust or PSA’s contracts, the assignments do not take away from the homeowners right to sue just changes the name of the party to sue when there is a breach of contract or other violations of the law.

    Logically and legally the courts have already decided that the primary contract, the homeowners contract, takes first place or precedence in legal issues, conflicts and enforcement before the validity of any secondary or third contracts such as the investors or PSA’s or Trust can be enforced supporting contract law in general, I am not trying to change contract law just enforced it and not by picking and choosing. The assignments of the primary contract legal aspects is why the secondary/third contracts have the right to collect and foreclose and why there is a rush for investors to sue FIRST to alleviate themselves of the increasing financial loss of foreclosing on negative equity homes that they had contractually agreed to. The law works both ways, there is no picking and choosing what contracts or parts of the contract we want to enforce.

    I apologize the class action case I referred to was made against Chase Home Finance (11-CV-530JLS) not Bank of America, though the National Consumer Law Center did file a class action case against Bank of America in 2010 (CA 10-10316) and many other class action law suits destroying your attorney’s friends claims that no reputable attorney, since the National Consumer Law Center is considered a reputable attorney, would take a class action law suit on the homeowners behalf.

    In the case I spoke about of Chase Home Finance the motion to stay filed by Chase was denied, it is proceeding. Though it is my opinion, that the financial industry wil try to settle out of court the individual and any class action law suits filed avoiding setting the actual legal precedent that I refer to in my website, http;//unitedinprosperity.org because it would legally entitle all similarly situated parties to the same financial benefit destroying Wall Street and our pension funds, which I don’t want to happen.

    If you google class actions law suits against individual mortgage servicers, you will notice that more and more are popping up trying to legally establish that the actions of the financial industry as a whole have set their own PRECEDENT( demise) , and as I stated in my website, http://unitedinprosperity.org it only takes ONE court case to be lost by the financial industry that determines(legally clarifies) that the actions(modifications) of the financial industry were to avoid the investors financial negative equity loss to bring down the whole deck of cards (the financial industry) by giving a similar and consistent financial benefit to all similarly situated parties, negative equity homeowners as the LEGAL precedent.

    Again, I apoligize I thought I expressed myself that a precedent was set by the financial industries actions not that a court actually decided on it, that is why the financial industry STILL HAS the option of deciding the financial incentive, benefit,advantage, compensation to be given to negative equity homeowners to remain avoiding principal reductions. (ps some previous “myths” were black people had no rights because they were only good for slaves or women were inferior to the male that is why they didn’t have the right to vote, and I am sure you could think of a few more myths that weren’t true and were legally changed after they were recongnized as being wrong)

    The object of my capitalistic proposal was to avoid the courts determination of what the similar and consistent financial benefit and advantage AWARDED would be which would definitely include principal reductions and most likely punitive damages for all similarly situated parties based on negative equity, the financial loss involved, not the homeowners income in a court of law. I know that negative equity homeowners have increased from 23% to roughly 32% but I read that it would take 750 billion dollars to reduce the negative equity portion of the prior reported fiqure of 23% of negative equity homeowners mortgage debt to 115%. Imagine how much more it would be if 32% or 48% of homeowners mortgage debt was reduced to market value(100%). As you yourself pointed out, Ocwen is giving principal reductions based on negative equity, why shouldn’t every negative equity homeowner be entitled to a principal reduction regardless of the holder or servicer of the note or what the homeowner earns, when the financial loss experienced by the investor or homeowner is negative equity?

    The defense that the servicer/investor/trust has the right to pick and choose or REnegotiate the terms of a mortgage contract on an individual basis based on what the homeowner can afford to pay when the reason for the modification is negative equity is a smoke screen which is ridiculus, invalid and illegal. What has been occurring is that the sole “power” has been given to the servicer to REnegotiate the terms of a whole class of contracts for the financial benefit of the investor (usually the servicers financial benefit takes first precedence though) or the homeowner loses his home violating the homeowners rights and lost of general reliance from his loan NOT being serviced in a consistent and similar manner as the servicing industry or any industry is legally required to operate within, since the servicer is allowed to self police themselves violating numerous business laws without fear of paying for the violations. ( PS, the investors law suits include claims against the servicers for foreclosing for their own financial interest violating the PSA contracts itself) Again, my program eliminates the servicers inherent self interest and the power to pick and choose based on unrelated imposed changing stipulations putting all investors financial interest in the same category of avoiding losing their capital investment with a modification that doesn’t have principal reductions supporting contract law and personal responsibility. The servicer or PSA’s contract clearly state that the servicer must perform (service the loan) in the investors best legal financial interest not their own and my program supports the investors contract law. While the homeowner has the right to refuse the national modification, if they do refuse, the normal consequences of foreclosure, poor credit rating and a posible deficiency judgement would occur immediately eliminating the homeowners free ride for years again supporting contract law, the principles of capitalism and existing laws.

    The fact of the manner is a change in the standard operating procedure of “don’t pay be foreclosed on” (power of sale clause found in every homeowners mortgage contract) to let me modify you instead of foreclosing TOOK PLACE but only if the homeowner could prove a socialistic financial hardship (usually covering and eliminating some kind of prior predatory lending violation ) or at the servicer/banks discretion BUT only when negative equity was present proven by a +NPV. I never said the servicer does not have the right to work with the homeowner on mutually beneficial terms just that that they don’t have the right to pick and choose or give different modifications to similarly situated homeowners for the same financial loss involved and in doing so they violate numerous capitalistic laws as shown in the various law suits being presented and in my opinion the servicers nor the government is capable of following the law when they don’t financially benefit. I am not an attorney, but the current law suits are only the tip of the iceberg, my program avoids the majority of law sutis by having a detailed concise transparent fair modification plan in place. The avoidance of law suits is based on the acknowledgement and a detailed pro-active modification plan in response to the fact that a homeowner with negative equity only BECAME an issue when the financial industry modified over 3.7 million negative equity homeowners to avoid the investors guaranteed financial loss because before that negative equity homeowners had no right to a modification, it is up to the financial industry and the government holdings of the GSE’s who hold over 60% of all mortgages to not only acknowledge but acknowledge the change and follow the law.

    In reply to the argument about helping a limited number of negative equity homeowners, my program increases the number of negative equity homeowners helped by including ALL 32% of negative equity homeowners with lower payments and increased disposable income. It also includes homeowners with equity who truly thought modifications were about affordability with a one year temporary modification with a lower payment and increased disposable income fueling the supposely “recovery” we are in.

    I am aware that most homeowners would not take advantage of the matched equity pay down option due to their lack of sufficient disposable income that would be increased with the lower payments and most likely used for normal living expenses BUT that actually helps the Tier 1 and 2 capital ratio’s requirements plus isn’t a performing loan removed from capital ratio requirements? Secondly with a lower payment for 32% and climbing of homeowners the disposable income of Main Street increases by over 10 billion dolllars each and every month without costing the taxpayers one penny creating job creation from people actually being able to spend money on other items than their mortgage payments.

    The capitalistic rationale is the homeowner is incentivized with a lower payment to remain a negative equity homeowner hopefully equaling what another home would cost him/her monthly without the additional expense and emotional distress of moving then if a foreclosure occurred, I am not changing the current business concept of modifying instead of foreclosing just increasing the business concept to include all similarly situated parties as the law demands within a predetermined length of time. Why would the concept or amount of defaults increase if all homeowners were being treated equally and there were no principal reductions? The rule of thumb is Give to one, give to all. I personally believe strategic defaults would decrease or happen immediately since the program gives all negative equity homeowners the same capitalistic financial incentive to remain a negative equity homeowner for a limited time of 2 years before ” dont’ pay, be foreclosed on” returns restoring the normal capitalistic principles to the housing industry and obviously so does the financial industry that is why they changed the business concept to modify instead of foreclosing.

    The financial industry is counting on most homeowners want to remain homeowners and will continue to pay the higher mortgage balances even though it has been shown to be unrealistic based on the increase in defaults, over 80% of all delinquent homeowners have negative equity, my program gives all negative equity homeowners the right and option to choose to be foreclosed on or be modified with ONE modification program taking away the servicers power to decide and putting the principles of capitalism into play. It also eliminates the goverments concept of selling bulk distressed sale properties to new investors to modify the curent homeowners taking capital away from the current investors in the bulk reduced sales.

    As far as continuing the decline in housing values, your right my program does not stop values from declining but does stop them from continuing to decline for years though matching Japan’s lost decade that is still continuing. Industry experts agree that housing values will continue to decline another 10-25% just based on the shadow industry but could over correct by continuing to decline as long as the increased volume in foreclosures continue to occur plus the fact who really wants to buy or invest in a declining asset especially if the government is not going to continue to cover the losses, the supply and demand theory.

    Without an across the board modification plan to keep as many negative equity homeowners as possible homeowners (paying the higher mortgage balances at reduced interest rates) it is expected alot more negative equity homeowners will default because it is financially benefical to the homeowner to default as property values decline and their negative equity increases. Another 10% decline in values raises the amount of negative equity homeowners to 48% of all homeowners according to Corelogic how many homeowners will default then?

    If the government (taxpayers) weren’t responsible for the losses occurring, the porfolio lenders would have to write down much greater losses with a foreclosure than if a homeowner actually took advantage of the matched pay option, I didn’t understand the exact argument but the government could exempt match equity pay down from banks losses from increasing the capital reserve requirements since they are already allowing the banks not have to mark(reduce) the outstanding principal balances to actual market values, it is could be just an accounting change accomplished quite quickly. As for homeowners, the extra amount paid in principal from themselves and the investor is a loss, not income that could be filed on their tax returns as a deduction already. Remember the law works both ways, the investor counts it as a loss so the homeowner should too, I do know this has to be legally changed but it is in the 46 page proposal submitted, believe it or not I shorten it for the website and in the proposal I suggested allowing for a double loss amount to be used for tax purposes in modifications only for investors.

    I hoped I explained how my modification system, the http://unitedinprosperity.org is better than the current model(s) being used but I await your reply.

    PS, Aaron, in my program the second mortgages are not wiped out but automatically modified re-enforcing contract law and personal responsibility even though they are unsecured but there is an across the board mortgage restructuring based on negative equity that does not include the bankruptcy courts or the government, it is operated by a private national capitalistic company comprised of Main Street employees that are reviewed on each and every transaction by Wall Street with it’s predetermined rules.
23. Patrick says:

    September 2, 2011 at 11:46 am

    A homeowner can sue, but on what allegations? Breach of Contract as you suggest? What events caused the breach of contract? Specificity is needed to meet the heightened pleading level.

    Next, when the loan is purchased, the purchaser can always claim Holder In Due Course status. To invalidate Holder in Due Course, you must be able to again show the heightened pleading level, and that the allegations were readily evident “upon the face of the documents”. Of course, “face of the documents” would require interpretation.

    The investors are filing suits and I am in agreement with them filing the suits, based upon Reps & Warranties. But they have different issues than a homeowner.

    The Chase case is based upon loan modification efforts. The complaint alleges that Chase systematically denied mods under HAMP after successful trial mod payments had been made, and that Chase threw other obstacles into the path.

    The problem with this case is that each and every loan modification is different in circumstances. Therefore, each loan must be viewed in its own circumstances. Furthermore, the lawsuit has not even been certified yet for Class Action. Until certification, the Class Action means nothing. It is just a regular lawsuit.

    There have been other cases in CA, similar in type, that have ruled against homeowners with similar allegations.

    Yes, there are more and more Class Actions popping up. But, that does not mean that there is merit. Class Actions have been occurring with regularity since 2007. If you notice, none of the Top Ten Class Action firms in the country have taken one of these cases, yet these are the firms that would be most likely to do so.

    There are issues related to Class Actions that the attorneys filing these lawsuits are ignoring and leads me to believe that they are filing as a “threat” but have no real intention of following through, except to get their homeowner a modification. I will explain my reasoning.

    In Feb 2010, I met with two of the Top Ten Class Action firms in the country. Each firm had experience with going against major banks and winning. The topics discussed were Elder Abuse, Loan Modifications, and Non-English speaking borrowers. During these meetings, I presented the firms with findings from exams I had done, and the loan modification findings not only mirrored what the Chase lawsuit alleges, but also had other issues found.

    For 6 weeks, we discussed the issues intensively. It was finally determined that the lawsuits would not be effective as a Class Action for numerous reasons. Those reasons included:

    There was no commonality in the cases. Each case was different as to its merits, and had to be decided on its own merits.

    The issue that many homeowners were in default was problematic in that litigating such actions takes years. There could be no real belief that “injunctive relief” stopping foreclosures for all would be granted, so the homeowners would lose the home anyway.

    Most homeowners had been delinquent for many months prior to even beginning the modification efforts, so how does one argue “harm”?

    To eliminate the homeowners that did not meet the criteria of the lawsuit would involve each and every loan being examined in detail. Both homeowner and lender documents would be required. Discovery would be a long and drawn out process, taking years just to get the documents to review.

    The costs of doing the Class Action would be prohibitive. The law firm would need to find the financing for the Class Action, and hopefully recover costs from the settlement or victory, whichever occurred.

    Other problems were also brought up, but this gives you the idea of the complexity of the case. Anyway, it was decided that the cost was prohibitive, likelihood of success was slim, and that most homeowners would have been foreclosed upon or had walked away by the time everything had been litigated out. This was not a case like tobacco.

    As to the rest of what you write, I will try to respond later. But I still disagree in that what you are arguing for is a “mandated” program in some form or fashion, and this is simply not acceptable. Nor is the argue of a precedent being set, nor each and every homeowner with negative equity is entitled to the same treatment.

    Each loan must be viewed as a separate event, and all facts and circumstances must be viewed. This must include contractual requirement of Investor Agreements and it must include a true determination of the ability of a borrower to repay a loan.
24. BruceSpecter says:

    September 6, 2011 at 5:37 pm

    Many of the individual comments left on this post a very relevant. As mentioned, the one cure for the current equity situation is a wholesale write down of principal. As long as lenders are being made whole by taxpayer-provided insurance (ala FDIC), there is no incentive to modify 1 loan, let alone all that are upside down. To top it off, the FHFA will not allow Fannie or Freddie loans to be modified (as reported by Bloomberg Businessweek).

    The greed, arrogance and ignorance that led to the greatest pump-and-dump scheme of all time continues to be exacerbated by talk of yet more taxpayer-funded bailout funds. The Too Big To Survive institutions need to be broken up and parted out like any other dysfunctional mechanism; salvage what you can and scrap the rest.

    The same can be said for a runaway government that enables this behavior. It, too, has become too big to survive

    The tail will continue to wag the dog as long as the general public remains despondent or lack substantive guidance. How do you cohesively mobilize the millions of homeowners who are suffering a crisis of conscious over whether or not to jettison their depreciating liability?

    Conversely, why would you buy a home that you know will continue to go down in value? ‘Land Begets Wealth’ is an axiom that has been around for over a millennium. It took Wall St. less than a decade to render it obsolete.

    The only confidence rating that is lower than the administration’s is the banking community. There is no faith anymore. Our political and banking system is broken, maybe beyond repair. As with the growth and contraction of any major metropolitan area, it is time to revert back to local/regional business with a modicum of state and federal oversight.

    Again, not trying to over-simplify, but solutions are at hand, they just need to be supported en-mass.
25. Patrick says:

    September 7, 2011 at 9:51 am

    Bruce,

    1. Except for Shared Loss Agreements with a few FDIC taken over banks, the FDIC is not making banks whole for foreclosed loans. Most banks are not covered by Shared Loan Agreements, so they must take losses on foreclosures.

    2. You make the assumption that principal reduction is the key for homeowners staying in homes. The truth is that even with principal reduction, most homeowners will end up in default again. That is because they have no ability to repay the loan, even at the reduced loan amount.

    The problem with housing is that homes are still grossly over valued for most people to be able to afford. The values must fall and homeowners must be foreclosed upon, when they cannot afford the homes.

    Investors must face their own losses for their lack of due diligence.

    Banks and portfolio lenders must absorb the losses, and plans put into place whereby as the losses are taken, private capital be obtained to recapitalize the banks so that they do not fail. (Notice I said private capital. We cannot have government bailouts any longer.)

    Loan modifications can be done, IF the modification will truly result in the homeowner being able to repay. Any such modification must take into consideration ALL DEBT, and not just mortgage debt, and whether the homeowner has treated the home as an ATM in the past.

    The government can no longer try to prop up home values. It only delays foreclosures, and does nothing to cure the real problems with housing.
26. Burt Tratar says:

    November 7, 2012 at 7:51 pm

    American Health Journal is interested in partner sites in the health care field. AmericanHealthJournal is a medicine website containing over three thousand of high quality health care videos. We are looking for website owners who may be interested in featuring our content. We can offer content exchanges, link exchanges, and exposure to your website. Get in touch with us at our contact page on our site.

Leave a Reply