Secondary Servicer Karma...

from Paul Muolo at Inside Mortgage Finance...

Keep in mind that Ocwen, Nationstar Mortgage and Walter Investment have built their businesses on the purchase of “legacy” MSRs from the megabanks. But what if that business model no longer works? What do they do next? Next week Nationstar reports its second quarter results. If the company misses the targets set by investment bankers, it could be a blood bath...

… CLARIFICATION: This past week, in a news item about Nationstar, we said the nonbank lender/servicer was under investigation by the NYDFS. But a spokesman for the company took umbrage at the language we used, saying: “We work with regulators and government entities every day and are continually asked to provide information for their review. That doesn’t constitute being ‘under investigation,’ and again, to my knowledge it’s not a term that the NYDFS has used itself. We have not provided any further commentary regarding this matter since our initial statement that we would comply with the request, which we have.” However, we will point out at that back in March the NYDFS said it had received hundreds of complaints about Nationstar’s practices, including problems with loan modifications, improper fees and lost paperwork. NYDFS chief Benjamin Lawsky asked Nationstar to disclose a number of operating details to help the state regulator gauge whether the servicer’s growth is harming borrowers. I guess that’s not considered an investigation.
************

So I wonder whom the BIG Banks are gonna dump this crap on next? Get ready for wholesale packaging of nonperforming notes....

The Federal Reserve and the Banksters... 2 Peas in a Pod!

I was rudely awakened from my Financial Slumber this evening by our old friend Mish Shedlock. As usual, he has his foot mashed down on the gas pedal, hurling us into the realization that the Federal Reserve does not give a damn about the little guy, as it contends, but rather it watches out for the banksters and their ill gotten gains.
Here is a snippet from an Article by Yves Smith of Naked Capitalism.  Thanks to Yves and Mish for the wake up call...

In other words, readers are supposed to take Yellen’s claims at face value, when the Fed’s policy of saving banks by goosing asset prices and convincing itself that ordinary people would benefit because the “wealth effect” would lead to more consumption. The result has been widening income and wealth disparity and corporate profits at record levels as a percent of GDP, meaning workers are getting less than they’ve ever gotten. Yellen as the head of one of the regional Federal Reserve Banks and member of the FOMC can’t escape from responsibility for these policies. And there’s no evidence of meaningful opposition; unlike some Federal Reserve presidents, like Charles Plosser and Dick Fisher, who have often taken issue with the Fed’s official position in their speeches, Yellen made little use of her bully pulpit at the San Francisco Fed.

Here is the link to the article. Fascinating reading...

http://www.nakedcapitalism.com/2014/07/yellen-tells-whoppers.html

That this grandmotherly appearing woman can be so disingenuous is hard to swallow. But as Bob Campbell often says, these people have never had a real job. They're clueless politicians.

From the National Association of Homebuilders... One of my 5 Key Metrics - Consumer and Homebuilder sentiment. As you can see from the article, homebuilder sentiment is up to 49% positive. Of course that means that 51% are negative, but it is on the rise...

Builder Confidence Rises Four Points in June

June 16, 2014 - Builder confidence in the market for newly built, single-family homes rose four points in to reach a level of 49 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. It remains one point shy of the threshold for what is considered good building conditions.

“After several months of little fluctuation, a four-point uptick in builder sentiment is a welcome sign and shows some renewed confidence in the industry,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Del. “However, builders are facing strong headwinds, including the limited availability of labor.” 

“Consumers are still hesitant, and are waiting for clear signals of full-fledged economic recovery before making a home purchase,” said NAHB Chief Economist David Crowe. “Builders are reacting accordingly, and are moving cautiously in adding inventory.”

Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All three index components posted gains in June. Most notably, the component gauging current sales conditions increased six points to 54. The component gauging sales expectations in the next six months rose three points to 59 and the component measuring buyer traffic increased by three to 36.

Looking at the three-month moving averages for regional HMI scores, the South and Northeast each edged up one point to 49 and 34, respectively, while the West held steady at 47. The Midwest fell a single point to 46.

Has the Market hit a Wall?

Published: July 2, 2014
Below is a chart showing the run up of new listings in San Diego County over the last month. We will be presenting this and other related inventory, sales and "days on market" charts over the next 30 days. Why are we doing this? Because it is our belief that the market may have hit a wall, with declining demand, increasing days on market, and spiking inventory. Deja vu ala 3rd quarter 2006?

So check out this 1st chart showing New Listings on the San Diego Multiple Listing service. As you can see, on a technical/moving average basis, we should see inventory decline again as it has over the past 4 inventory spikes. However, we believe that inventory may continue high and even spike higher. As a result, due to the law of supply and demand, prices may stall and even decline.

Wharton says Market not headed up for a while

Optimism Is Up, but the U.S. Housing Market Faces a Painful Shift

Published: April 25, 2012 in Knowledge@Wharton
It's spring, the time when Americans traditionally think about new homes -- trading up for growing families, downsizing for retirees, picking up a vacation home or buying a starter home to escape renting.

But four years after the start of the financial crisis, and six years after home prices began to collapse, the market is still shaky. Nationally, prices are about 35% below their peaks in 2006, according to the S&P/Case-Shiller Home Price Indices released on April 24, and in some markets homes have lost 60% of their value. About one in four homeowners with mortgages, some 11 million households, are "underwater" -- owing more than their homes are worth. Construction and sales of new homes remain anemic, with housing starts about one-third the historical average.

Still, there have been some hopeful signs. A second home-price dip that began late in 2010 seems to have stopped this year, according to the Case-Shiller survey, and the National Association of Realtors says February's existing-home sales were up nearly 9% from a year earlier.

The key question: Has the housing market hit bottom? If it has, are prices likely to climb, or will they bounce along the bottom for some time -- for many months, perhaps for years?

Answers vary from one part of the country to another, says Wharton real estate professorJoseph Gyourko. "It will depend on the market. I think we are somewhere near a bottom; we are bouncing along. But it certainly would not surprise me if we went down a bit." But for the moment, there is little reason for prices to rise, he adds. Wharton real estate professorFernando Ferreira agrees, noting that "If we're not at the bottom, we're very close to the bottom." He also cautions that it's far from certain prices will rise significantly anytime soon.

Mark Zandi, co-founder of what is now Moody's Economy.com, holds similar views: "There are some signs of life, but nothing to suggest that we are moving north in a definitive way." He says the housing crash is "largely over" and points to some strengthening in sales and new-home construction, but does not believe this is enough to lift home prices. "The key is getting through more of the distressed properties that are in the foreclosure pipeline," he notes, adding that this involves some 3.6 million of the nation's 49.5 million homes. "Until we work through them to a greater degree, that is going to remain a pall over home prices."

The bumping-along-the-bottom view is shared as well by Wharton real estate professor Susan M. Wachter. Despite much negative data, she believes that economic recovery, though sluggish, is helping the housing market to mend. She expects to see more improvement this spring, noting that the recent Case-Shiller figures offered a glimmer of hope: better annual returns in home prices in February compared to January. Nationally, home prices are about where they ought to be, given fundamentals like employment levels and interest rates, Wachter says.

The slow housing market does not just affect people who want to buy or sell homes; it is dampening the whole economy, Gyourko notes. When home building is down, construction workers are idle. With fewer home sales, fewer people are spending money to move and form new households, affecting everything from furniture sales to moving firms. And the low level of sales means real estate agents are not getting much work, and are therefore spending less.

Among the housing market's key problems is an excess supply of homes due to the building binge in the late 1990s and early 2000s, Gyourko says. Because homes last so long, an oversupply does not dwindle as quickly as it does for non-durable goods. "This housing stays for decades. Once you oversupply, there's no real way to get out of it." Job growth helps by enabling more people to buy; however, although unemployment is ebbing, "we're still 5.5 million shy of the pre-crisis employment peak," he adds.

Millions of homeowners bought during the market peak in the middle of the past decade, at inflated prices before the crash. It could be years before those homes are again worth what their owners paid, and homeowners with negative equity -- owing more than their homes are worth -- typically cannot move. To do so, these underwater owners must come up with cash to make up the difference between their debt and proceeds from selling the home, and this often comes to tens of thousands of dollars, sometimes hundreds of thousands.

Gyourko's research shows that a homeowner with negative equity is one-third less likely to move than a homeowner with positive equity. "So that's going to affect the trade-up market.... There are a number of reasons, in a lot of markets, that prices were not rational before [the crash]," he notes. "There's no reason to go back to irrational prices, and in a number of markets the supply is very large."

Mounting Obstacles

On the positive side, today's extremely low mortgage rates -- around 4% for a 30-year, fixed-rate loan -- give buyers a lot of borrowing power. However, although the Federal Reserve has vowed to work to keep interest rates low through 2014, a strengthening economy will eventually lead the Fed to lift rates to stave off inflation. Some experts think this could happen before 2014. When mortgage rates start to go up, some potential buyers may rush into the market to beat higher rates, Gyourko says, and that extra demand could push prices up. But higher rates could also slow the housing recovery by making home ownership more expensive and encouraging homeowners to stay with their current, inexpensive loans rather than move and face higher rates, he adds.

"We all realize that interest rates are unsustainably low," Wachter says. As rates rise, we would expect that will have a fundamental negative impact on housing prices once again." While today's low rates would seem to make homeownership attractive, there are other obstacles in the lending process, she adds. "Despite the fact that housing is extraordinarily affordable, it is difficult to get a mortgage. There has been a ratcheting up of [lending] standards, which is quite significant."

Before the housing bust, it was possible to get a loan for 100% of a home's appraised value, sometimes even more. Today, driven by underwriting policies of Fannie Mae, Freddie Mac and the Federal Housing Administration, plus their own bad experiences, lenders want at least 20% down, a big financial hurdle for buyers. Appraisers are under pressure to be more conservative in valuing homes.

Conditions are even tougher for borrowers seeking jumbo loans -- generally above $417,000, though varying around the country. In addition to the 20% down payment, the borrower is required to have a large cash reserve to cover payments should anything go wrong, Ferreira says. To purchase an $800,000 home, one would need $160,000 down, plus $60,000 to $80,000 in reserves -- "very few people have it," he notes.

In the past, buyers used equity in the current home to trade up, but now many people have little or no equity, or negative equity. "What that is doing is leading to very low mobility," Wachter says. "Mobility is at historic lows, and the trade-up market is impacted." Ferreira adds that it could take five to 10 years for underwater homeowners to build equity again, "or they may never do it again."

In addition, buyers' tastes have changed, apparently reducing demand for some homes that were the rage before the bust. Housing industry observers note that today's buyers are turning away from the "McMansions" of the 1990s and early 2000s in favor of smaller, less-expensive homes -- ones both cheaper to buy and maintain. This can make it harder to sell a big home with all the trimmings. Part of this shift in demand is certainly due to the obstacles to getting big loans. Another factor: The ideal buyer today is a renter who does not have to sell a previous home, and renters tend to be young people buying their first home, which is usually modest. Whether the taste for somewhat smaller, more affordable homes will persist is anyone's guess. Fashions can change quickly, and the urge to live in a spacious, showy home -- to keep up with the Joneses -- could swell again when people feel more prosperous.

In the Shadows

For any housing recovery to gather steam, the backlog of foreclosures, and distressed homeowners who could end up in foreclosure, must be reduced, Wachter says. "The concern is this overhang of shadow supply," she points out. While there is also a shadow demand composed of people who would like to buy, many potential buyers stay away for fear they could buy and then lose money if economic troubles turn the shadow supply into real supply. "The concern is that a fire-sale is coming to a market near you," Wachter explains. "And it's a very valid concern."

Just how many homeowners will end up in foreclosure is impossible to predict. Falling unemployment reduces the problem, but the 25% of mortgage holders who are underwater could produce a new wave of defaults if the economy takes a jolt. "That's the shadow supply of homes that could become available if something happens to the owner -- because of a health shock or an employment shock," Gyourko says. Another spike in foreclosures would depress home prices by increasing supply with homes offered at fire-sale prices, since lenders are better off minimizing losses by getting what they can quickly rather than carrying empty homes while awaiting higher prices.

Wachter notes that about half of the borrowers who took out subprime loans between 2005 and 2008 are in default -- typically 30 to 60 days behind on payments. In many markets, 30% of home sales involve distressed properties, she adds, noting that an economic downturn could push this to 40% or 50%, which would seriously undermine prices.

The Obama Administration's efforts to help people avoid foreclosure have had only limited success. Generally, these have focused on reducing the borrower's payments relative to income, and making it easier to refinance at today's low loan rates, which reduces monthly payments. Unfortunately, about half of borrowers who have gone through some type of loan modification default again afterward, Wachter says. Also, while these efforts have helped several million homeowners, they do not tackle the underwater-home problem that is such a dominant factor in today's market. Studies have shown that homeowners are much more likely to default when they are underwater, even if they can afford the payments, because it seems pointless to make payments on a money-losing investment.

Various proposals have been made to assist underwater owners by reducing the loan balance. But lenders cannot be forced to do this, and they have been reluctant to participate in voluntary programs because they don't want to book the losses or encourage other borrowers to default to get a portion of their loan forgiven. "There are a lot of problems with principal reduction," says Zandi. The first issue is moral hazard -- the risk of encouraging more defaults. "Second is the straight-up fairness issue. Is it fair?" After all, most homeowners continue making payments even if they are underwater or wrestling with other financial troubles. "I don't think there is political will for a program that will do principal reductions right now," Ferreira adds. Zandi suggests that principal forbearance can work just as well as forgiveness. Rather than reducing the outstanding debt, forbearance allows the borrower to temporarily make smaller payments, as if the debt were smaller, while in the long run still owing the full amount.

A better approach, Gyourko says, might be a program that makes it easier for troubled homeowners to become renters, perhaps by helping with security deposits, to ease landlords' concerns about renting to people who have defaulted on their mortgages. "But I'm not holding my breath," he notes. According to Wachter, there's some hope for programs, now in the pilot stage, which would make it easier for investors to buy distressed homes and turn them into rentals. With this approach, lenders would take smaller losses than with foreclosures. Since homes would probably sell for more than they do in foreclosure, this would minimize damage to prices of nearby homes, she says.

Still, millions of homes are likely to go into foreclosure in coming years. A year or two ago, the economy was too fragile to handle a large number of foreclosures, notes Zandi. Now he believes it is strong enough that the best course is to "get these problems behind us."

No Longer an Investment

While most experts believe that will happen eventually, and the housing market will improve, it is far from clear whether the housing market of the future will ever look like that of the bubble years. Americans have long viewed the home as a key step to prosperity, a major "investment." While this never was completely true, as home appreciation barely beats inflation over the long run, the housing bust has demonstrated that homeownership has its downside, too.

"People no longer believe ownership is a way to get rich," Gyourko says, noting that the homeownership rate has fallen and demand for rentals has jumped. According to the census bureau, 66.4% of households owned homes at the end of 2011, down from a peak of 69.1% in 2005.

A New California Short Sale Law?!

The California Association of Realtors (C.A.R.) announced its sponsoring a bill that will prevent California homeowners from going into foreclosure if they have negotiated a short sale with their lender or servicer.

Assembly Bill 1745 (Torres, D-Pomona) prevents lenders or servicers from recording a notice of sale if a short sale has been approved. The bill is scheduled for hearing on April 30 by the Assembly Banking and Finance Committee.

The bill would also allow the mortgagee, trustee, beneficiary, or authorized agent to withdraw a short sale approval if a condition in which approval was granted has changed. The bill would require a written notice to the seller no less than 3 days before withdrawing approval, with an explanation of the decision change.

California Attorney General Kamala D. Harris recently introduced her Homeowner Bill of Rights, one of which had a similar provision that prevents dual tracking, or the practice in which a lender proceeds with a foreclosure on a homeowner who is also trying to pursue a loan modification.

Legislators delayed voting on the bill last week before Harris was scheduled to testify. ABC News 10 reported that the California Bankers Associationopposed the ban on dual tracking stating it only delays the inevitable.

Is it time to buy?

We are hearing this question non stop in today's financial media. Warren Buffet says he'd buy a hundred thousand single family houses. Donald Trump says "don't know what to do? - go buy a house!". Even Robert Shiller of the industry standard Case - Shiller report says it probably would not be a mistake to buy now.

So what does Diana Olick say? For once, Ms. Olick and I are far apart with our opinions. Diana declares (and rightly so) that real estate is a local business. However, she then states that the middle price range ($250,000 to $500,000) may be poised for big action. Citing historic interest rates and the debatable fact that the housing market has bottomed, Ms. Olick seems to have succumbed to the mass hysteria of economic optimism, particularly as regards to housing.

I feel quite the opposite. It is my opinion that the economy, and hence consumers, are still too fragile, and therefore unable to buy for some time to come. Even with the slight relaxation of underwriting standards, the truly "organic" buyer (non investor, non all cash buyer) is not ready to move. Possibly trapped in an upside down property already, or just not able to qualify for a home that would be worth jumping through dozens of flaming hoops, the desire is not there.

Folks have been calling the bottom and rushing back into the market for 3 years, only to see more equity and capital go up in smoke in a continuing decline of values.

Of course, the credibility of these optimistic experts is hard to argue. However, I am reminded of a saying my mother used on me for years when I was a child. "Just because your friend Donnie jumped off the bridge, should you?" No mom, I guess not...

Privatized Gains, Socialized Losses

Courtesy Barry Ritholtz "The Big Picture"

The esteemed former Fed Chairman, Paul Volcker, introduced a very simple regulatory concept that bears his name: The Volcker Rule. It was part of the Dodd-Frank regulatory reforms passed after the financial crisis of 2008-09.

There has been enormous pushback against what should be a simple piece of prophylactic rules on proprietary trading by depository banks (see this Jamie Dimon commentary as an example). Why? The profits of speculation goes to banks, driving bonuses and compensation; but the ultimate risk of loss lay with the FDIC and taxpayer. If the banks blow up, someone else besides the banker pays.

Privatized gains, socialized losses.

I want to take a few moments to briefly explain why this rule is so important to taxpayers, especially following the collapse of MF Global and the loss of billions of client assets.

Recall the basic facts of MFG: Management engaged in leveraged speculations with monies — whether it was their own or clients became irrelevant as the losses were so great as to wipe out much more capital than the bank actually had. Billions in losses meant MFG was insolvent and was wound down. On the winning sides of those trades were folks like JPM and George Soros. It is neither their duty nor obligation to verify whose money is on the other side of the trade — the clearing firms make sure the trade settles.

Those trade settlements are the only possible outcome. Why? Imagine a burglar robs a house of cash, goes to a casino and loses the money playing Roulette. The Casino settles that bet, it clears — and the burgled homeowner can never recover the money. Exchanges work the same way. They simply cannot validate the capital sources of every transaction. In the case of MFG, he money wasn’t even burgled — it was simply entrusted to an entity that became so insolvent thru excess speculation that even money in “Segregated accounts” was highly compromised.

And therein lay the dirty little secret of modern banking: THERE IS NO SUCH THING AS A SEGREGATED ACCOUNT. It is simply a helpful way to think about money and banking; it does not exist in the real world.

Consider your basic bank account — checking, savings, passbook, etc. We go through massive contortions to create an illusion that your money is yours, that its safe and sound in a bank with your name on it, in your own virtual safe deposit box. But that is simply not the reality of modern banking. What you perceive as “your money” is little more than an electronic journal on the banks accounting ledgers.

Fractional reserve banking means that the $100 you deposit is lent out — only $10 of your $100 is kept in reserve. Under normal circumstances, with thousands of depositors and millions of dollars, the banks have no trouble giving customers who ask for their money back the full amount at anytime. But it is not as if your money is sitting in an account waiting for you — you merely have a claim on those monies, and that claim is insured by the FDIC, and backed by taxpayers (theoretically).

You are, in fact, a counter-party to your bank.

In the old days, banks were boring. 3-6-3 banking meant borrowing at 3%, lending at 6%, be on the links at 3pm. It was simple. Banks were a utility, making reliable steady money, so long as they didn’t do anything too stupid to screw it up. Glass Steagall, the depression era legislation, prevented them from engaging in the sort of risky Wall Street speculation that caused so much trouble over the years. Think MFGlobal to get a better understanding of what is involved.

Thanks to the sheer ideological idiocy of Phil Gramm, enabled by the corruption of former Treasury Secretary Robert Rubin and the hubris of former Treasury Secretary Larry Summers, Glass Steagall was repealed. Thus, banks could be as stupid as they want to be — and you get to foot the bill.

What does all this have to do with the Volcker rule and MF Global? It is quite simple: Today’s post Glass Steagall repeal Bankers engage in leveraged speculation that potentially could blow the bank up. They did it to themselves with sub-prime mortgages; have no doubt that someone is working on the next ‘financial innovation’ whose losses will be even bigger and better than RMBS and CDOs.

When the next bank blows up — note I said when and not if — their depositors will become counter-parties. Those depositors are you, just like MF Global’s. Only, you as counter-part are not first in line with a claim on the monies — the folks on the other side of the trade get first dibs.

So this bank blows up, the trades settle, the counter party banks/brokers get paid, and whatever is left (if anything) goes to depositors. The FDIC will make good up to $250,000. FDIC’s budgets comes from a small fee on banks. If the losses are great enough, it will exceed their budget and so the taxpayer than makes up the difference.

The risks and rewards are, to use a big word, “asymmetric.” Hit a home run as a trader or banker, collect a huge bonus. Lose it all and then some, and the taxpayer is on the hook. Anyone who fails to see the simple math of this either spends their days shilling for banks or are acting as CEO mouthpieces.

Privatized gains, socialized losses.

Case Shiller - "We're Going Down!"

Data released this morning by Standard & Poor’s for its S&P/Case-Shiller home price index showed declines in November of 3.6 percent for the 10-city composite and 3.7 percent for the 20-city composite when compared to price levels from a year earlier.

Analysts were expecting a year-over-year drop in the range of 3.2 to 3.4 percent, holding constant with the annual declines reported for October of -3.2 percent for the 10-city composite and -3.4 percent for the 20-city measurement.
Eighteen cities’ annual returns were in negative territory in November. Detroit and Washington, D.C. were the only exceptions. At -11.8 percent, Atlanta continued to post the lowest annual results.
In addition to both composites, 13 of the 20 metros included in S&P’s study saw their annual returns worsen compared to October’s data. New York and Tampa saw no change in annual returns in November, while Charlotte, Cleveland, Denver, Minneapolis, and Phoenix saw their annual rates improve.
“Despite continued low interest rates and better real GDP growth in the fourth quarter, home prices continue to fall,” said David Blitzer, chairman of the index committee for S&P. “The trend is down and there are few, if any, signs in the numbers that a turning point is close at hand.”
Both the 10- and 20-city composites of the closely watched index posted declines of 1.3 percent between October and November. Among the 20 cities tracked, 19 saw average home prices slip month-over-month. The only positive was Phoenix, where prices rose 0.6 percent from October to November.
Stiff says in the monthly data too, Atlanta stands out in terms of relative weakness. Home prices there were down 2.5 percent over the month of November, after having fallen by 5.0 percent in October.
Atlanta, along with Las Vegas, Seattle, and Tampa all reached new cycle lows in November, according to Stiff.
The 10-city and 20-city composite readings are holding above their cycle lows hit last spring by +1.0 percent and +0.6 percent, respectively.
Measured from their June/July 2006 peaks through November 2011, the decline for both the 10-city composite and 20-city composite is -32.9 percent.
As of November 2011, S&P says, average home prices across the United States are back to the levels they were at in mid-2003.
For the hard-hit metros of Atlanta, Cleveland, Detroit, and Las Vegas, average home prices are below their January 2000 levels.

Are Lenders Greedy?

In response to an Activerain post this morning, here was my response. Note - the blogger was wondering if the lenders were being greedy by not working with longtime borrowers to ease the burden of their "alligator" mortgage:


Is it Greed? No. It is an economic rule that businesses fail. Little ones, and big ones. Their overall intent was not to rip people off, it was to be profitable.

However, times (and economies) change. The lenders have made billions of dollars of bad loans, and continue to do so. They are destined to fail. The real estate market continues to deleverage, the asset values continue to decline, and the burden of debt continues to rise.

The American taxpayer is about to get a very large tax bill, and they will pay it - till they can't.

Here is the question - what are you doing NOW to protect yourself? At my office, we are continuing to help as many people out of their no win mortgages as possible.

New Movement - "Occupy our Homes"!

National 'Occupy Our Homes' Day Kicks Off New Occupy Initiative

Courtesy Krista Franks - Default Servicing News

Last month the Occupy Oakland movement announced its intention to occupy vacant properties. On Tuesday, Occupy Oakland was one of 25 local Occupy groups to observe a national “Occupy Our Homes” day.

“This Tuesday, thousands will be standing up for their neighbors in a struggle against a system that places financial gain above the human need for shelter,” said a statement on the Occupytogether.org website prior to the event.

The statement referred to the trillions of dollars in loans the banks received from the Fed and the billions borrowed from taxpayers through TARP, and went on to say, “Homeowners take risks when buying homes; however, when they lose their jobs or are unable to afford their medical attention, they don’t get bailouts, they lose everything.”

Several Occupy movements made the first steps to occupy foreclosed homes or homes in the process of foreclosure.

Occupy Atlanta members started their day on courthouse steps in Fulton, Gwinnett, and DeKalb Counties.

“Over 200 Occupy Atlanta protesters descended on the Fulton County courthouse steps with whistles, sirens, drums, and blow-horns and made it as difficult as possible for the auction to continue,” according to the Occupy Atlanta website.

Protesters then visited the homes of two homeowners facing foreclosure to demonstrate their support and their intention to continue to occupy the homes despite foreclosure actions.

“This is only the beginning of the fight against Foreclosure and lack of housing in America,” states the Occupy Atlanta website.

Occupy Brooklyn members marched through a Brooklyn neighborhood “to liberate a foreclosed home,” according to their website.

Like the Occupy Atlanta movement, Occupy Brooklyn made it clear that this is just the beginning of a new initiative for the movement.

“This action is part of a national kick-off for a new frontier for the occupy movement: the liberation of vacant bank-owned homes for those in need,” stated a post on the Occupy Brooklyn website.

©2011 DS News. All Rights Reserved.

The Golden Rule in Short Sales

Below is the Article I Wrote for the NSDREI Holiday Booklet this Year...

The Personal Side of The Short Sale
By Richard Worcester


In business, as in life, there is one simple rule for dealing with people. It’s called the Golden Rule – treat people as you wish to be treated.

As a real estate professional specializing in short sale negotiations, you have to be part psychologist and part negotiator as well as a real estate professional. The mission today is much more than just selling property. Now, ultimately we must point everyone in the direction of healing and financial recovery.

The Short Sale business is one of financial distress. When meeting with a client for the first time, they are probably going to exhibit frustration, or even hopelessness. Often, they have been hounded by creditors for months or even years. Their personal relationships may be have suffered or even been destroyed by the financial distress. The may feel as if all hope is lost. I always encourage my clients to mark this meeting, this point in time, as the time when we turned things around and began the healing process.

The first thing to do is to show compassion for their situation. Enter the psychology angle… Frankly, many of us could say “there but for the grace of God go I”. Let them know the facts. Millions of people are in the same position. Maybe you have even been there yourself? It is important to let them know that you are on their side, that you are not there to judge, but to help. This is not hard to do, as the opportunistic and predatory practices of the lenders are mostly responsible. If necessary and the client so far gone, I will even tell them to adopt the attitude of “Us vs. Them”.

Once you have developed a plan with the homeowner, you have to start negotiating with the bank. Although we believe that the financial industry is mostly responsible for the housing collapse, we don’t blame or punish the individuals that we deal with at the bank when negotiating the short sale. Again, the Golden Rule applies. The people at the bank are not so different from your clients or you. They did not cause the problem. They are tasked to help clean up the mess. They have a difficult job, and if you treat them nicely and with respect, they will respond generously.

Ultimately, you will get a short sale approval and will have to put on your Real Estate Professional hat. As in all other parts of the short sale business, the best way to deal with people again is via the Golden Rule. The real estate business today is dramatically different than it was just 5 years ago. Agents, mortgage professionals, escrow and title professionals, even contractors and tradesman, are working much harder, for much less money, than the “go-go” days of 2005. The key to success in these areas is to listen, try to understand, then act. Understand what is needed, and respect the time and feelings of the party you are dealing with. Since you were a child, you have heard the saying you catch more flies with honey than vinegar.

You will notice there is one thing missing from this narrative. I have not discussed how you get paid / how much you will make. The reason for this omission is clear. It is my position that you must separate the job you are to do from the process of getting paid. Certainly, going in, it should be clear what and how you will be getting paid. But once that is established, your focus should be on helping the people and resolving the homeowner’s problem. Your paycheck has nothing to do with the client and their situation. Your goal is to help your client sell their property and get out from under this suffocating financial burden.

I have told the story many times of being in the kitchen with the clients and jumping up and down and hugging each other when we got short sale approval, as well as the story of sitting down and crying with them when we have been denied help and foreclosed upon.

Working in the short sale business is a huge emotional as well as professional commitment. A significant part of your daily job is managing your own emotional involvement and attitudes. It is very, very easy to get on an emotional roller coaster, because you care. You want to help these clients, and they are counting on you. In fact, you may feel you are their only ally in this negotiation.

So in the short sale business, as in life, remember the one simple rule. The Golden Rule. Treat others in your business as you would like to be treated. You will be surprised how much happier and successful you will be!

Servicers at the Root of the Housing Crisis Now

Courtesy the New York Times
All the revelations this year about dubious practices in the mortgage servicing arena — think robo-signers and forged signatures — have rightly raised borrowers’ fears that companies handling their loans may not be operating on the up and up.

But borrowers aren’t the only ones concerned about potential mischief. Investors who hold mortgage securities are increasingly worried that servicers may be putting their interests ahead of those who own the loans.

A servicer might, for example, deny a loan modification to a borrower because it also owns a second mortgage on the same property and doesn’t want to write down that asset, as required in a modification. Levying outsize default fees is another tactic — the fees typically go to the servicer, not the lender, but they can still propel a property into foreclosure more quickly. And foreclosures aren’t a good outcome for investors.

Last week, a jury in federal district court in Reno, Nev., awarded a group of 50 mortgage investors $5.1 million in punitive damages against defendants in a loan servicing case. Although the numbers in the case aren’t large, its facts are fascinating. Indeed, the case exposed some of the tricks of the servicers’ trade.

The case is also notable because the main defendant, Silar Advisors, was one of the institutions that struck a deal in 2009 with the Federal Deposit Insurance Corporation to buy the assets of a notorious failed bank, IndyMac. Of the $5.1 million in damages awarded in the case, Silar must pay $3 million.

John W. Bickel II, a co-founder of Bickel & Brewer in Dallas, represented the investors in the case. Because he represents an additional 1,450 investors whose loans were serviced by Silar, he said more suits like this one would follow soon.

Loan servicers act as intermediaries between borrowers and their lenders, collecting monthly payments and real estate taxes and forwarding them to the appropriate parties. As long as borrowers meet their payments, such operations typically run smoothly.

Defaults and foreclosures, however, complicate servicers’ duties. As the Silar matter shows, borrower difficulties also open the door to improprieties.

Because loan servicers operate behind the scenes, it’s hard for investors who own these mortgages to monitor fee-gouging. In addition, the servicing contracts make it difficult to fire administrators — under a typical arrangement, investors holding at least 51 percent of the loans must agree on termination.

In short, loan servicing is a perfect setup for administrators who want to take advantage of both borrowers and lenders.

Troubles for investors in the Silar matter began back in 2006 when the USA Commercial Mortgage Company went bankrupt. Founded in 1989, the company had underwritten and serviced short-term commercial real estate loans. It sold them to private investors, typically older people who hoped to live off the income generated by the loans. At the time of its bankruptcy, USA Commercial serviced 115 loans worth almost $1 billion.

After the company collapsed, a small firm called Compass Partners bought the servicing rights to these assets for $8 million. A short time later, Silar Advisors, a company overseen by Robert Leeds, a former Goldman Sachs executive, got involved by financing Compass. Compass/Silar began servicing the loans for the investors.

Almost immediately, the plaintiffs in the suit contended, Compass/Silar started siphoning off money owed to investors holding the loans. Among the servicer’s tactics, the plaintiffs said, were improperly charging default interest, late fees and loan origination fees that reduced amounts due to investors.

The investors also said that when borrowers tried to pay off or otherwise resolve defaulted loans, Compass/Silar refused to negotiate. In other cases when Compass/Silar urged the investors to modify troubled mortgages, the servicer reaped undisclosed fees in the deals.

THE jury affirmed every claim the plaintiffs had brought against Compass/Silar, including conspiracy, as well as breach of contract, of fiduciary duty, and of good faith and fair dealing. The jury found improper actions by Compass/Silar on eight loans.

A Silar spokesman said the firm was pleased that the jury awarded only $79,000 in compensatory damages to the plaintiffs but was disappointed by the punitive-damages assessment. “The jurors are to be commended for their careful consideration of the facts in a very lengthy trial,” the spokesman said. He declined to comment as to whether Silar was currently servicing any loans.

One loan history, on a defaulted asset known as Standard Property, indicates what these investors were up against with their servicer.

In March 2007, immediately after Compass/Silar took over administration of the investors’ loans, the Standard Property mortgage had a principal value of $9.64 million. The borrower wanted to repay the loan at that time, but instead of directing it to pay principal and the accrued interest to the holder of the loan, as required by the servicing agreement, Compass/Silar arranged for the borrower to refund only the principal.

At the same time, court papers show, Compass/Silar quietly took in almost $860,000 in late fees, default interest and other costs from the Standard Property borrower. This ran afoul of the servicing agreement governing the Standard Property mortgage. The agreement stated that such fees could go to the servicer only after investors had been paid principal and accrued interest on a loan.

“No one really knows what is in the black box known as loan servicing, and most investors don’t even think of their servicer taking advantage of them,” Mr. Bickel said in an interview. “There’s not a lot of transparency, and I think this case is going to bring to the forefront the potential for abuse.”

It is obvious that we are in the litigation stage of the financial debacle of 2008. That usually means shining the light on dark corners and watching what scurries away. The view may not be pretty, but at least in this case, investors got some recompense in addition to an education.

Change of Direction!

Hi Folks! It's time to "kick it up a notch!". For more than 4 years I have been making boring, news oriented entries to this blog. Mostly other peoples words.
After reading Seth Godin's book Tribes, I have had an epiphany. I have realized that leadership is something to be relished, cultivated and shared. Leadership by yourself, and by others.
This blog will now be my version of leadership in the arena of Real Estate Investing.
Others may be greater successes, but none will get their passion across like I will.
Welcome to the Tribe!

Defaulted Borrowers Sue Wells Fargo

From DSNews.com
By: Joy Leopold 11/30/2010

The law firm of Harwood Feffer, LLP announced last week that it has filed a class action lawsuit against Wells Fargo Bank and its servicer, America’s Servicing Company (ASC).

The lawsuit was filed in the United States District Court for the Northern District of California.

The case alleges that ASC induced borrowers to default on their mortgages by telling them they would not be eligible for a loan modification if they were current on payments.

Harwood Feffer claims ASC induced borrowers to default on their mortgages in order to charge penalty and fees associated with the late payments.

“As a loan servicer, ASC generates a significant portion of its revenue from fees, penalties, and interest collected on the non-performing loans it services,” said Harwood Feffer in a statement.

The statement continued, “Consequently, it is in ASC’s financial interest to avoid, delay, and deny loan modifications and to pursue foreclosures because doing so will lead to increased revenue.”

According to the Home Affordable Modification Program guidelines, a borrower who has not defaulted but is distressed and believed to be facing imminent default may be eligible for a loan modification if financial hardship can be demonstrated.

“By making loan default a prerequisite for modification, without regard to whether a borrower otherwise qualified for a modification due to financial hardship, ASC caused borrowers to unnecessarily suffer ruined credit and subjected them to significant fees, penalties and interest,” alleged Harwood Feffer.

A spokesperson for Wells Fargo said he could not comment specifically on the lawsuit as it is currently under review, but said, “We believe, as we have from the beginning of this crisis, that it is in our customers’ and the country’s best interests to assist customers who can afford their homes – with some help – to remain in them. And, it is our goal to exhaust all options before moving a home to foreclosure sale.”

Great Quote!

"...in an information-rich world, the wealth of information means a dearth of something else: a scarcity of whatever it is that information consumes. What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it" -Herbert Simon (June 15, 1916 – February 9, 2001)

Our Economic Waterloo

We've all done it. We have all made the mistake of overplaying our hand in a card game, then having our heads handed to us. We have all protested too loudly to make our point - to the detriment of the greater good. We have all been wrong at one time or another in our lives.

Folks, listen... and listen well. The Banks are WRONG. The media is WRONG. The politicians are WRONG. It is clear to me that the media is as blind in these matters as the banks themselves. Whether they are unable or unwilling to admit it, whether it is accidental or deliberate, one thing is undeniable. Our economy is in terrible shape and will not improve for a LONG time if we continue on the path we are on now.

As a specialist in distressed real estate transactions, I spend every day in the trenches with the average man and his family - the so called "Joe the Plumber"'s. These folks are going down in flames in greater and greater numbers every day. Multi-billion dollar corporations that are beating estimates mean nothing to the silent majority. Slight improvements in jobless claims, and upward GDP revisions are meaningless.

Our political leaders are systematically creating false hope and legacy, and are out of touch with the truth about the economic condition of our country. The recent rash of political back room sausage making is a symptom of the failure of the system. Uncle Sam is running wild with your credit card!

When you can't succeed by the rules, change the rules. Increase taxes. Kick the can as far down the road as you can. Or at least far enough to get your lying ass re-elected. It is criminal!

But take heart. There is money to be made in this market, as in any market. Those that can act fast, in a contrary manner to the majority, will make huge returns. Those that recognize this gathering storm and take "short" action will make exponential profit. Count on it.

Buy Gold and Real Estate - Quick!

I don't normally post non real estate rants, but this one is a home run...
From Charles Goyette...
Gold Market on U.S. Elections: So What?

For those of us who recognize the complicity of both Republicans and Democrats in our economic calamity, it has been satisfying to see the party establishments of each pummeled this election season. But as far as averting the currency crisis I describe in The Dollar Meltdown, the gold market says it’s too little, too late.

It’s no surprise that politicians hear only what they want to hear, but the Democrats take a new world indoor record for tone-deafness into the election. As the year opened with real unemployment at double-digit levels, all the President and the Democrat establishment could think about was passing Obamacare. They may be proud that they stayed on message, never mind that for most people a health care plan starts with a job and some savings.

With polls suggesting Republicans are set to re-take the House, it looks like the Democrats have a glass jaw to go along with that tin ear. And while scattered tea party victories gave the Republican establishment the thrashing it so richly deserved, the bad news is that none of it matters to our financial prospects. At least that’s the message from the gold market.

Who can disagree? Unless you think that Republicans will want to go into the next election cycle having taken on Social Security, Medicare, Medicaid and other entitlements, there is not much hope that they will do anything meaningful about fiscal policy. Announced on September 23, the Republican Pledge to America promised to save “at least $100 billion in the first year alone.” $100 billion a year? They can’t be serious. By the end of September, just a week later, the federal debt had already grown by another $100 billion. Of course Republicans will tinker with the hated Obamacare just enough to deliver up some form of Boehner-care. Sorry, but the chance to earn lobbyist affection and future campaign contributions trumps any thoughts about simply facing up to federal insolvency and getting government out of health care.

Some real money could be saved rolling back the American empire. Congressman Ron Paul and others calculate total war and foreign spending at about $1 trillion a year. In this context, a return of the Republicans reminds us of Talleyrand’s comment on the Bourbon dynasty that returned to the throne of France after the abdication of Napoleon: They “had learned nothing and forgotten nothing." Republicans seemed to have learned nothing and forgotten everything. Betraying a hubris not seen since Bush set off to “rid the world of evil,” the pledge from November’s likely winners includes “bringing certainty to an uncertain world.” Republicans do take their military Keynesianism seriously. Just months ago Republican congressmen came together to support President Obama’s surge in Afghanistan with a $59 billion emergency spending bill. Now they are campaigning about a “robust defense,” one category of spending that even the new members from the tea parties aren’t inclined to resist.

On the monetary front, Federal Reserve officials, having forgotten at least the French Revolution and probably the 1970’s as well, are counting on inflation to kick start economic growth. Money printing is the Fed’s old time religion, but at least they are going to the trouble of bottling it under new names: liquidity operations, deficit accommodating, and quantitative easing. When chairman Bernanke said something euphemistic last week about “additional purchases,” gold shot up again, joined by silver and oil. And the dollar moved decisively lower. It’s now down 12 percent since June, resuming its long-term slide. Markets are said to be pretty good at discounting future events. Haven’t they heard that the fiscal conservatives will re-take Washington?

It is clear that the rest of the world is similarly unimpressed by Fed euphemisms or the dollar’s prospects, no matter who wins. Like the picnic ramada at the park where people take cover for a while when it begins to rain, investors take cover with the dollar briefly during a crisis. They did so in the 2008 mortgage meltdown and again during the Euro debt crisis. But like a ramada, nobody wants to live there. Or wait out a really bad storm.

Where does one weather a currency crisis? Take a look around. Reuters reported this week on a Swiss private banker who handles clients with at least $50 million to invest that they are buying gold, sometimes by the ton, and moving it out of the financial system. According to the Financial Times, JPMorgan, having recently built a vault in Singapore, has reopened an underground gold vault in New York, while Deutsche Bank and Barclays may be opening new vaults in London. India illustrates the trend: investment demand in India has grown to 92.5 tons in the first six months of this year, compared to 25.4 tons a year earlier; this time last year India’s central bank lightened its dollar reserves substantially, taking down 200 tons of gold in one move. They aren’t alone.

Central banks around the world, long net sellers of gold reserves, have become buyers, among them China and Russia. Gold keeps making new all-time highs. And it doesn’t seem to care about the Republican’s prospects this fall.

Congress trying to Speed up Short Sales

From the Desk of... " This Time They are Gonna Listen to Us!"

Distressed homeowners looking for a way out of their mortgage that doesn’t involve foreclosure may find relief is on the way from a new bill introduced in the U.S. House.

The legislation would impose a deadline on lenders to respond to short sale requests, requiring them to return an answer to the borrower within 45 days.

The bipartisan bill, Prompt Decision for Qualification of Short Sale Act of 2010 (H.R. 6133), is sponsored by Reps. Robert Andrews (D-New Jersey) and Tom Rooney (R-Florida).

Lenders have taken a lot of heat for the elongated timelines it takes to get an approval on a short sale proposal.

“I have heard from many short sellers in Florida whose potential homebuyers have walked away because they couldn’t get a ‘yes’ or ‘no’ from their lenders,” Rep. Rooney said. “This bill would spur growth in the housing market by helping sellers and buyers complete short sales quickly.”

The number of potential short sale properties is rising across the country. According to data from the National Association of Realtors (NAR), in the second quarter of

2010, Nevada, California, Florida, and Arizona are states where significant shares of all properties on the market are potential short sales: 32 percent, 28 percent, 27 percent, and 24 percent, respectively.

NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Arizona, says her organization and Realtors across the country strongly support the Andrews-Rooney bill, and are urging Congress to pass the legislation quickly.

“Unfortunately, homeowners who need to execute a short sale are severely hampered because lenders (loan servicers) are unable to decide whether to approve a short sale within a reasonable amount of time,” Golder said.

“Potential homebuyers are walking away from purchasing short sale property because the lender has taken many months and still not responded. Many consumers have mentioned that the delay in short sale price approval exceeds 90 days, and in many cases never arrives,” Golder said.

According to Rep. Rooney, the lending community has worked to improve the size and training of their workforce that handles short sales, but “progress has been extremely slow,” he says.

Rooney argues that for homeowners who owe more than their home is worth and are in real danger of losing their home, the short sale can help relieve them of the overwhelming financial burden of their mortgage.

Golder agrees. “NAR believes that quicker attention to the short sales process is vital to help homeowners who are underwater and their communities, as well as the nation’s economy,” she said.

New Law Being Introduced to Forces Lenders To Speed Up Short Sales | Realtor Short Sale Designation

Check out H.R. 6133 – New Law Forces Lenders To Speed Up Short Sales