Homeowners will get "Experienced" Mediators

Foreclosure Fairness is about to come to Washington and yesterday, an email from the Washington State Bar Association outlined some of the minimum requirements to be considered a mediator.  A mediator is simply a neutral third party that helps negotiate conflicts between two parties.  In the instant case, it will be the frustrated homeowner who has sought HAMP and conventional modifications from an unmotivated banking institution.  The mediators must have had a minmum of 200 hours of mediation experience, or 60 hours of mediation experience and 40 hours of mediation training with a minimum of 10 completed mediations. 

All in all, the qualifications are not really problematic.  It is good to have mediators that have experience dealing with two individuals working out thier problems.  Where I find issue with the qualifications is that there is no requirement that the individual have any experience in finance and real estate law.

Foreclosure mediation is going to be its own beast.  This is not a divorce or custody dispute, it is not an employee who feels wronged by a manager, nor is it two homeowners fighting over boundaries.  This is an intense struggle between a homeowner and a highly sophisticated, financial entity which has access to economists, finance experts, and lawyers.  Who do you think has leverage going into this mediation?

Additional issues come into play that stem from the new Foreclosure Fairness Act itself.  The act has handcuffed the mediators because there is no requirement that the banks disclose all of the factors going into the net present value (NPV) tests of a loan modification.  An NPV analysis can be quite simple, it is a function of the number of payments, interest rate, starting and ending values.  However, this simple function that can be run on a HP 10bII calculator can become incredibly complex though, when the interest rate and end values are gerrymandered with payoffs from third party insurance products and volatile derivative markets.

Since those inputs into the NPV analysis do not have to be disclosed, it makes it difficult for the average homeowner to understand why a modification is being offered when the modification has a NPV that is clearly higher than the NPV of a foreclosure in the simple set.  This fact alone is one of the reasons why a homeowner should choose legal representation over a simple housing counselor when approaching the mediation process.  You must meet sophistication with sophistication, even if the argument, boiled down to its essential elements, is quite simple.

The representative of the homeowner must have the ability to understand and dissect the bank's complex jumble of information, essentially cutting through the crap, and deliver the actual terms.  Since the mediators are not required to be able to do this on their own, nor will they have the resources at $400 per mediation, it falls to the homeowner to deliver a break down of the bank's proposal and a solid counter proposal which is more reasonable.  Good luck getting that done with a free housing counselor being funded by the banking institutions.

I have harped on the way the new legislation force feeds housing counselors on the public and this is why.  When it comes to complex negotiations, it is unlikely that the homeowner will get adequate representation in the foreclosure mediation because there are too many cases, limited resources, and a suspect source of funding to legitimately expect excellence.  Homeowners that can afford nothing else will likely be better off than with no help, but remember the adage that "you get what you pay for."

The Housing Double Dip Fudge

In December, I posted a note about how I like chocolate ice cream.  I like it in a cone, double dip and I eat it with spoon.  Well, really, the post was about the economy and housing in particular.  I had friends that were bullish on the stock market, jobs, the economy, housing, you name it, they said buy it.  A lot of that braggadocio in regard to economy came from individual's fear of things going sideways.  It certainly didn't help that trusted sources like the Wall Street Journal were salivating over futures makets and Ben Bernanke was imputed with indicating that he didn't expect a double dip recession. 

Information from the Federal Reserve and the futures markets seemed to indicate that the recovery was going to happen in 2011, 2012 at the latest (see the video on the WSJ link.)  This morning, CNBC, not my most common source of news because it tends to push a rosy view of the economy, came out and said this morning that a "Double-Dip" in housing prices is even worse than expected. It would seem, that Mr. Bernanke likes a little fudge on his double-dip. In all fairness, I couldn't find a single quote from Bernanke saying there was not going to be a double dip, but he did make indications that there wouldn't be, with caveats. He should have been a lawyer.

So what is the driver in this "unexpected" double dip in the housing market.  Well, first of all, it isn't or shouldn't have been unexpected.  The amount of foreclosed/ bank owned properties on the market or yet to be available in the market is enormous.  The US housing market on average will sell about 4 million units.  The banks are holding nearly 8 million units and foreclosures are ramping up.  Though the data is not yet in for April/May 2011 in Washington, I expect Realty Trac to make an announcement of nearly a quarter to half increase over the previous quarter in new foreclosures for the state.

This has partly to do with the new Foreclosure Fairness Law, okay, scratch that.  It has almost everything to do with the new Foreclosure Fairness act.  So, if your house was worth X in February, the number of new foreclosures happening will likely place downward pressure on your price, no later than August meaning your house will be worth X-Y.  Additionally, Washington is already on pace to see more nonjudicial foreclosures this year than last year according to the congressional fact finding for the Foreclosure Fairness Act.

The article in CNBC said that the US average drop this year has been 3.5% which is more than what I had reported as being 1% per month and there are a lot of foreclosures to come.  State specific data on Washington showed a loss of 4.15% since December, well ahead of the US average.  Surprisingly, Seattle remained even from February to March, one of only two cities on the S&P/Case Shiller index to do so.

This double dip leaves this question to be asked:  What do I do about it?  If you purchased/refinanced your home between 2003 and now so you locked into the height of the housing market, how long will it take you to recover your house value?

This is a serious discussion that you have to have with your self and your financial advisers.  The average family has lost over $125,000 of value since 2008 and the greatest asset of most families is the home.  Can you afford to loose more over the course of the next two years? 

It is time that you sat down with a lawyer trained in foreclosure law and find out what your rights are in regard to your home.  I am not saying that your house is a stock and that it should be dumped, but when analogized, it can help make better economic decisions.  Let's head down to the local ice cream shop, get a real double dip, and see what you can do about avoiding the economic double-dip finally being reported by the media.  I like mine with some cinnamon bears on it and your paying.

Pre-Foreclosure Options Letter - Foreclosure Fairness Act

So this morning, I got this wonderful call on my new HTC Evo.  I love my new phone.  Anyway, the meeting was with Rick Torrance and Valerie Grigg Devis from the Public Safety Unit of the Department of Commerce.  I know, your saying, "who?!? why?!?, what the..."  Well, the new law signed by Governor Gregoire that implements HB 1362 on July 22, 2011 is being administered, at least in part by the Department of Commerce.  The Department of Commerce, or COM as they like to call it has the unenviable duty of manufacturing a number of notices which will be used by attorneys and housing counselors to access the new provisions which will be codified in RCW 61.24.

The first notice, and this is the one the banks have been asking for specifically, is the newly minted Pre-Foreclosure Options Letter.  We have to thank Mr. Bruce Neas for the snazzy title and really, he should be thanked for much of the product that is the Foreclosure Fairness Act.  This is the first notice included under section 16 of the new act and it specifically requires that notice be given in English and Spanish from the lender notifying the homeowner of its options, including mediation.

This letter is being developed with model language and should be approved by the AG's office next week when it will be sent out for translation into Spanish.  You must note, that the banks were unwilling to foot the cost in translating this item.  They would rather that the tax payers eat the cost of translation.  I guess they will still need make sure they have a Spanish speaking attorney available to verify that COM got it right.  So, here is to job creation!

This notice will be sent to homeowners and will contain most of what we find in section 5(c) of the law which will amend RCW 61.24.031.  The Notice will say you have 30 days to contact the beneficiary (bank) and request mediation, I mean options.  You will note, in Section 8, the bill allows you to request mediation on or after July 22 as long as you have received a notice of default.  So you won't be left out.


Though this Pre-Foreclosure Notice is the top priority for COM, it is not the one of the most interest to me.  COM has until June 22nd to post and provide the Notice for Referral which will detail what must happen prior to an attorney making a referral to mediation.  This notice is also detailed in section 16 and refers to new section 7 which states in part, "[An] attorney referring a borrower to mediation shal send a notice to the borrower and the department, statement that mediation is appropriate."  The only thing that I did not get out my conversation this morning is what the heck does "appropriate" mean?

This form is also in production and I was told it will be posted early next month but as of this time, the forms are still unavailable for public perusal.  There are four additional notices which are produced either by COM or the mediator which the homeowner has little or no control over.  Those will also be available but of much less interest.

There does seem to be a rush by the banks to get NODs out before July 22nd.  However, that rush really is to avoid the recording costs, not to avoid the law, well maybe it is to avoid the law, but section 8 puts them squarely in it.  The issue is going to be this, if you have a sale date set for July 22nd (which ironically is a Friday and the day the law goes into effect) and my office faxes a referral to mediation to COM before the sale, does the Trustee have to push off the sale and the bank set up the mediation?  I believe the answer to this question is YES, YES, and YES!!! if you didn't hear me.

So, I am going to be holding a Midnight party at my offices on July 21st to send off mediation referrals for anyone that would like one.  Once 12:01am hits, the fax will be a humming.  I am kidding...or am I.  I guess maybe you should give me a call on my new EVO before Thursday, July21st. 425-314-6737.

Analysis of Foreclosure Fairness Act: Homeowner's Guide

On Friday, 4/8/2011, the State legislature delivered a bill to the Governor for signature on 04/14/2011 which will significantly change the process of foreclosure in the State of Washington.  The major change is that the legislature has delivered to the homeowners, a statutory right to sit down and talk turkey about modifying the loan that has become the bane of homeowners everywhere.  In 2007, the median net worth of a family in Washington was around $150,000.  Since that time, we have seen the stock market crash and the housing bubble burst, unemployment rise, real wages drop, and interest rates on mortgages climb.  On average, the American Household lost $125,000 by 2009.  When you compare the statistics, we should be plus side, $25,000.  The problem is, that the mortgage that secured the average home, didn’t go anywhere, and the though the median and the averages were in the $150,000 realm of net worth, those buying homes and refinancing in 2007 and earlier, were doing it on 100% loan to value terms and it is unlikely they were near the median in net worth.  Thus the average losses that impacted the portfolio didn’t turn into a mere $25,000 remainder, but left them insolvent and starring at bankruptcy. It is likely, that of the 33% of homeowners that have a mortgage that is underwater in the Puget Sound, your financial situation is sinking but this bill may provide a much needed life saver.

The Foreclosure Fairness Act will provide the homeowner the opportunity to force its banker to the table to discuss the realities of modifying the loan.  Prior to this, homeowners have fussed with lost documentation, forbearance agreements and the actions of a banking industry that border on the criminally negligent. In addition, the bill requires the bank to provide specific information in making a determination of what the best outcome will be based on present values of modification, foreclosure, short sale, deed in lieu, and whatever workouts may otherwise be arranged.  The problem will be getting through the hoops to make that banker sit there and look you in the eye with a mediator looking on and provide you this information.

Previously, the process of nonjudicial foreclosure in Washington was that the owner of your mortgage, the bank, would stop receiving the monthly payment.  In turn, the bank would declare the loan to be in default, and contact a trustee to initiate the nonjudicial foreclosure.  The trustee would send a Notice of Default out no earlier than seventy (70) days after the first missed payment and the home would be auctioned off about 120 days later.  The homeowner would then be forced to move by the twentieth day after the sale.  Thus the whole process would take about seven months or 210 days.

With the changes, the statute imposes on the bank a requirement that it send out a notice a full thirty 30 days before recording the Notice of Default that details your rights in sitting down with the bank.  If you don’t answer that letter, don’t worry, the bank will call you three times by telephone, and then send a certified letter.  Failure to meet that requirement means the bank cannot foreclose. 

If you do respond to the letter.... TO ACCESS THE REMAINDER OF THIS ARTICLE, and trust me you want to get the detailed analysis of this statute, PLEASE REGISTER FOR A FREE SEMINAR HERE. Just click on the green "register now" button for either a live event or the webinar, and the article will be emailed to you shortly.


My good friends at the Financial Revival Group liked my analysis last week that they bought the rights and are incorporating it into their workshops.  Must be good if someone is willing to buy it.

Foreclosure Mediation is Here...but its not a Knockout!

Last night at 10pm the Seattle Times posted that Governor Gregoire had indeed signed the bill that the legislature laid at her feet some 7 days prior.  The Bill, now called the Foreclosure Fairness Act as proposed in HB 1362 has some great new features for homeowners but the way Times describes it, its a knockout for homeowners, and it is not.

The Seattle Times took the effort to document some of those features but its glaze leaves more than a little to be desired.  The article talks in definitive terms of what it does for homeowners when in reality they are just jabs.  The bill for one, does not automatically extend an additional 60 days for homeowners that respond to the request for mediation.  Neither does it automatically stop the foreclosure if the lender is in bad faith unless the homeowner has properly engaged counsel and been referred to mediation.

I want to be clear, there are tremendous advantages created by this bill, but there is a lot of work to be done.  If you want those provisions to benefit you, it is highly recommended that you sit down with someone, preferrably an attorney because of the attorney's ability to land a knockout blow.  The bill does extend a new fee of $250 for housing counselors, which there is no requirement that a housing counselor have any specific license.  They are not attorneys.  And while we're on the subject, I feel inclined to point out that from the article, "Without Prompting, the Washington Bankers Association offer to pay a $250 fee for every default notice filed [not true, only the first notice], with the stipulation that 80 percent of the money pay for housing counselors."  (emphasis added.) 

The Banks are paying for the housing counselors, and I am sure it is out of the kindness and goodness of their ever expansive corporate heart.  Wait...corporations don't have hearts?  Are you sure?  Yep, they don't breath or have blood...sounds like a vampire.  The corporations have alternative motivations for pushing homeowners off on housing counselors.  One, if you know who butters your bread, you take care of them right?  Two, housing counselors cannot sue you if the note was assigned by Linda Green.  (If you don't get that reference, please check this blog posting out, 60 Minutes Story - The next housing shock (crash).

It is no surprise that banks want homeowners to go to someone they pay.  Prior to the housing counselors provided by HUD, the banks were asking you to call them.  TARP assets were being set aside to pay for HAMP and HAFA, yet the banks did very little, a national average of 3.5% success rate in actually modifying mortgages despite billions of dollars being thrown at the problem.  The counselors were then invented, paid for by banking money, as a substitute for bank employees who would counsel with homeowners on budgets designed to free up cash to pay for the mortgage. 

There are alternatives to freeing up your liquid cash to pay on a property that acts like a shredding machine instead of like an ATM.  The problem for housing counselors is that they cannot talk about those alternatives in a comprehensive way, they simply don't have the tools.  So, if you are looking for some relief under the Foreclosure Fairness Act, and would like a sit down mediation with your bank, remember its not as easy as one call that's all! There are hoops to jump through and arguments to be won.  Do you want a bank sponsored housing counselor in your corner or a real fighter, I mean attorney?  I'll let you decide.

AG Settlement's Falls Short

Tomorrow, the AGs of the 50 states are supposed to reveal the great settlement that is going to impose upon the largest lenders some burden for the short cuts that helped deepen this recession.  The problem that some have found with this is that the AG's solution may actually lengthen the time that underwater properties plague our economy.  Some have gone so far as to find their own economists to attack the settlement because it may cause higher costs than what the lenders are actually going to give up ($25 billion in mortgage principal writedowns). Whether you think its good or not, or if you just don't agree with the banking industry, you will find supporters aplenty (counter argument-if you can call it that)

In some respects, I can understand the hand wringing because I too don't see the AG's settlement as a positive move.  I remember in 2008, when GM was on the verge of financial collapse and the government stepped in to save it, Mitt Romney wrote an op-ed for the New York times.  In that piece, he explained that the GM should be allowed to go into bankruptcy.  It was likely the fastest way of curbing the executory contracts with its labor force and salvaging its beneficial intellectual, real, and personal properties so that they could be put to the best effect.  I agreed with Romney at the time he wrote that piece, and hindsight shows that the government intervention did little to alter the outcome, only delaying the inevitable restructuring of a failed enterprise. 

The difference though, in that Governmental-hand-of-god save of GM as compared to what the AGs are trying to with home owners, is that there isn't really any save.  In a blog post a couple of weeks back, I looked at the number of homes to be repossed this year alone, 1.2 million, and if all the principal writedowns were to go to those homeowners alone, it would only amount to $20,833 per home.  Considering that in our present market, homes have lost nearly 1/3 value since 2007 for an average of over $100,000, that write down doesn't even scratch the surface.  When applied to the nearly 5 million homes in default, that number dwindles away to become inconsequential.  Consider this, last month, I negotiated a second mortgage of nearly $100,000 for a payoff of $10,000 and still failed to bring the home flush, its close, but still not flush.

The economists hired to look at this deal though, have made some gross assumptions that lack reason when comparing write downs to loan modifications.   In my opinion, it shows either a lack of understanding in what is actually being offered by the banks, or blatant disregard for factual circumstances.  Your choice, I either call you ignorant or a liar.  Home loan modifications, as described by the FDIC guidelines and those developed in GSEs, basically say that the bank has to be as well off as if it got its original deal.  The banks are not bending over backwards to write off billions of dollars in mortgages, especially when people are still paying.  Many of the modifications simply add the amount of arrears on to the end of the mortgage, extend the time from a 30 year fixed to a 40 year fixed, and alter the interest rate.  This amounts to no change, no principal write down.  What the AG's are requiring is actual write down.  We take the terms as they stand, and then the lender lops off some portion of the principal.  The problem is that it doesn't go far enough. 

The authors of the ecnomics paper argue taht the changes are going increase strategic default, but it isn't as if there is need for additional incentive.  A home being $100,000 upside down is incentive enough.  The write downs may actually incentivize homeowners to stay and pay.  Which brings me to my reasoning for not linking the settlement.  I am affraid it will limit private action against the banks, and it doesn't go far enough to incentivize homeowners to stay in their homes. If you are going to do it, do it right, make it effective, and by all means, go after every penny of revenue that the banks have stolen from local governments in the forms of excise taxes.  Then, provide a broader forum for individual homeowners to obtain compensation, and by all means, allow them to lop off most if not all of their underwater mortgage.

If homeowners are a little bit underwater, the emotional attachment to the home will allow them to pay the extra money that they will to hold on to the memories of birthdays, anniversaries, births, marriages, and simple day to day glimpses of the past.  But if homeowners are stuck with putting their monthly mortgage payment through a shredder each and every month that their property loses value, strategic default, and simple missed payments will continue.  I personally am happy to help anyone down the path of strategic default and extract the cash from the lenders in anyway possible, but if you can modify and stay, then more power to you but don't count on the AG's Settlement, it simply falls short of real relief.

Foreclosure Mediation: Poking the Bear

Have you ever heard the phrase, "don't poke the bear?"  Of course you have, unless you are 7 years old and never read anything in your life.  Even by context, it seems like a bad idea.  Well, after some 30,000 foreclosures last year, the bear has had enough, and I mean the voters.  If you have been following me while I tracked SB 5275 and HB 1362, you know that I was of the belief that the banks had won.  In the first substitute of the bill I went to Olympia to fight for, the legislators had gutted the bill.  See Paper Tiger. 

Much to my wonderment and excitement, the second substitute put almost every tooth back in, and those dentures are sharp.  You can read the text of the new bill here, but only if you are a glutton for monotonous punishment.  The bill is about 28 pages and it has twists and turns, new definitions, rules, traps, and in the end, I believe a tool that will allow homeowners to hold banks responsible. 

The bill has not yet been signed.  I didn't want to get scooped here, so I am posting this before Gregoire puts pen to paper.  She got the bill on Friday and it has not been scheduled when she will sign the bill.  Some of the highlights are mediation, of course, bad faith, and attorney opinion letters to HUD.  I always like new business.  there are some traps as well, the provisions are not automatic, they are not free, and in many ways, they will be ineffective, but that doesn't mean you ignore them.

I will write more on this later this week.   So stay positioned, the great bear of the northwest has been poked out of its cave for long enough, and some bankers better be wary.