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The Return of the Short Sale Sensei: Ninja Negotiation at Its Best
She was one them.
She’s dined with them. Had drinks with them. And went over to birthday
parties at their home. If there’s a secret that loss mitigators have, she knows it. She was one of them, after all…for 15 years.
Until now.
Join us for the Return of the Short Sale Sensei and learn how to utilize
her negotiation services Tuesday at 3 PM ET, NOON PST:
https://www2.gotomeeting.com/register/167885371
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Olick – Now we all pay
Diana Olick’s latest column puts “principal writedown” in perspective: “The government is officially giving borrowers back home equity. Yep, somewhere between $35 and $50 billion worth. Of course we’ve all lost over $5 trillion, but who’s counting? Lenders still aren’t required to do it, but they’re going to get an awful lot of taxpayer-funded incentives to do it…Let’s face it, the underwater issue (that is borrowers owing more on their loans than their homes are worth) is now far bigger than the subprime issue and the unemployment issue. Yes, it’s concentrated heavily in five states, but it still manages to plague home prices nationwide. People are walking away in greater numbers than ever before, and people who want to stay are unable to get into modification programs because of their overwhelming negative equity. Yesterday, before the House Oversight Committee, Treasury Secretary Herb Allison said his concern with principal write down was 1) expense, 2) fairness, and 3) moral hazard. I asked him this morning what had changed overnight? ‘The moral hazard aspects are mitigated by the structure of the programs.’ I’m not entirely sure what that means, although I’m sure many smart people behind closed White House doors came up with that exact phrase. I guess it means that because borrowers and servicers have to earn the write down incentives over three years that it’s fair. Or maybe because it helps keeps borrowers out of foreclosure, thereby stabilizing home prices around them, that it’s fair. Or maybe because the servicers and investors have to bear some cost, that it’s fair. Maybe it’s just that there is simply no other way to get ourselves out from under this mess than to forget all the bad choices some lenders and borrowers made and give them a fresh start. And for those of us who acted responsibly? No pain no gain. As I tell my kids every day, life isn’t fair.”
DSNews.com – More foreclosures comin
According to the latest Mortgage Metrics Report from the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS), performance of home mortgages serviced by the largest national banks and federally regulated thrifts declined for the seventh consecutive quarter in the fourth quarter of 2009. The overall percentage of current and performing mortgages fell to 86.4 percent at the end of last year, driven by an increase in mortgages that were 90 or more days past due. Prime mortgages, which make up two-thirds of the mortgages in the portfolio, continued to have the greatest increases in delinquency. Overall, servicers implemented more than 594,000 new home retention actions during the fourth quarter, according to the report. That included 259,410 new trial plans initiated under the Home Affordable Modification Program (HAMP) and 21,316 existing trial plans converted to permanent HAMP modifications. The actions also included 102,102 loan modifications, 94,667 trial plans, and 116,600 payment plans for borrowers who did not qualify for HAMP. The number of new home retention actions was more than twice the number of new modifications during the same quarter a year ago. More than 82 percent of all modifications implemented during the fourth quarter of last year reduced borrowers’ principal and interest payments, and all HAMP modifications reduced monthly payments. Most HAMP modifications decreased borrowers’ monthly payments by 20 percent or more, according to the regulators’ report. Loan servicers report that they “expect new foreclosure actions to increase in upcoming quarters as alternatives to prevent foreclosure are exhausted and a larger number of seriously delinquent mortgages slip into foreclosure,” the report said.
“No, I don’t want to pay the same mortgage anymore”
New plans to push lenders to offer principal forgiveness and originate Federal Housing Administration (FHA)-backed refinance mortgages are leading borrower advocates to argue that the program isn’t enough to entice lenders and servicers to participate. Additionally, industry players are concerned over the potential moral hazard the initiative potentially presents. Under the terms of the voluntary program, lenders will be required to write down at least 10% of the mortgage principal for borrowers who are current on their payments. The program is open to borrowers whose mortgage isn’t currently insured by the FHA. The principal reduction must bring the new FHA loan to value (LTV) to 97.75% and make the new payments account for 31% of the borrower’s monthly income. The program also offers incentives to lenders who offer borrowers with second lien mortgages similar principal reduction and refinance options. The maximum allowed LTV of the combined loans is 115%. Lee Howlett, president of mortgage technology and service provider ISGN’s servicing practice, believes the industry would have been better served had the principal forgiveness incentives been implemented from the start. “It’s frustrating in the sense that the people that have gone through some kind of modification, now come back and say I want my principal reduced,” he said. “Every time you announce a program six months after the old one, you run that risk of everybody that’s in the midst of a current trial modification to quit.” Another lingering question what valuation method will be used to determine the LTV of the underwater borrower. For my part, I’d like to know: has the world gone insane
Consumer Spending Rises 0.3%
The Commerce Department said spending increased 0.3% after rising by a slightly downwardly revised 0.4% in January. Consumer spending in January was previously reported to have increased 0.5%. Analysts polled by Reuters had expected consumer spending, which normally accounts for over two-thirds of U.S. economic activity, to increase 0.3% last month. “I guess the big takeaway is that consumers are comfortably consuming again. We have positive numbers five months in a row since October, which I guess is a good sign,” said Chris Low, chief economist at FTN Financial in New York. Consumer spending rose at a modest 1.6% annual rate in the fourth quarter, slowing from 2.8% in the prior period, according to a government report on Friday. Spending adjusted for inflation rose 0.3% last month, adding to a 0.2% increase in January. Personal income was flat following January’s 0.3% rise, where markets had expected incomes to edge up 0.1%. Payrolls of goods-producing industries fell $3.5 billion in February after increasing $5.2 billion, while manufacturing slipped $1.4 billion following a $5.0 billion gain. Real disposable income was flat last month after falling 0.4% in January. With no income growth, savings fell to an annual rate of $340 billion, the lowest level since October 2008. The saving rate slipped to 3.1%, also the smallest rate since October 2008, from 3.4% the prior month. The data also showed the personal consumption expenditures price index, excluding food and energy, rising 1.3% in the 12 months to February. The index, which is a key inflation gauge monitored by the U.S. Federal Reserve, increased 1.5% in January.
VAT coming?
On page 146 of President Obama’s 2011 budget, under a table displaying a future of big deficits and mounting debt, is a notification that the Administration is creating a “Fiscal Commission” to “achieve sustainability over the long-run.” With those bland words, the Administration is acknowledging that the immense weight of the national debt poses a dire threat to the economy, unless America takes radical action. Yet with the signing of the $931 billion healthcare overhaul, fixing future budget problems becomes far more difficult. The reform will immensely swell the amount of federal borrowing, even while the Administration touts the bill as a model of fiscal responsibility. Only one tax can raise the revenues needed to escape a ruinous rise in debt: a European-style Value-Added Tax, or VAT. “The healthcare bill makes the logical case for the VAT stronger, because it’s not clear that Congress will make the difficult spending reductions the bill mandates,” says William Gale, an economist with the Brookings Institution. “The Fiscal Commission will give significant support for a VAT,” says Brian Riedl of the conservative Heritage Foundation. Both Riedl and Gale agree that a VAT would most likely be enacted in the wake of a crisis, in which Asian and other foreign investors dump our debt, causing the dollar to collapse and interest rates to soar. Gale thinks such a crisis is “a low probability event,” but still possible. He adds that a Ross Perot-style politician could champion the VAT, and possibly win broad populist support for it. Riedl believes a debt crisis is a big possibility if the U.S. continues to shun the spending reductions he favors. For now, the VAT doesn’t have much political support. But it’s virtually certain to become perhaps the most hotly debated budget issue of the next few years, precisely because of health care reform.
Now on to our real estate investing education section …
Three Safety Measures for Every Investment
If it feels like earning great returns on your investment dollar has been getting more difficult than ever – it’s not your imagination. Rising unemployment, escalating taxes and printing presses on overdrive paint a bleak picture for average American households. It seems everyone is out to take what little you are able to earn. To add insult to injury, if you do manage to set aside a little from your meager earnings it’s all but impossible to obtain anything more than the most miserly yield from a savings account, money market or certificate of deposit.
Of course, declining wages and shrinking interest rates aside…the cost of living for most people has continued to spiral out of control. Despite the hedonistic adjustments that create the current “official” rate of inflation, Americans sit stunned as they watch college costs rise by over six percent annually, healthcare expenses experience double digit increases and energy/food expenditures outpace earnings.
So, where can investors find new sources of income capable of creating the type of returns needed to keep up with the current rate of inflation and cost of living? Fortunately short sales still provide yields you can actually live with flexible terms and expert resources that benefit the “little guy”.
It might not be exciting…after all, you won’t read headlines about the guy next door doubling his income thanks to short sales…but it is effective and isn’t that what really counts in today’s tough economy? For those that are more interested in keeping pace with life’s rising cost rather than impressing other people, short sales provide the three critical safety measures every investment must have in today’s hostile financial arena:
1. Downside Protection. Remember the old Wall Street saying that investors should care more about the return OF their principal than a return ON their principle? Unlike ultra-risky stocks and bonds that can fall to the mercy of big banks and other bail-outs, short sale investors have a strong grasp on the state of their principle at every turn. Since everything is secured by physical assets, there is little need to worry whether or not your investment will be there a week or a year from now. Because you are buying at the bottom, there is little concern over an economic slowdown…in fact, that’s just another buying opportunity for those that master the skill of short sale survival.
2. Secure Immediate Returns. Short sales afford a solid and immediate income stream. Why wait for an income to trickle in even while the entire economy teeters on the brink of uncertainty. Savvy investors expect investments to generate a return right away…not some promise of future profits. Once you earn a return then use the money as you see fit – fund your needs right now or reinvest for even greater profits. Think you can find this in most bonds, cd’s or money market accounts? Better think again. Aside from a token amount that justifies the use of the term “investment”, the reality is they can’t compete with short sale returns when it comes to generating immediate profits.
3. Appreciation. There is certainly nothing long with a long term earning potential …in fact, everyone needs to set aside something toward the future and rising appreciation values are still one of the most valuable forms of profits thanks to favorable Capital gains taxation. Don’t fall for the myth that you must choose between short term profit versus long term profits…short sales can do both when properly structured.
See you at the top!
Chris McLaughlin
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Copyright Loss Mitigation Institute LLC 2009.
All Rights Reserved.
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 100 high-value, high-profit
properties
* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting over
400 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
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