Fund to Help Hardest Hit Homeowners

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Updated: Thursday, 08 Jul 2010, 6:49 PM EDT
Published : Wednesday, 07 Jul 2010, 4:23 PM EDT

By ROBIN SCHWARTZ
myFOXDetroit.com

To review the program components of the new FHA Refinance  Program also announced on March 26, 2010, go to FHA Refinance Fact Sheet.

Bank of America to Cut More Loan Balances

By JAMES R. HAGERTY

Bank of America Corp. said it would offer more borrowers reductions in their mortgage-loan balances in the latest twist on efforts to avert foreclosures.

The plan is the mortgage industry’s boldest move yet to address the plight of the millions of U.S. homeowners who are “underwater,” owing more than the current values of their homes. It enhances an agreement Bank of America reached 18 months ago with state attorneys general to settle claims they made over certain high-risk loans made by Countrywide Financial before Bank of America acquired that lender in mid-2008.

Reductions of as much as 30% in loan principal will be offered to struggling borrowers who have subprime or so-called option adjustable-rate mortgages, known as option ARMs. (Option ARMs, no longer available, allow borrowers to start with minimal monthly payments and face steep increases later.) Also included will be certain loans that have a fixed interest rate for the first two years before starting to adjust annually.

The program is limited to Bank of America customers who are at least 60 days overdue on payments, who can demonstrate that a financial hardship prevents them from making payments at the current level, and whose loan balance is at least 120% of the estimated home value. The bank estimated that 45,000 customers will qualify for the relief.

Amid the worst wave of foreclosures since the 1930s, banks generally have been reluctant to reduce principal. Instead, most loan modifications—including those under the government-subsidized Home Affordable Modification Program—involve reducing interest rates to as low as 2%. Some also extend loan terms to 40 years to shrink monthly payments.

But banks are finding that many deeply underwater borrowers aren’t willing to keep making even reduced payments because they believe they have little hope of ever having equity in their homes and would be better off renting and perhaps buying a cheaper home later. The Bank of America program is aimed to give such borrowers more hope by reducing their loan balances to current estimated home values.

Bank of America said the program might eventually be extended to other types of loans. The U.S. Treasury, which runs the HAMP loan-modification program, also has been considering ways to encourage more principal reduction but has indicated that any such steps were likely to be modest.

Under the Bank of America plan, the maximum decrease in principal will be 30%, and borrowers will have to “earn” the lower balances in stages over five years by keeping up on their new, lowered payments.

By cutting principal, Bank of America said, it will reduce the risk that these borrowers will default again later. “We believe this could become an industry model for principal forgiveness,” the bank said.

The program also addresses the woes of option ARM borrowers whose loan balances have increased over the years because they made minimal payments that deferred part of their interest due. Some of these borrowers will qualify for a reduction in their principal to as low as 95% of the home value.

To determine the market value of a home under the program, Bank of America plans to use computer models that estimate those values or, in some cases, opinions from real-estate brokers. Those estimated values will then be adjusted annually using metropolitan-area price indexes, Bank of America officials said.

First American CoreLogic, a real-estate data provider, has estimated that 11.3 million U.S. households, or 24% of those with mortgages, were underwater at the end of 2009.

This infomercial is currently running on the WOW Network and ION Networks.  The crew of the Radio Show is assembled together for this Infomercial.  Ken Gross, David Einstandig, Brian Small and Eric Glick. Find out how to use the Tools of Financial Crisis Management to preserve your future earnings for you and your family.

The Financial Crisis Talk Center Infomercial – Segment 1 of 2 – House Under Water? (10 Min)

The Financial Crisis Talk Center Infomercial -Segment 2 of 2 – Your Options (5 Min)

Help for Homeowners – announced last year, has, unfortunately, evolved into nothing more than government acronyms. HARP (Home Affordable Refinance Program) and HAMP (Home Affordable Modification Program). HARP permits a refinance of a home if the homeowner but the homeowner must be current for the last year and meet normal underwriting criteria. The only benefit to the program is that the lender can refinance up to 125% of the market value of the home. In practice, the government mandated appraisals have been on the low side of market so that few properties can fit within the 125% framework. Worse than that, this program affords no help for people who have sustained financial hardship because if they were 30 days late on a payment in the last year, they are not eligible.

The HAMP program allows modifications to reduce the mortgage payment down to 31% of the Gross Monthly income of the homeowner. This program helps people who have sustained a reduction in their income so that if their present payment exceeds 31% (i.e. Monthly Income is $7,000 per month, Mortgage Payment $4,000; the reduction could go to $2,170 if all other program requirements are met) they are able to obtain a reduced monthly payment.  The problem with this program is that the participating lenders have not made the effort to adequately process the modifications applications. Homeowners are told to fax papers in, and then weeks pass and they are informed that the paperwork is missing – so refax. When you call a lender, such as Bank of America, they will not even allow you to speak to a negotiator for the modification. All you can get is a status report. As an attorney, we want to speak with someone to make sure they are properly evaluating the file – but that is impossible because they refuse to come to the phone. End result – of the estimate 4,000,000 people who to be helped, few modifications have been put in place – with only 66,000 permanent modifications in place as of January of this year.

The poor outcomes of HARP and HAMP are not the big story. The biggest problem facing our country – is an economy that is undermined by high unemployment and nonexistent stimulus for the growth of small business. What Washington has missed, is understanding that the dismal real estate market is the underlying problem that must be solved in order to stimulate small business growth.

It does not take a Rhodes scholar to understand the process.  Consumer spending drives our economy. Consumers cannot spend if they are unemployed. Even employed consumers will not spend if they have no available credit from the credit card companies and live in fear of losing their jobs. We all recognize to correct this problem, small business must begin to thrive – thereby employing more people, offering more goods and services and driving our GNP.  Small business, however, will not and cannot thrive unless banks make credit available to businesses. Banks, however, are not lending. The reason – banks require collateral to underwrite loans. The collateral typically pledged is inventory and accounts receivable and real estate. Real estate is acceptable collateral ONLY if and to the extent there is an  “Equity Cushion” in the property.

Here lies the problem. The “Equity Cushion” on residential and commercial real estate has been lost in the Financial Crisis. Because there is no equity in real estate, the banks will not accept it as collateral and therefore ½ of the historical collateral used to support lending is gone with the result that the banks will not lend due the lack of adequate collateral. You can scream and holler all you want about how the banks have improperly conducted themselves in the context of executive bonuses, credit card abuses and everything else. It is not going to matter – unless there is equity in real estate to support lending, you are not going to see lending occur, which means continued virtual no growth for our economy.

So where does the solution lie? The answer is we must return to an economy where there is equity growth in real estate. Right now, ¼ of all homeowners are underwater in their homes. This statistic was revised from 1/3 based on a change in accounting assumptions – but the reality is that there is virtually no Equity Cushing that homeowners have in their residential homes that can support a second mortgage to finance the start up costs of a new business. The commercial sector is even worse off.

The return of an Equity Cushion in real estate will come from only two outcomes. The foreclosure process is one. The other is modification of mortgages that include a reduction in the principal balance of the loans. Equity in real estate will not return if we modify mortgages that only reduce interest rates and extend mortgage terms to 40 years. This is what HAMP allows and what the banks are pushing. The modification process, as it presently is situated, is in reality a method which hampers our return to and Equity Cushion in real estate and therefore delays the goal of returning to a vibrant economy.

Another obstacle to a return to an Equity Cushion that has evolved  is the problems that are occurring nationwide in completing short sales on homes facing foreclosure. The short sale, if approved by the lender, accomplishes the task of transferring the property to a new buyer at fair value, thereby giving the new buyer equity in the real estate and future growth. The problem that has occurred, however, is that lenders are refusing to release the selling homeowner from the deficiency on the first mortgage arising from the short sale. The result of this intransigence by the lenders is that the short sale process is far too slow and a selling borrower would be well advised to refuse to a short sale unless the lender gives the release of the short liability as part of the deal.

The clear solution is that our government must intercede to expedite the return to the creation of an Equity Cushion in real estate so that banks will then loan money based upon valued collateral. The foreclosure process take too long and the current effort to modify mortgages without principal reduction only serve to delay the process longer and thereby extend the time it will take for a true recovery. To correct this, we must shift the modification process to mandate principal reduction of the property to within reasonable estimates of fair market values. The “Cramdown” legislation that was voted down by the Senate last April, which allowed a cramdown of the mortgage in a Chapter 13 bankruptcy of a borrower’s primary residence to the fair market value of the home, would have accomplished this goal. Accomplishment of the goal would have occurred not as much through the actual bankruptcy process but by virtue of giving the homeowner’s the leverage of the “threat of bankruptcy” as a means of bringing the lender to the bargaining table to voluntarily reduce principal. This legislation was advocated by the President during his campaign. Unfortunately, with Health Care and the many other items on the agenda in 2009, the banking lobby pervaded on the issue and the Administration did not push for the passage of the bill when it hit the Senate floor last year. This legislation should be reintroduced and pushed forward. Alternatively, the government needs to adopt a mandatory Modification With Principal Reduction Program.

The gist of the opposition to principal reductions to mortgages as enunciated by the banking industry is that there is a “fear” that people who can afford to pay their mortgages on homes underwater would use this process as a means to reduce their mortgage. This argument is the fiction that needs to be resolved. If you accept that the critical goal is that we need to return to an Equity Cushion in real estate, as a critical component of banks lending money and thereby allowing our economy to grow, then there is no need for this alleged “fear” because the better result would be for all underwater mortgages to be modified.

The Banks, of course, fear this result because they will have to absorb greater losses. The Banks, however, are nearsighted. Eventually, the banks will realize that they cannot make money merely by charging usurious interest rates on credit cards, bank overdraft fees and renewal fees – but that they have to loan money to people and businesses. (Isn’t that what banks are supposed to do?) It may be true that in the end the banks do have to take the loss on the real estate that is underwater. It was, however, their lending practices and greed that drove us to where we now sit. So let them take the loss they deserve. Their stock value may decline, but we know it will return. Once this occurs, we will all, including the banks, be in a position to grow.

Ken Gross is a the Managing Shareholder at Thav, Gross, Steinway and Bennett, P.C. The firm is gaining national notoriety for its Financial Crisis Management strategies. Mr. Gross is host of the Financial Crisis Talk Center which airs at 8:30 AM, Saturdays, on Detroit Sports Talk Radio 1130 AM, www.detroitsportstalkradio.com, in the Metro Detroit market.

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BINGHAM FARMS, Mich., Feb. 22 /PRNewswire/ — The Financial Crisis Talk Center (FCTC), a weekly radio talk show hosted by Financial Crisis Experts Ken Gross and David Einstandig of Thav, Gross, Steinway & Bennett, PC. on Detroit Sports Talk Radio 1130 AM has launched a new website, www.FCTalkCenter.com.

The new web-based financial crisis resource was created by the firm for consumers and businesses that are searching for help and need answers regarding their vital financial concerns.  Visitors to the site can find discussion forums, podcasts and in-depth information on issues relating to loan modifications, debt resolution, bankruptcy protection and tax relief.

“We created the Financial Crisis Talk Center website because we know first-hand how confusing it is for people, who are already overwhelmed by their financial situation, to find resources, information and options to help them,” said Ken Gross, Firm Shareholder.  ”We designed this site to provide comprehensive information they need to formulate a ‘go forward plan’ for a successful financial future.”

In addition, visitors can provide their e-mail address and subscribe sign for breaking news alerts relating to the country’s financial crisis, along with updates to attend free seminars offered by the Financial Crisis Talk Center team throughout SE Michigan.

Leveraging their 28 years of experience in resolving business and personal financial and tax problems, The FCTC specializes in meeting the needs of business and individual clients by providing Financial Crisis Management. For businesses, this means crafting a strategy to address delinquent taxes and the problems imposed by banks that are refusing to continue to extend credit to the business. For individuals, the firm designs strategies that include exit strategies from homes underwater, loan modifications, debt resolution, bankruptcy protection and tax relief.

Local organizations are encouraged to contact Ken Gross if they’d like the FCTC to conduct a free seminar for their members.

About Financial Crisis Talk Center

The Financial Crisis Talk Center, sponsored by Thav, Gross, Steinway & Bennett PC and hosted by Ken Gross & David Einstandig, began airing in November, 2008. The FCTC’s goal is to provide the forum and resources needed to advance forward in this difficult time and succeed. FCTC airs on Saturdays at 8:30 AM on Detroit Sports Talk Radio 1130 AM.  For more information about the Financial Crisis Talk Center, please visit, www.FCTalkCenter.com.

Well where do I begin. How about with my Notice of Assessment that I received Thursday from the City of Farmington Hills, Assessor’s Office.

Thank you, thank you, thank you. I’m so happy to see that my taxable value of my home, as well as my Assessed Valiue declined $11,930 this year, which represents a 8% decline in value. I’m down to $127,560, which means a FMV of $255,120. In 2006, my Assessed Value was $198,640, which means the equivalent of $397,280. Well, well, I’m sooooo happy. I’m only down $142,160 in value since 2006, 4years. A measely 35% decline in value.

Not bad. I did pay $250,000 for the home in 1989. And now, after maintaining it, improving it, caring for it and even loving it (or at least my wife) I’m so happy to see its worth $255,120. Thank you, thank you.

I’m so glad that your view on things is that I have a moral oblgation to pay my $400,000 mortgage even though my house is now only worth $255,000. I guess you have a point. But don’t morals run both ways – isn’t it a two way street? If I have a moral obligation to stick with a investment that has turned bad, don’t you have a moral obligation to step up to the plate and bear financial responsibility for the financial meltdown you caused?

I know. You don’t see it that way. You know what. I don’t give a rats ass as to what you see. Maybe its time you wake up, look in the mirror and see what we see. A self righteous, arrogant pig that has rapped our country and people of the good which it deserves –  and that’s the way it is.

Ken Gross

The video was sent to me by my good friends at Asset Planning Strategies – Jeff Sprague and John Giangrande

This video tells the story how even when a bank fails, the purchasing bank places itself in a position for guaranteed profit on a short sale – all at the expense of the borrowers and the taxpayer.

Watch the video and tell us what you think!