Mortgage Firms Told to Step Up Loan Modifications
Real Estate News & Commentary by Chris McLaughlin, July 10, 2009
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Mortgage firms asked to step up loan modification effort
In a letter to 25 mortgage-servicing firms, Timothy Geithner, the Treasury Secretary, and Urban Development Secretary Shaun 
Donovan, have urged the firms to modify more home loans. Analysts say the Obama administration’s loan modification program has not done enough to stem the rising tide of foreclosures so far. The program’s effectiveness has been hampered by mortgage firms not being able to keep pace with the applications received for loan modification. “We believe there is a general need for servicers to devote substantially more resources to this program for it to fully succeed and achieve the objectives we all share,” wrote Geithner and Donovan in their letter.
The administration exhorted the firms to provide “an escalation path for borrowers dissatisfied with the service they have received” and suggest ways of improving the design of the program. Industry experts have been disappointed with the pace of the program so far. “We are not getting anywhere near the level of resolutions we expected,” says Bruce Dorpalen, national director at Acorn Housing Corp. Housing counselors say there is a need to raise homeowners’ awareness of the program. “Homeowners on their own are not able to navigate the system,” says Maeve Elise Brown, executive director of Housing and Economic Rights Advocates.
Homeowners say downpayment and closing costs are far too high
According to the “2009 National Housing Pulse Survey,” conducted by the National Association of Realtors (NAR), homeowners consider high downpayments and closing costs as the greatest obstacles to home purchase. The survey participants said that they were highly concerned about their job security and their ability to get home loan. “Homeownership is an investment in your future; however, saving for a downpayment and closing costs is still too great of an obstacle for 82% of house hunters looking to take advantage of the current market,” said NAR President Charles McMillan.
Despite the concerns about the economy, 83% of the survey participants said they consider buying a home to be a good financial investment. Foreclosure remains an important concern for many homeowners with 51% of the survey participants saying foreclosures are a big problem in their area. About 70% said they are not confident of getting approval for a home loan and there are fewer mortgage options offered by banks. NAR has expressed concern about the continuing credit crunch. “While there has been some easing of credit in the mortgage market, the availability of credit continues to be an issue for many qualified home buyers,” said McMillan.
AIG seeks pay czar’s permission for bonus payment
American International Group (AIG), the beleaguered insurance firm, has sought permission to pay $2.4 million in bonus to 43 of its employees from Kenneth Feinberg, the Obama administration’s pay czar. Firms which have received bailout funds from the government need Feinberg’s permission to pay bonuses and retirement packages to their 100 highest-paid executives. Analysts say AIG will be seeking permission to pay about $235 million in retention bonus to employees in AIG’s Financial Products (FP) division next year. The FP division was responsible for the company’s near-collapse on account of its derivative losses. AIG paid $165 million in retention bonus to its FP employees earlier this year. That led to a scathing criticism by the public and Congress. A Treasury spokesperson suggested that Feinberg has the authority to deny permission to bonus payments which are deemed to be inappropriate and excessive. “Companies will need to convince Mr. Feinberg that they have struck the right balance to discourage excessive risk taking and reward performance for their top executives,” the spokesman added.
Borrowers say credit crunch is still on
Alan Greenspan, former Federal Reserve Chairman, says the credit crunch is nearing its end. Greenspan’s measure of credit crunch is what is called the LIBOR-OIS Spread, which fell to 0.33% points this week. The current spread is very close to what Greenspan calls “normal.” A decreasing LIBOR-OIS Spread means that banks believe the other banks they are lending to have a lower risk of defaulting on the loans. It also indicates that the credit markets are functioning smoothly—which is sign of potential economic expansion. So all’s well in credit markets? “It’s more complicated than that, obviously,” said Scott Anderson, senior economist at Wells Fargo. “Greenspan’s right in one respect: the liquidity crisis is over. But consumers’ and business’ access to credit remains extremely tight.” Analysts believe liquidity has been restored in the market but the credit crunch still exists. Banks are still unwilling to lend on account of the economic situation. “There’s a new normal as far as banks are concerned, in terms of tighter standards and the types of loan products offered,” said Anderson.
“Animal spirits” needed for economic revival
According to economists Robert Shiller and Nouriel Roubini, the negative sentiment prevailing now can have a deleterious effect on economic recovery. Shiller, a professor at Yale University, said: “The fundamental problem, as Franklin Delano Roosevelt said in 1933, is fear.” Shiller says the Great Depression was exacerbated due to a “sense of lost confidence or animal spirits that was a self-fulfilling prophecy. The worry is that we will have the same kind of issue arising again.” Shiller believes that the $787 billion stimulus package introduced by the Obama administration in not adequate to kick-start the economy and consumer sentiment has to improve sooner than later if the economy has to recover. Roubini predicts that more corporate bond defaults are likely. “The wave of corporate defaults is going to be massive,” Roubini said. “We’re not out of the woods.” Shiller and Roubini believe that lack of regulation in banking led to banks taking unmanageable risks, leading to credit crisis and government bailing out firms such as American International Group Inc.
Now on to our real estate investor education section…
Estimating Future Results
Short sales are partially a number game; you must get out there and make offers in order to generate a deal and each deal will tend to generate certain levels of profit. It’s important to keep track of all your efforts not only for tax purposes but also as a method of forecasting potential profits in the future. Not only will you attain valuable information on what works or doesn’t but also will be prepared for seasonal differences or other factors. Use this series of questions to get started:
- Record all initial contact. For example, perhaps you decide to make contact with 100 potential sellers each month.
- Response rate. Of that original 100, how many responded?
- Of those that responded – how long did it take? 1 week? 1 month? 3 months?
- Of those that responded, how many offers did you actually submit?
- Of those offers – how many were accepted, rejected, countered or cancelled?
- What was the average profit from each successful closure?
- What was the average time required to resale/rent or otherwise turn a profit?
- What was the average out of pocket expense associated with each successful sale?
- What was the average out of pocket expense associated with each response?
10. What was the average out of pocket expense associated with each contact?
11. What was the average time invested in each successful transaction?
12. What was the average profit on your time invested in each successful transaction?
13. If you were to increase the number of initial contacts – what would the outcome be in estimated future profits?
14. Would you be able to float the required funds or would you need to seek outside help?
15. Would you have the time available to meet the increased demands for working with sellers and others or would you need to hire outside help?
16. What would it cost to borrow additional funds or hire others?
17. What would the tax considerations be for generating x amount of additional profit?
18. Is it worth the additional time and effort? (Every person has a personal “sweet spot” where effort, taxes and profits make the most sense – find yours!).
See you at the top!
Chris McLaughlin
http://www.shortsalesriches.com
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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 nearly
450 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
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Wealth Building
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According to a survey conducted by Realtor.com, home buyers in the U.S. are hesitant to jump into the housing market, given the current economic downturn. Nearly 53% of the survey participants said they have postponed their home plan on account of their negative outlook. Uncertainty on the job front was the main factor for not buying a house for nearly a third of the survey participants. Nearly 16% said they worry about selling their current home, while 8% said they fear home prices will keep falling. Home buyers recognize that the housing market currently offers great deals; however, financial worries far outweigh attractiveness of the deals available. Nearly 20% said they were interested in foreclosed homes with an attractive price, while nearly 15% said they want to receive incentives such as the $8,000 tax credit for first-time buyers. Errol Samuelson, president of Realtor.com, said buyers feel that purchasing a foreclosed home is more “complex” than other transactions. Among the survey participants, only 28% said President Barack Obama’s plan to tackle the foreclosure crisis is working, compared with 41% who said it isn’t and 27% who didn’t know.
New York City prosecutors have charged 25 people, including lawyers, bankers, mortgage brokers and appraisers, and a mortgage company, with committing mortgage fraud. Robert Morgenthau, Manhattan District Attorney, said AFG Financial Group Inc. (AFG) and its accomplices inflated property values, created phony loan packages, forged W-2 forms, and bank documents to get loans from banks for unsuspecting buyers. Buyers did not know that the transactions were a sham. AFG, through its attorneys, would ask that the mortgage money be deposited in escrow accounts. Instead of paying the seller, AFG would take the money for itself. “These attorneys often did not meet or communicate with their so-called clients until the day of the closings … and were paid off by AFG for their efforts,” Morgenthau said. Buyers were left with bad credit while the lender foreclosed the seller’s property and took ownership. Banks which were cheated include New Century Mortgage Corp., which lost $32.2 million; Countrywide Home Loans, which lost $7.9 million; and Washington Mutual, which lost $8.6 million. “This is one of the reasons for the mortgage crisis,” said Morgenthau. Among those charged, 12 have pleaded guilty. All those convicted face up to 25 years in prison.
Joshua Shanker, an analyst at Citigroup, says American International Group (AIG) will have no value left after repaying bailout funds. “Our valuation includes a 70% chance that the equity at AIG is zero,” said Shanker. AIG has received over $182 billion as bailout funds from the government so far. Edward Liddy, the outgoing chief executive officer of AIG, said last month at the firm’s annual meeting that the company has an “excellent chance” of repaying the government. Liddy had earlier informed the Congress that the company can pay back bailout funds within 5 years. AIG said last week that its recent losses in derivates could have a “material adverse effect” on its results. “The company has not been forthcoming about the sequence of events that would result in a loss,” Shanker said. “Even a proportionally small loss could be significant.” The outgoing CEO has been under pressure to sell some of AIG’s assets to repay government funds. “The CEO’s motivation and ability to lead may be compromised by his preparations to transition the company’s top seat to another,” Shanker said.
The U.S. government believes that the Swiss bank UBS has about $15 billion in secret accounts meant to evade taxes in the U.S. UBS says it cannot reveal the identity of its account holders on account of Swiss banking laws. Switzerland has made it clear that it would prevent UBS from revealing the identity of account holders. “Switzerland will use its legal authority to ensure that the bank cannot be pressured to transmit the information illegally, including if necessary by issuing an order taking effective control of the data at UBS,” the Swiss government said in a response to U.S. authorities. Analysts believe that this issue souring diplomatic relations between the U.S. and Switzerland. Alan Gold, a district judge in the U.S., has asked the U.S. Justice Department if the government will shut UBS in the United States if the bank does not provide information on its account holders. The Justice Department will have to be careful in answering the judge’s question. “They’re going to have to be very delicate and thoughtful in terms of how they respond to this,” said Peter Hardy, a partner at the Post & Schell, a law firm.
