How To Get A Loan Mod Approved Part 4: Foreclosure and Mod Offers

Posted on September 20, 2011 by Tim Freund

Part 4: Foreclosure and mod offers.

Your loan mod appears like you’re making some progress and you are actually starting to get a hopeful.  At the same time, you’ve got that gnawing feeling that the bank may not get you your modification in time and instead they’ll foreclose on you.

Watch your timelines.  As this process is moving along, you’re still not making payments.  You’ve been having lots of conversations with the Loan Mod Department or Loss Mitigation Department AKA: “Loss Mit”, but did you know that the Foreclosure Department may not know the status of your mod and is moving toward foreclosing on you?  Not making payments triggers several things.  First, you are accumulating unpaid payments that are adding to your loan balance. This in turn is increasing your borrowing costs because those payments are adding additional interest to an ever increasing balance, further complicating the Underwriter’s calculations by the way.  You’ve been getting nasty letters and calls from the Collections Department; don’t they know you’re doing a modification?  Uh in a word, no, and they don’t care anyway.  They’ll want you to make a payment of some kind – if you’re in this far, don’t start making payments now (but I can’t say that).  Every state is different of course.  In California the other trigger is the Notice of Default (NOD) or worse, the Notice of Trustee Sale (NOT).  For those of you reading this that are in Judicial states, I can’t speak to the process since California is a Non Judicial state we have trust deeds not mortgages so no court appearance is required for foreclosure.  This is a critical point in the process, because you are like a covered wagon heading towards the edge of the Grand Canyon and if you’re not very careful, will find yourself flying over into the abyss; said another way, you’re playing Chicken with the bank and you could lose your home.  You need to call the foreclosure department and they should have a person or message directing you to a website that will show the sale date and status.  If a sale date has been set, you need to know about it.

Getting the sale postponed.  Truthfully if you are 60 days past the Notice of Default, you need to start talking with your RM or negotiator about the sale date.  Alert them by writing at the top of every correspondence, SALE DATE: PENDING.  Once you’ve found out the sale date, and you should have received written notification of this my mail or a note posted to your front door or both, you change your heading to, SALE DATE: 1/1/11 (your date).  It must be made clear to them that the clock is ticking; you have to get your sale postponed.  Get on the phone with whomever you’ve been working with and alert them to the pending sale.  This is a call you’ll need to make every day or every other day until you get the sale postponed.  You need to verify the postponement in writing.  If someone says it’s been postponed, ask for a letter, a screen shot, something.  You can’t take their word for it, you’ve got too much at stake.  Once the sale is confirmed postponed, you can breathe a little easier, but they will only postpone it in 30 day intervals so this now becomes a regular part of your loan mod procedure.

Your first offer.  Very often the lender will make a throw away proposal to see if they can get you to bite.  It will usually be a “Piggy Back” offer.  This is where they “generously” allow all of your arrearages and back payments to be added to the balance but nothing else.  In other words, you don’t have to make some monster single payback payment, but rather just add everything onto the back end.  They will tell you that this is what most homeowner’s biggest hurdle is and tell you that’s the best you can get.  You do not want to accept this offer.  First of all, it does nothing to change the payment you were making when you started this process – no change in rate or terms.  Secondly, if you accept this offer, you have precluded yourself from a future modification.  They won’t grant a 2nd modification.  So repeat this mantra: escalate.  Explain to your person that this doesn’t help you afford the home.  Ask them, if the underwriter is “looking at all my debt”?  “Don’t they see I’ve got child support payments, a 2nd lien; a lease or time share you can’t get out of; huge medical bills”?  You give them anything you can think of and then ask for a supervisor or make the call to the Executive Office.  You can call the Executive Office anytime you want.  They will likely be able to help get your file pushed forward and escalated.  Remember, write down everyone you’ve spoken with and their extension and reference your conversations with other Executive Office personnel – they likely all work together and know one another.  Again, this is just showing that you’re serious, diligent and professional.

The Trial Mod.   After all the wrangling and number crunching is done, they’ll finally come up a real offer.  This offer typically stretches your payments to 40 years rather than 30, makes it fully amortized if you were in an interest only and reduces your interest rate, which could come in the form of a straight forward reduced flat fixed rate or could be a step up whereby the first years are reduced super low and gradually step up; ie: years 1-3 are at say 2.5%, the next 2 years 3.5% and then the remaining years fixed at 4.5%.  But it won’t become permanent until you’ve demonstrated you can handle the new payments.  This is called the “Trial Loan Modification Period” and is usually for 3 months.  This new structure will start at a date, often a month or two out; will include the taxes and insurance based on all the figures you’ve provided in your package and include all back payments and accrued interest.  Once you make those 3 “Trial” payments in full and on time, your lender will draw up new loan docs usually based on those terms (though they won’t guarantee it’s usually the case), and you now have a successfully modified your loan.  It only took a year but you did it.  Congratulations!

The object of this series.  You may be wondering why I would devote so much time in writing this and “giving away” all my secrets.  The reason is simple, I want to help you.  There is really no money to be made for a guy like me in doing loan mods.  They take a really long time and I cannot by law collect money up front.  In fact I could only collect a fee if I were successful.  Since this process is so difficult to accomplish, and since there are no upfront fees or retainers, it’s just not a job that pays, so I’ll stick to selling residential real estate.  I do make this one request, if you are one of the many that are seeking a loan mod or know someone who is, and you found this helpful, send me a referral.  I work the Los Angeles/Ventura County line and help buyers and sellers including short sellers, buy and sell real estate, so keep me in mind, I’m never to busy for a referral.

All the best, and good luck!

Tim Freund

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How To Get A Loan Mod Approved Part 3: Keeping The Pressure On

Posted on September 19, 2011 by Tim Freund

Part 3: Keeping the Pressure On

After you’ve gone through the initial collection of your data, submitted all the paperwork and started your conversations, what happens now?  You call and follow up.  In the beginning you’ll probably follow up once a week.  I like to call in the morning since I’m on the west coast and besides it’s easier to catch people in the morning.  Don’t forget, every call starts with verifying who you are – even if you’re speaking to the same person every time; so don’t get frustrated by this!

Once you have confirmed all your paperwork is in you will be assigned an RM – Relationship Manager, their job is essentially to make sure all the paperwork is correct and current (this means be prepared to send in your latest bank statements and paystubs upon request).  Presuming you followed my advice in Part 1, you’ll pass this test and your file will go to Underwriting.  This is the most difficult part.  You may have thought the losing of your file or transfer between more than one RM was the worst, but I am here to tell you the Devil is in the details and the one in charge of making the modification recommendation and scrubbing the details is the underwriter.   One would think the guidelines would be similar to refinancing a loan and in many ways they are, however modifying existing terms is a complex animal that few understand.  All the more challenging is the fact that you won’t be able to speak with the underwriter – ever.  Further still, the underwriter may be forced to follow certain investor guidelines that are different from the bank you make your loan payment too – they work for one bank but have to answer to the rules of another.  The investor may have bought the loan from someone and wants the rate they are already getting from you.  They may have “policies” that exclude you and your file.  The underwriter is charged with managing all this, crunching numbers to try to make a payment fit within pre-structured guidelines set forth by the government; percentages of debt to income or DTI.  It would seem so simple for the lender to say, “OK, we’ll just reduce your rate and stretch out your payments”.  But it’s not.  They have to calculate impounds for back taxes and insurance – what they refer to as “escrow costs” because they will set up what is commonly referred as an impound account for taxes, insurance and maybe even homeowner’s dues.  They have to find the balance between the highest rate they can get for the investor against the rate you can afford.

Loan Amounts.  You are probably aware that there are two types of loans; those backed by government agencies like the Federal Housing Administration (FHA), Fannie Mae and Freddie Mac.  These are also referred to as conforming loans.  These loans fall under the oversight of HAMP, the Home Affordable Modification Program.  Remember I said there would be some government forms on your lender’s website that you would have to fill out, and HAMP is the root of this.  But what if your loan was a jumbo loan?  Do HAMP rules apply to you?  No, but yes.  No because banks don’t have to adhere to the HAMP rules but yes because they still follow them in general.  At Chase for example, they call it “CHAMP”: Chase Home Affordable Modification Program.  But because it is not technically HAMP, expect different investors with even more complicated rules.  If you have a jumbo loan, it is very likely you will get rejection letters that will say you’ve been declined as unqualified for HAMP.  Don’t get discouraged by this.  You already know this because by definition a jumbo loan doesn’t qualify for HAMP.  The people you need to speak with are not the same people generating these obnoxious letters.  And when I say letters I mean you may get these HAMP decline letters several times if you are a jumbo mod candidate.  Just ignore them.

Time to bring out the guns.  You’ve been waiting and waiting and it starting to appear as if you’ve stalled.  You can’t get any meaningful updates, and you want answers.  While staying cool and calm, you ask for a supervisor, try to get the name and extension; feel free to go over all your notes with whomever you are speaking with ie: “on March 3rd I spoke with so and so and she said… and on March 17th I was told by Mr. What’s His Face that I should expect an answer by such and such etc., etc.  Let them know you are handling this as a professional; you are detailed and have documented everything including them, if you’ve spoken with them before.  And if you have spoken with them and you remember, let them know, “John I spoke with last week about my mod on 123 Main Street.  They may or not remember you but it helps to break the ice and makes it friendly.  But you mean business at this point so keep the pressure on.  You can’t take no for an answer.  If you completely sputter and really hit the wall, you need to escalate.  From the internet find the number of the Chairman’s office and call there.  While this is no guarantee of success, odds are, after you’ve explained to the person you reach, all the dates and conversations you’ve had, (obviously it won’t be the CEO but will be someone from the executive office), you should find a more responsive RM going forward.  This is called “getting your file escalated”, and it’s an important, virtually inevitable necessity.  I like to call it Climbing the Food Chain.

QA vs. UW.  So you’ve escalated, gotten your file over to Underwriting and finally UW has made a recommendation for modification.  You think “I’ve done it!”, only to find out it now goes to Quality Assurance.  QA will evaluate the recommendations made by UW and look for errors; and there will be errors.  Remember how I said it was a lot more complex to modify than to refinance?  Because of this, your file may go back and forth between QA and UW more than once.  If you can’t get satisfaction from you RM or there is no answer and you’ve left a message already, you can go into the general line and speak with anyone in the hopes of an update.  Often their information will not be as current as yours – don’t get frustrated by this – sometimes however, they’ll give away a couple of nuggets or clues that they shouldn’t have, given their pay grade.  The more you find out, the more pressure you can apply.

Next Part 4: Foreclosure and mod offers.

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How To Get A Loan Mod Approved Part 2: What Now?

Posted on September 18, 2011 by Tim Freund

Part 2: What Now?

Now that you’ve assembled everything, and when I say everything, I’m talking a couple hundred pages everything, you are ready to fax the paperwork in.  You’ve numbered the pages and created your table of contents.  So where do you send it?  Every lender has some link on their website for Homeowner Help.  That’s where you’ll find their forms including the HAMP forms the Federal Government requires of you and the lender.  There will also be a phone number and you’re ready to make the call.

Making the call.  When you contact your lender for the first time, let them go through their spiel.  They will ask for your loan number; address; do you still reside on the property; the last 4 of your social, do you want to keep the property or sell.  They will tell you they are a debt collector and anything you say will be used in an attempt to collect a debt and that this call may be recorded for quality assurance purposes.  They will go through this every single time you call.  I suggest keeping these numbers written on a card you keep in your purse or wallet so that if they call and you’re driving or somewhere away from you file, you have the vitals.  You also want to have a pad of paper, to take notes; names dates phone numbers or extensions.  Your file notes don’t need to be neat, just complete.  Also, remember if they call you it’s always a good thing because that means someone is working on your file.  But since they are usually on east coast or central time, the call could come in early – especially if you live on the west coast.  I have received calls at 6:30 a.m. before.  You do not want to miss the call.   Getting back to that initial call… at some point they’ll tell you where to find the forms and that you need to fill them out and finally where to fax them.  They will not tell you any of the tips I’ve listed in Part 1: Getting Started.  At this point you can say that you’ve put that together and are ready to fax in the paperwork.

You attract more flies with honey.  When you are speaking with the bank’s representative there are several things to bear in mind.  First, they really do care about you getting a loan mod, to a point… Don’t interrupt them, or get testy and terse even if you’re frustrated at having to verify you are you over and over; or if you’re asked to repeat your story to someone new.  Try to never put them on hold and always, always let them know it’s OK to take their time, there’s no rush; if you’re tight on time, don’t make the call, do it later or tomorrow.  They are going to really appreciate this and your calm demeanor.  You’ve got to figure they are working on hundreds of cases.  In general, the process is so frustrating and tedious that the borrower or their representative will at some point “lose it” and rip into the person on the other end of the phone – how would you like that every day?  Be the one that is thankful and appreciative, ask about the weather, how they’re doing, are they a Cowboys fan if they’re in Texas, or joke with them that you’ve had 4 days of 70 degree weather or it took you 3 hours to shovel the snow off your driveway.  “Kill them with kindness”, my mentor Mark Bader used to tell me.  Be sure and ask their name and use it!  People like to hear their own name and it makes you less an adversary as an ally or friend and in your file keep a log of every conversation.  If you miss something they said, it’s OK to ask them to repeat that, or for you to restate it to make sure you got it right.  Your log has to have the date and the name of the person or persons you spoke with.  Ask them for a direct number to them or their extension.  They may not provide it if they are just answering the call in a rotation.  You can also ask for an email address but you are unlikely to get one since the bank doesn’t want anything in writing that could be used against them later.

Faxing the documents.  Now that you’ve been through the authorization process and have the number you are ready to fax the mother lode of papers you’ve accumulated – even if they haven’t asked for them yet – because they will.  It’s critical that you try to stay a step ahead of the process.  But here’s the key point to this approach: everyone likes the easy gig; the low hanging fruit; the one they can get off their desk as quickly as possible.  By giving them everything up front you are moving your file ahead of everyone else’s.

The follow up call.  Your first follow up call will usually be a few days after you’ve faxed the papers.  It is very possible that they haven’t processed your papers yet but you’ll call to make sure they received them.  If there is someone to go over them with, do so.  Ask if they have everything they need.  This is where your table of contents comes in handy.  They have almost certainly not looked at all 200 or so pages yet.  So they will rattle off some documents that most people miss or weren’t obvious to them in their 2 minute look over.  Find what they claim is the “missing document” in your table of contents and then refer them to the appropriate page number.  It’s amazing how impressed they will be and how quickly they will want to push your file through to the next level.  If you are lucky, you’ll get escalated right away – but don’t count on it.  Finally ask them when you should call back, if they have an extension or direct line or if they know who your next point of contact will be and ask if they know who the investor is.  More often than not, you think the bank you’re dealing with is the investor when in fact they are the servicer and the investor may be an entirely different lending institution.  B of A could be servicing a loan for US Bank and their rules may be different from B of A’s.  And don’t kid yourself, the more players the more difficult.

Super human patience is the key here.  You have to anticipate that this process could take a year or more.  You have to expect they will ask you for items you’ve already sent and be ready to repeat yourself.  You must be prepared that they will misinform you, contradict themselves and make mistakes.  But you have to keep your cool.  This is the process and you can’t change it.

Next Part 3: Keeping the Pressure On

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How To Get A Loan Mod Approved Part 1: Getting Started.

Posted on September 17, 2011 by Tim Freund

Part 1: Getting Started

Stop paying on your loan (no I can’t say that even though it’s true).  If you are current the bank has no incentive to work with you.  I recently was asked by a Wells Fargo negotiator to explain why the client started missing payment last July.  Obviously I didn’t say, “To get your attention!,” rather I said because the hardship of (fill in the blank) was just too much at that time.  In this case, I had a homeowner who, after having been unemployed for nearly 3 years, finally had to take a job out of area, in San Diego, hundreds of miles south, and that I said was the reason.

Assemble your papers.  You will need 2 months bank and investment statements for all accounts, 2 recent pay stubs, 2 years tax returns – signed, 2 years W-2’s.  You will need a copy of your current property tax bill and a utility statement (to prove you live there).

Hardship letter.  You will need to concisely explain your situation; you lost your job for a while, your income is down, someone was sick etc.  You will need to demonstrate this with a detailed breakdown of your monthly expenses – this is how they will assess whether you even qualify for a mod.  They are going to want to see it all so be prepared.  As you begin this process, try and figure out what % of your gross income is currently used for housing.  I will be going into this a little later in the series, but your ability to get a loan mod under the HAMP program, will hinge on this number – after the modification.

There will be some official forms from the bank that will double some of these efforts – grin and bear it, it has to be done.  HAMP forms, the RMA (Request for Loan Modification), Dodd-Frank, 3rd Party Authorization if someone other than yourself is going to make calls on your behalf.  Even though these acronyms may sound foreign, you’ll get to know them, real fast.

Make sure every page has your loan number on top – every page.  Most lenders still require that you fax rather than email/upload loan mod papers.  This means you’ll likely have to break up the pages into clusters of 40 pages or so.  You’ll need access to a heavy duty fax machine – a little home all-in-one feeder won’t handle the volume of paperwork you’ll be sending.  Expect that some pages won’t go through so you’ll need to resend the entire thing again – don’t try and send just the missing page, it’s easier to send the whole thing again.  How will you know if it all the pages went through?  You need to number every page.  The fax cover therefore needs to also be a table of contents, so A) you know exactly how many pages went through and B) when the RM (Relationship Manager) or the document collection specialist says to you, you need to send the following, you can ask them to refer to the table of contents and then page such and such, which you’ve already numbered.  In this way you will save a lot of back and forth.  It’s time consuming, but like anything, proper preparation is 90% of the battle.  If you go in willy-nilly, don’t bother.  You will be chasing your tail forever and give up before you even get started.  You have to be ultra thorough.

Next: Part 2. What Now?

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Ben Bernanke’s Big Blunder

Posted on September 13, 2011 by Tim Freund

Let me begin by saying I’m not a Ben basher, on the contrary I like the Fed Chairman.  But last month’s announcement that he intends to keep rates low for the next two years was nothing short of disastrous for the housing industry.  Ask yourself this, what does, “For a limited time only”, “Hurry before this event is over” and “This is a once in a lifetime opportunity” have in common?  Yes, car advertisements but what else?  Urgency.  Urgency is one of the cornerstones of selling.  The ageless super pitchman and motivational speaker Zig Ziglar called it the “Fear of loss” close and it goes something like this: “If you don’t buy it today, it might be gone tomorrow…” Pretty simple, pretty basic, pretty effective.

So it is that the Fed Chairman who may understand economic history and theory better than just about anyone, inadvertently stalled the housing market at a time when we could least afford it.  Think comeback football – your team is down by two touchdowns and doing everything they can defensively to stay in the game, only to have the quarterback fumble or throw an interception.  It’s disheartening for sure and devastating to the effort at hand.  When flawless play is required, you can’t drop the ball, and Bernanke dropped the ball by taking away the sense of urgency.

We have been hearing and saying that rates are at historic lows.  I can tell you that I have personally told every buyer client for the past 3 years that a 1% rise in rates is equal to or even more costly on a monthly basis than the benefit of 10% decline in value, which is true.  This is also the “Fear of loss” close; the lost opportunity to take advantage of historically low borrowing costs.  “Fear the rise in rates, buy now!”  I told my clients this because I make my living selling homes and “closing” is the final stage of selling.  I also told my clients this because I believed it to be true.

In selling you begin by asking questions; identify the problems or needs, then find solutions (a true salesman is a problem solver, not a product pusher); you build a list of compelling reasons why a decision makes sense and finally you close the deal and urgency is a key component to closing the deal.  Most people fear making a decision, especially one the magnitude of buying a home, and especially now when clearly there is concern that prices could deteriorate further before getting better.  In this environment, many would be home buyers are electing to sit on the sidelines.  But what if the risk of higher rates were greater than the risk of price deterioration? Buyers would have a greater sense of urgency.  However if there is no risk of higher rates anytime in the near future, then there would be little risk in waiting to see if the market makes a move in either direction.  If every buyer waits to buy, declining prices are inevitable.

So it is Mr. Bernanke, that with is no rate increase fears for at least two years, this important arrow in my sales technique quiver is gone and I am left with the pursuit of perfection.  I have to find the perfect home, at the perfect price, or perfect timing because of school or job.  And as we all know, the pursuit of perfection, no matter how noble, is often one of futility.

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An Open Letter To President Obama and The CEO’s Of The Big 4 Banks

Posted on September 10, 2011 by Tim Freund

Dear Mr. President, Chairman Bernanke, Secretary Geithner, Brian Moynihan, Vikram Pundit, Jamie Dimon and John Stumpf,

Want to start to fix the economy and help housing at the same time?  Refinance underwater and insufficient equity borrowers.  It’s really that simple.  Since Fannie Mae and Freddie Mac are the holders of a majority of outstanding loans, let’s start there.

Step One: Mr. President, push Congress to change the underwriting guidelines for Freddie and Fannie to allow the Fannie/Freddie loan servicers to refinance any homeowner who is current on their mortgage.  Qualifications using all industry standards for borrower underwriting including credit, asset and income verification remain; it’s just that they do not have sufficient equity to do so based on today’s current standards.  So we change the equity requirement standards.  This is the key component.  Current underwriting guidelines used by the banking industry require a borrower to owe less than 80% of the value of the property.  What this means is that every borrower who bought during the market bubble, or pulled equity out at that time, is saddled with a mortgage interest rate that far exceeds today’s historic lows.  Because they are equity deficient, they are unable to take advantage today’s low rates without paying down the mortgage to raise their loan to value (LTV).  In other words, they cannot refinance.  Essentially the banks are holding these borrowers hostage to near usury rates because their equity position prevents them from refinancing.

Why is this significant?  By excluding these homeowners from refinancing Mr. President, banks are forcing one of the following scenarios:  the borrower, a) remains current but pays up to 30% more in interest than their counterparts buying today; b) is forced to attempt a loan modification while current on their payments (impossible); c) is forced into a “strategic default” so that they get the attention of the servicing bank to try for a loan mod;  d) defaults and does a short sale (giving up their family home, ruining their credit and selling at below market value, which in turns puts more borrowers underwater; or e) let the home go back to the bank via foreclosure.

Now I’m no rocket scientist but none of those options sound very good to me.

You might be thinking that the TARP money allocated for HAMP would be the solution; certainly that was the hope at the time the legislation was passed.  However, of the government allotted $50B to be used for modifying existing loans, little has been.  In fact, of the $50B in available funds, only $2B has been used to date.  That’s about 4%.  This emphatically suggests that the policy is failed and that banks really don’t want to do loan modifications.  As a real life example, I am currently handling a loan mod for a client that has them in their home, without having made a payment for 18 months.  And while the mod has been “approved” for 3 months already, the bank has yet to draw documents as underwriting continues to try to figure out how to work the numbers to the satisfaction of the investor; no kidding, that’s a true story.

But what if this had been the story: the borrower applies for a refi, instead of a strategically defaulting; their credit therefore remains intact; they have the income, credit and assets to qualify (just not the equity); they reduce their payment by 30%; the bank keeps the servicing contract (profit for the bank), makes a loan or discount point on the deal (profit for the bank), has a performing asset vs. a nonperforming one (freeing up capital for the bank to lend – more profit for the bank).  Plus there’s the added benefit that the bank is stronger, the homeowner keeps their home and the neighborhood doesn’t have another distressed property on the block putting further pressure on prices and continuing the downward spiral of prices.

Step 2: We know that Congress can enact these changes for Freddie/Fannie loans almost instantly – this means an immediate boon for the banks and homeowners.  It also means that all those now-able-to-refinance homeowners, immediately have all that mortgage savings to inject into the economy – consumer confidence soars as spending increases, businesses thrive and hire which we all know leads to an improving economy, greater Federal revenue by having more tax payers paying into the system, which offsets and brings down our deficit and it doesn’t cost the tax payer anything except the lower interest rate they would now be collecting.  This cost of course pales in comparison to the cost of defaulting mortgages (how much have Freddie and Fannie lost since 2007?), not to mention the social cost of uprooting families, the blight of vacant home etc. etc. etc.

Step 3: Address the loans that are not backed by Freddie and Fannie – ie: all the jumbo loans and the like –  by altering the use and application of the TARP/HAMP money by creating an “Equity Insurance Fund” guaranteeing 20% equity based on the outstanding loan equating to 80% of essentially a hypothetical value.  In this way, servicing banks (for the benefit of their many investors who really hold the loan notes) that refinance undercapitalized (low or no equity) loans, have their coveted 80% LTV by virtue of the new insurance fund, which would only kick in, in the event of foreclosure. Should the owner subsequently short sale, the 20% is not applied.  By doing this, the government retains the $50B rather than use it, so the tax payer only pays on default, instead of compensation for loan modification.  The investor is better protected and again, the banks profit from servicing, discount points on the new loans and all the other a fore listed benefits.

Mr. President, I can think of no faster, easier, more efficient way to infuse the economy with disposable income at little or no cost; keep more people in their homes; get the banks out of the foreclosure, asset liquidation and property management business.  In effect, everyone wins.

Mr.’s Pundit, Dimon, Moynihan and Stumpf, please urge your Congressional contacts to push this agenda immediately.  I know you don’t want to be in the loan modification business and certainly don’t want to be in the foreclosure and asset liquidation business.  Just think of the staff you wouldn’t need, the new loans you’d be making and the profits!  But you need to do it quickly before every loan you have is in default and your borrower’s credit ruined, because then they won’t qualify to refinance.

Thank you for reading and I am at your disposal.

Sincerely,

Tim Freund

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What I Learned On Labor Day From My iPod

Posted on September 6, 2011 by Tim Freund

Before I sold real estate, I was a rock and roll drummer with a record deal from Clive Davis and Arista records, so my love of music runs deep.  My iTunes is filled with more than 17,000 songs ranging from classic rock to alternative, alt country to classical, and my beloved pre-Bitches Brew Jazz collection.  So when a holiday like Labor Day comes along, I turn to my iPod for my BBQ entertainment.

If you’ve never owned an iPod, this may seem a bit foreign, but yesterday I had an epiphany.  The iPod has feature called shuffle, which allows the device to randomly select songs from the entire catalog, but because my entire music collection is on my iPod, using shuffle could find me listening to Bob Dylan one minute and Pavarotti the next – not exactly party music.  Thus my typical approach is to create a playlist and go song by song or artist by artist to find the day’s music.  I actually own several iPods; one large capacity and the others the much smaller capacity iPod Touch.  Normally I will load the smaller device with artists capturing their entire catalog or previously created playlists, but yesterday I did something completely different and entirely by accident: I loaded it with great albums and hit shuffle. And an amazing thing happened – great song after great song resonated from my speakers.

As I swam and barbecued, and spent time with good friends on the day we in America honor and recognize the importance of Labor, it occurred to me that the reason the music was so good, was that I focused on full albums, and not songs.  In this moment of realization, I found a parable to our nation and our current economic woes.  Since the beginning of the iPod era, we’ve become a nation of songs and not albums.  We buy a song here and another there, but not the artist’s complete work and in doing so we miss the full experience that they had tried to create.  So it is currently in America, we are missing the album in the pursuit of a policy of the hit single.

It’s a funny thing about hit singles: they’re great in the beginning but over time, they become tired.  What makes a great album great is that there is a depth that comes from prolonged listening.  It takes time and commitment to sit through a record over and over, but the rewards can be so satisfying.  It is the album approach that our leaders in Washington need to take.  We need to focus on the big picture rather than the quick headline because our long term economic prosperity cannot come from the short term satisfaction of the hit single.  Certainly to be a great album there must be some hit singles, but there also has to be depth for the record to have staying power.  So it is for our nation’s economic album as well.  We need the hits for that quick satisfaction; a catchy number to get us going, but we must also have a full album’s worth of material.  It’s time for our leaders in Washington to put together an album and stop trying to feed us single after single.  We want and deserve a great album, not another one-hit wonder.

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Case-Shiller, Consumer Spending and Confidence: What To Make Of Too Much Data

Posted on August 30, 2011 by Tim Freund

This morning started out for me like every last Tuesday of the month… I read Case-Shiller.  Published on the last Tuesday of the month, S & P’s Case-Shiller report provides a thorough albeit backwards look into the status of the housing market.  What this month’s numbers show is that June posted gains again; that the Sun Belt remains a disaster, but that the rest of the nation and in particular California, has experienced some stability.  Only Denver, Boston and Washington DC posted smaller year over year declines than Los Angeles.  In fact the report went on to say, “Looking across the cities, eight bottomed in 2009 and have remained above their lows. These include all the California cities plus Dallas, Denver and Washington DC, all relatively strong markets.”  All the California cities; you’ve just got to love the Golden State.

Unlike most last Tuesday’s where Case-Shiller is the primary set of data to consider, there was more today; a lot more.  Consumer spending jumped in July on car sales to the highest level since December 2009.  Inflation was up but not more than anticipated, and as I like to say, “A little inflation is good for real estate.”  After all, when prices are rising on everything, housing is not the exception.  So housing is up, and the consumer is spending… Jane Goodall watch out! I’m actually about ready to pound on my chest like a silverback gorilla: maybe things really are getting better!

But then again I haven’t really been feeling that way.  In fact in what will likely portend a shift in all numbers to the negative going forward, consumer confidence sank in the wake of Congress’s ineptitude in dealing with each other over the debt ceiling, to the lowest level since April 2009.  If you recall, spring 2009 saw the DOW Jones Industrial Average collapse to the mid-6000’s.  It was a time of panic in Wall Street and fear paralyzed the nation.  Of all the data that came out today, Consumer Confidence is closest to real-time, and unfortunately it fell 25% in August.  To quote Kevin (Macaulay Culkin), in the movie Home Alone, “Not Good, not good at all.”

So what is the take away from all this data you ask?  I’m telling every client I have: hope for the best, but brace for the worst.  And in a world when there is just too much data to absorb; coming at us so fast and furiously, perhaps the best thing is to just ignore it and take a cue from the 1970’s and just “Keep on Keepin’ on”.

 

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Is Real Estate’s ‘Irene’ in the Rearview Mirror or Ahead: July’s Pending Home Sale Numbers

Posted on August 29, 2011 by Tim Freund

The news wasn’t all bad… however whenever someone starts a sentence like that,
you know the news isn’t very good either, so I’ll keep this brief: Pending home
sales numbers as reported by the National Association of Realtors for the month
of July were not good.  Typically July is a good month for sales – not the best by any means, but not the worst either which is August – but the numbers declined from June and that creates a somewhat ominous outlook for the fall.

There is little doubt that we can thank our Congress for July’s poor showing.  The
failure of Congress and in particular the centrists to come together on the
debt ceiling, and allowing the idiots on the two extremes to bring our nation
to its knees, is the primary reason we saw a decline in July.  The damage to the
American psyche is difficult to quantify but this much we know, the fear and
anxiety they’ve created will not go away easily.  As a result and in combination with the general malaise of the economy and the predictably weak numbers of the afore mentioned
slow month of August, we in real estate will have little choice but to brace ourselves and our sellers for our own hurricane Irene.

I did however say the news wasn’t all bad didn’t I?  So here is the good news: while the month over month numbers (June to July) were down 1.3%, economists had predicted a 1.3% decline, so there was no surprise here.  More significantly was the fact that year over year numbers rocketed higher by 14.4%.  By any measure, a 14.4% year over year increase is massive.  Remember, the year over year numbers we have had until now, were impacted by artificially inflated sales figures that were the result of the Federal Housing Tax Credit.  Most economists and Realtors alike had predicted that for a sustained period the year over comparison was going to look bad since so many buyers rushed in to the housing market in late spring 2010, many accelerating their schedule to take advantage of the tax credit before it expired.  As a result I’d like to suggest that this July over July figure shows just how far the housing market has improved.  So there really is some
good news here…

Now if Congress can just do something to give a little confidence back to the
American people, maybe, just maybe, the storm clouds will instead give way to
those with a silver lining.

 

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Where Have You Gone Bank of America?

Posted on August 21, 2011 by Tim Freund

…our nation turns its lonely eyes to you, ooo wooo woo… (with apologies to Simon and Garfunkel)…

Let me begin by saying I have been a Bank of America customer since 1973, so what follows comes from the heart and is meant most sincerely…

This past week saw the nation’s largest lender, Bank of America, come under heavy selling pressure on Wall Street, threatening the banking giant’s ability to stay afloat.  Aside from B of A’s stock holders, most everyone else cheered.  You see, everyone hates Bank of America.  That may sound like a pretty strong statement, but ask anyone you know and they’ll say, “I hate B of A”, or some such comment.

Analysts repeatedly point to B of A’s acquisition of Countrywide as the reason for all their problems.  The truth is, B of A is being run by a bunch of knuckleheads.  CEO Brian Moynihan is “knucklehead in charge” and I can’t believe he hasn’t been ousted.  I guess it’s a testament to the survivability of America’s CEO’s that a guy who has done everything wrong, can still keep his job – how many of us could say the same?

So why do I feel that way, and what would I do if I were in charge of B of A?

The first thing I would do is address B of A’s public image problem, by saying, “We have really struggled to get through the myriad of issues at Countrywide.  We never really wanted to purchase them in the first place and only did so because we were asked by then Treasury Secretary Henry Paulsen to step forward in the wake of the Lehman failure and do what was needed to help stabilize the fragile financial markets.”

Being contrite goes a long way in our country when it comes to the court of public opinion.

The second thing I would do is begin a process of refinancing every loan they have to today’s low market rates.  Rather than wait for all my borrowers to either refinance on their own with another lender, or worse, go into default either strategically or out of necessity, I would proactively get their rates down.  Some might argue that this “altruistic approach” is bad business.  After all, why not keep those higher rates of returns of 6%+ interest?

I have been advocating the importance of freeing up the consumer’s wasted disposable income by allowing borrowers to refinance with or without equity.  Consider that the higher interest rate loans remain on the bank’s books solely because many borrowers simply don’t have the equity in the face of 25-50% declines in home values.  And because borrowers are unable to refinance, they are stuck paying 30% more in interest than someone buying today.  So either their home won’t appraise for the required 80% loan to value that banks require for refinance or worse, the home owner is completely underwater, owing much more than their home is worth.  Whatever the reason, just think of what the impact of all that “extra” money a lower rate loan would have on our economy if every underwater consumer were spending it on goods and services?  We’re talking millions maybe even billions here.  Furthermore, Bank of America benefits its share holders by retaining more loans, improving the performance of those loans since more affordable payments means fewer defaults and in creating a customer loyalty base far greater than any amount of marketing could ever do.  That’s a win-win-win if ever there was one.

On the business side of making new loans, I would bring back Countrywide.  I know what you’re thinking, but I can tell you that Countrywide was an amazing company.  Yes, they got sloppy and made some bad loans – maybe a lot of bad loans – but from a consumer’s perspective as well as a real estate broker’s, their operation was smooth and their mortgage reps, some of the best.  This is what B of A thought they were buying when they purchased Countrywide – a quality home lending infrastructure and platform.  They were also buying talent.  But what happens when you stop paying your talent, put shackles around their ankles and make the work environment torturous?  The talent quits and goes elsewhere.  This is what happened at B of A.  They bought Countrywide and all their problems, then tried to force feed B of A corporate culture to a much more loose but effective Countywide staff.  They cut their mortgage rep commissions and subsequently lost the talent the bought.  This left Bank of America with dreck (that’s Yiddish for rubbish or another word for human excrement).

Unfortunately for Bank of America shareholders, Brian Moynihan’s solution is the old “restructure and layoff” approach; nothing innovative or creative, just another harmful and destructive pacification of Wall Street.  What’s so ridiculous here is that if you tried to get a B of A short sale approved, or worse attempted to get a loan modification, you would have to be behind on your payments because the bank has so many problem loans, they don’t have enough personnel to handle the volume and therefore prioritize based on default status. Thus only those behind in payments can even start a dialog.  (B of A claims to have a proactive foreclosure avoidance structure in place but it is insincere and ineffective).  So not only is our nation’s largest bank not lending as they should due to tight and restrictive standards, and not effectively addressing high interest rate loans and their subsequent defaults, they are contributing to the nation’s sense of economic insecurity by adding to the unemployment rolls.

At times like this I feel like I’m in Kafka novel, a Jean-Paul Sartre play or Albert Camus essay, where absurdity is found in the repeated behavior of a futile exercise; one in which there is no hope for a differing outcome.  And as lost and downtrodden as that may sound, I do take some solace in the words of the famous philosopher Forrest Gump: “Stupid is as stupid does.”  Brian are you listening?

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