The Sky if Falling, nope just house prices...or your principal balance?

Happy New Year!  I just wanted to start off by stating that I was right and it sucks for most of my clients.  Last year I claimed that our market would see an average decline of about 1% per month.  In yesterday's Seattle Times, the   amount was 13.5% for the King County area or about 1.125% per month.  The article explained that even though the volume in home sales is up, the median price is dropping because the banks are increasing the number of foreclosures.  There is glut of bank owned and pre-foreclosure short sale properties causing the housing prices to drop.

This is not news.  If you followed this blog, you know I have been beating this drum for a while now and I am afraid you are going to tune me out.  I probably deserve it, but what if it weren't the sky, I mean your house price dropping, but your principal balance?  That would be news.

Last year, Gov. Gregoire signed the foreclosure fairness act under HB 1362.  This bill gives homeowners the right to force the bank to come to the table to mediate the differences that the homeowners have with the banks.  We aren't really trying to pick a fight, but if you want one, its as good a place as any to have it out with your bank.

It has finally been proven that the banks can be beat in the mediations.  The sticks are myriad to use, but there is a possibility of getting a principal reduction in the mediation.  I am not to the point that I believe this is the norm, but something that is feasible.

My offices have been presenting referrals to mediation for homeowners since the law came to fruit on July 22nd of last year and we have a track record of getting concessions for homeowners.  If you are in the Snohomish area and would like a chance to chat, give me a call, but if you are simply seeking guidance, I would recommend you sit down with an attorney and discuss your options.  You have a limited time window, 30 days in which to gain the most effect from the law. 

Just know, that despite the fall in housing prices, there is a possibility that you could make it fall in tandem with your principal balance, or at least have a forum to give the bank a piece of your mind and they have to sit there and take it.

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."

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.

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.

Update on Foreclosure Mediation-Its Now a Paper Tiger

Legislators like to beat their chests and show they are doing good for the public, but when they compromise, their boasts about the tiger they are unleashing on behalf of their constituents end up being a tiger made out of paper mache.  This is just a quick note on some updates for foreclosure mediation bills, HB 1362 and SB 5275.  Both bills were referred to their respective Ways & Means committees.  The real issue is that what was submitted to the Ways & Means committees were substitute bills (SB 5272 Substitute Bill) and not the bills that I went to Olympia to fight for last month.  Certain provisions have been gutted and substituted, one important item that got the axe was the in person negotiator.  HB 1362 under new subsection (f) says "a person who is authorized to modify the loan obligation or reach an alternative resolution to foreclosure on behalf of the beneficiary may participate by telephone or video conference, so long as a representative of the beneficiary is at the meeting in person." (SB 5275 subsection (e)). During the hearings last month, the banking industry, represented by one of the big downtown law firms, made the argument several times that the person most suited for making the modification doesn't exist within the state boundaries and it would be too much trouble to put that person in front of an underwater homeowner.  I hate that argument, I hate the compromise.

In one of my posts last year, Hi Ebb, I'm Flow, I discussed the dehumanization of the banking experience being one of the factors that has lead to this crisis in our collective history.  The banks wanted nothing more than analytics in determining the risk of a loan, when one of the most important factors of determining risk is the ability of the local banker to work with people that he knew in his community.  The banks moved from that model almost completely and substituted computer programs that were easily fooled by inflated numbers and defeated by crummy underwriting standards.  The foreclosure mediation bills explicitly put decision makers in the room with the homeowner, correcting a dishonorable banking practice of the last decade.  The banks have done their best to keep that decision maker out of that room and now you have a Skype call to get answers with some lackey sitting in the corner listening to the conversation.  If my court can drag your butt into the court room because you have sufficient contacts with my state, why can't my legislators do the same thing to save a home.  The person is coming here on the bank's dime, not the taxpayer's.

The other gutless act of our state legislators was the removal of a provision which would make it an act of bad faith on the part of the bank to not offer a modification if the net present value of the modification was greater than what the bank could anticipate receiving in foreclosure.  Simply put, was the price tag on the modification bigger than the foreclosure?  If it is, do the mod, if not, then do the foreclosure.  That was an aspect of subsection 11(f) of the original bill, but new section 11 completely removed that obligation.  The Washington State Real Property Bar had issued a letter (and no, I didn't get a copy either) stating that the provision, in the committee's opinion violated the constitution by interfering with private contract.  I think that is an overblown argument because a majority of DOTs explicitly make themselves subject to the changes in the Deed of Trust Act in the state and from an economic position, the only way that not making that deal makes sense is if there are other payments coming to the bank which are not being made public knowledge.  Sorry for the conspiracy theory, but the banks are getting its back scratched somewhere which is altering the economics of these transactions.  I wish I had more information but the FOIA requests are turning up squat.

There is a scheduled Senate Hearing on the 24th at 1:30 pm in the Senate Committee on Ways&Means which I am trying to see if I can attend.  Hopefully, I can get some more answers for you.  The new bill is pretty much a paper tiger at this time but there are likely a couple of footfalls there for the banks which can be beneficial to my clients.

The End of HAMP?

I know its just January, almost February but for fiscal minded politicos, its spring time and its time to clean, a little weeding if you will.  We are seeing it here in Washington as cities like Everett and Lynnwood cut back on teachers and other staff, and even at the state level as Governor Gregoire puts the axe to under-preforming programs and asks for whole sale cut backs in expenses and personnel.   News from the other Washington (D.C.) that there are further cuts on a national level.  One in particular is HAMP.

From a professional stand point, I have been less than accepting of the program.  The Home Affordable Modification Program (HAMP) for short has been an abject failure.  Nationwide, until last summer we had seen the modification to application ratio sit at about 3.6%.  Recent news has shown that number climbing to about 7% and in particular locals where the states have implemented special hotlines and other foreclosure deferment programs like Colorado, the number has climbed to 12%.  Not exactly favorable numbers.

To be fair to HAMP, a lot of applicants cannot qualify for the modification.  The target is 31% of pre-tax income.  With the loss of jobs, loss of overtime, or any combination of decreased earning capacity will cause some homeowners to be in a situation to where they simply cannot afford to stay, even if a modification was made to meet 31%.

The issue that I take is that in many instances is that the bank essentially gets to look at the value of the current loan as a starting point for determining if it will in fact modify.  If the bank is not better off, it has not incentive to modify and won't.

Jim Jordan, Darrell Issa and Pat McHenry, all Republican congressmen have introduced a House Bill that would clean out HAMP due to its failure in meeting the projections of 3 to 4 million modifications as opposed to the 579,000 that had been accomplished through December. 

The repeal of these bills in of itself will do nothing to cure the foreclosure crisis.  In fact, for the handful of people it helped, it would be detrimental.  The problem with those bills is taht there is no private enforcement, no consumer protection act application, no provision requiring good faith action on the part of the bank.  When there is no enforcement, the bill or regulation is worth about as much as the paper it is written on. (Sorry for the dangling participle)

The beauty of the Foreclosure Mediation bills that I have commented extensively upon this week, is that there were finally some teeth.  No more paper tigers here.  The attorney could, on good facts, get a finding that the bank had acted in bad faith.  Bad Faith suits are enough to make executives soil themselves and that is why the banks and their big law lackeys have made many arguments against the passage of these bills.

Though I applaud the removal of under-preforming and broken vestiges of government, it is much like a garden with weeds.  You can pull weeds all day long, but if you don't put something good in its place, the weeds come back.  Spring clean, put things in order, but don't leave us without any tools to fight the bank, the weed will just come back.