As we approach 2011, we look back on three years of economic disaster following the collapse of the real estate bubble. Clearly this bubble was the result of lenders making loans to unqualified borrowers. This increased competition among home buyers drove prices up… until buyers couldn’t afford the payments and the house of cards collapsed.  By 2008, programs such as Hope for Homeowners were calling on lenders to cut principal balances owed on upside-down loans to enable people to keep their homes. But the lenders wouldn’t cut, even after newly elected President Obama offered government help to pay for the cuts. So today we have a woefully unsuccessful loan modification program and foreclosures continue.

As reported in DSNews, foreclosures by Fannie Mae and Freddie Mac are exceeding modifications by more than 2 to 1 and by now we all know about lenders’ rush through foreclosure processing by using “robo-signers”.  Now, some help may be on the way.  The New York Times reported that in October, the Attorneys General from all 50 States signed onto an agreement for an investigation of lender practices. The AGs say that there is an opportunity to fundamentally change the way banks deal with defaulting borrowers so that more people can stay in their homes by modifying their mortgages, and that they will take the time needed. “The large banks say they are doing everything they can to avoid foreclosure, but that is not the reality on the ground,” said Patrick Madigan, an assistant attorney general in Iowa who is a lead figure in the investigation. “The question is, Why?”  

Meanwhile, this month a group of top economists, academic leaders, and influential investors sent a letter to Treasury Secretary Timothy Geithner and the heads of five federal regulatory agencies urging them to take the lead in setting national standards for mortgage loan servicers.  “Widely reported servicer fraud, whether in the foreclosure process or in the systematic assessment of illegal fees against homeowners, is…a serious problem,” the group said in the letter. To protect borrowers and investors alike, the group’s proposed standards would require servicers to provide loan modifications, including principal reductions, to address “reasonably foreseeable default” as long as the homeowner “can make a reasonable payment.” They also argue servicers should be held accountable for lost paperwork on loan modifications and for failing to suspend foreclosure when a homeowner is actively engaged in the loan modification process.

Will all of this activity be productive?  Only time will tell.  Historically, the government has been unwilling to interfere with contracts between lenders and borrowers.  But this “hands-off” approach brought us a real estate crash and a foreclosure mess that has disrupted the lives of millions of Americans with no real effort to solve the problem.  While no doubt any such National Foreclosure Reform will be promoted as helping homeowners, the underlying drive will be to restore security, transparency, and reliability to the financial system so that investors - those persons that put up the money so loans can be made - will regain confidence in the banking system enough to put their money at risk. 

Whether it be to help homeowners or help investors, either way we will all benefit from reforming the  current broken foreclosure system.  Watch here for further updates as this matter progresses. If you are impacted by this foreclosure problem, take the time to write your representatives in Congress and urge them to get behind this push for reform.

If you have specific questions about your liability in California or about short sales, foreclosure, or any legal issues, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee consultation to evaluate your liabilities and strategize a resolution. This can be done in person or by phone. If interested, please call us at 916-966-2260.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options.

It has now been nearly three years since the real estate market began unravelling.  Millions still struggle with over-encumbered properties and loss of income from the recession. Most economist predict that home prices may fall another 11% in 2011, as rising defaults crash with difficult to get purchase financing. Yet there is some good news for the diligent:

1.  Housing prices are really undervalued. Today’s pricing is based on distressed sales. No-one would sell if they had a choice. This means that in reality, housing prices are higher than the sales would indicate. DSNews reports that the analysts at Capitol Economics have concluded that house prices are now 14% to 17% undervalued relative to disposable income per capita.  This is a 30 year high in affordability!

2.  Mortgage Rates remain low.  Although there has been some upward movement, mortgage rates remain between 4.25% and 5%.  My own office manager just refinanced her home for 3.5%!  Incredible financing opportunities.  Qualifying may still remain a challenge. Hopefully the lenders have learned their lesson and will actually require that the borrower have the ability to pay.

3.  Foreclosures are slowing.  Due in part to the Robosigner scam, foreclosure starts have been slowing even though delinquencies remain high. November Notice of Default filings were down 9.3% in California and 31.7% in Washington.  Lenders may be starting to realize that they can recover more for their investors by negotiating than they would get from a foreclosure. 

4.  Junior lenders are more willing to take hits.  The problem in most short sales has not been first lenders; it has been junior lenders (2nds and 3rds) who would have a personal judgment claim against the borrower after a foreclosure. Of course, having a claim and collecting upon it are two very different things. In the past week, our attorneys at BPE law have successfully negotiated a $200,000 release for $17,000; complete releases for $0; $150,000 for $5,000; and we’re completing a $2.2 million commercial loan payoff for no more than $100,000.

So what should this mean to you?  If you’re in default, keep negotiating with your lenders. They may be more accepting of a loan modification or a short sale without recourse or contribution.  And get help from real estate professionals in your community. They speak the language of the lenders.

If you have specific questions about your liability in California or about short sales, foreclosure, or any legal issues, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee consultation to evaluate your liabilities and strategize a resolution. This can be done in person or by phone. If interested, please call us at 916-966-2260.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options.