aMY L cavENDER

SHORT SALE SCAMS AND

THE "FREE ENTERPRISE SYSTEM"

I'm not really a "grumpy old man". I love puppies, nice sunny days, being alive - being alive, good friends, etc. but sometimes I can't help myself - I hate seeing people in distress get ripped off. And yeah, I know, Amy might have a different opinion on the G.O.M. deal J

Attached below is a notification from our ‘mother-ship' company, Universal Lending. It's fairly innocuous in what it states - that even though FHA will grant waivers to its 90 day ownership anti-flipping rule, investors won't buy loans made to the ultimate purchasers of such properties, so we won't make the loans. Simple enough, huh?

What's behind the curtain, though, is the ugly underbelly of what some call the free enterprise system; which goes something like "if it's not illegal, then I can do it and feel just fine" . . . child - please!

Here's the most common curve-ball that I've seen in the world of short sales:

1. Real estate agent/investor locates a home-buyer in distress. Most sought-after are the folks who just want someone to ‘make it go away'.
2. Agent/investor commences short-sale negotiations with mortgage company allegedly on behalf of the homeowner, but really on behalf of him/herself.
3. Agent concurrently negotiates a sale of the property with an investor friend or perhaps an arms-length homebuyer . . . at a price substantially higher than the short sale price requested of the homeowner's lender.
4. Agent/investor arranges concurrent closings whereupon the agent buys the property from the homeowner at a much discounted short-sale price, then resells the property to the ultimate homebuyer . . . at a significant profit. I've seen as much as $50,000 go to the agent/investor on a $150,000 deal. It's so simple - original homebuyer owes $130,000; a short-sale is arranged at $100,000; property is sold first to agent/inv. at $100,000, then to homebuyer at $150,000.

Smell something? How's your tummy-test on this one?

I've had conversations with agents directly involved with this scheme and they honestly believe that they're being smart - not criminal. "After all", they say, "this is the free enterprise system at its best". When I asked if all parties to the transaction knew the details, they replied, "sure, what do you think I am? A crook or something?" To which I have to reply - who in their right minds would agree to this scam if they really knew the truth? What lender in their right minds would agree to a $30,000 hit if they knew there was a buyer about to pay enough to clear their current loan? What homeowner in their right mind would walk away from $20,000 clear after their mortgage was paid? Who on earth would say "sure, I think it's just fine that I lose my home - have a potential $30,000 deficiency judgement sometime in my future or at least $30 K in debt forgiveness to pay taxes on next year . . . so that you, Mr. agent/investor can walk away with $50,000.

PLEASE! Do I really look that dumb?

There is legislation winding its way through our Colorado General Assembly now that would make this an illegal transaction without signed disclosures to the lender and distressed homeowner as to the exact specifics of the transaction. How many of these deals will close once that bill gets signed into law? How about exactly zero? Anyone want to place bets on my number? Let me know.

Here's the memo from ULC

On January 15^th, 2010, HUD issued a temporary waiver to their anti property flipping regulation that prohibits issuance of FHA insurance on properties owned by the seller for 90 days or less. Universal Lending Corporation has allowed for acceptance of loans under this waiver, but due to minimal purchase ability of loans meeting this criteria on the Secondary Market, we are now forced to discontinue further allowance of loans under this waiver.

Effective Friday, March 19^th, 2010: Universal Lending Corporation will no longer accept loans meeting criteria under the provisions of the HUD Anti-Flipping Policy Waiver. Any loans committed prior to this date will be allowed to close as originally committed, however, no extensions to loans meeting thiscriteria will be granted.

Should you have any questions regarding this announcement, please contact Secondary Marketing or Underwriting.

Doug Petz

Manager, Secondary Marketing

Universal Lending Corporation

Just askin' a simple question of Fed Reserve Governor Elizabeth Duke.

______________________________________________________________________

"It would be hard to overestimate the damage that has been done to the housing market in recent years, and especially to the millions of families that are suffering the devastating consequences of foreclosure," Duke said. "It would be equally difficult to overestimate the damage that would be done in the future if we must live with a chronically impaired mortgage market."

This is a quote from a speech recently delivered by Fed Governor Elizabeth Duke. I'll bet that everyone reading that quote agrees with her - I do. Her speech focused on the mortgage markets and how to "fix" them with all kinds of help from the Federal Government, HUD, the Federal Reserve, etc. Her ideas ranged from better homebuyer education to greater transparency and simplicity for the borrower in the loan application process. Community action groups can also play a positive role in "fixing" the problems caused by foreclosures, she said.

Elizabeth Duke is a FRB Governor, so it's no surprise that her focus is on how the Federal Reserve and other tools of government (I don't mean "tools" as a perjorative here J) can "fix it". Shoot, I'd be in the same mindset if I were in a position like that.

What I think gets missed over and over and over, ad nauseum, is that the reason we've got this mess is primarily because we've got us a bad economy; millions out of work; deep recession; thousands of jobs lost (approx. 500,000 in the mortgage industry alone). I've never seen the survey - and don't know if it even exists - that asks those who have lost homes to foreclosure "why?". My guess is that darn few would answer that they lost their home because they didn't understand the terms of their loan. In fact, I'd guess that at least 90% would say they lost their job and haven't been able to find another.

What do you think our foreclosure rate would be if all those folks hadn't lost their jobs . . . and would the mortgage industry be the big bad wolf it is today if they hadn't?

Just askin' - rc

In case you’ve been hiding under a rock for the last 18 months, this is my opportunity to share with you what to expect when getting a new mortgage loan. Each loan file is scrutinized by about 10 different people. Don’t let that scare you, just be prepared for it. Make sure you disclose everything to your loan officer. Technology has enabled us to pull complete background checks if necessary. If you don’t disclose upfront, chances are when the “peeling of the onion” progresses, undisclosed issues may arise.

Let me give real life examples:

• A client comes to me, I qualify and pull credit report. There are “inquiries” on the credit report. If an inquiry results in new debt, you need to disclose the terms of the new debt along with supporting documentation. It’s important not to engage in any large purchases prior to purchasing or refinancing a home. So, don’t go buy a new car prior to applying for a new loan.

• Earnest money and cash required for closing: Any funds required for purchasing or refinancing a home must be documented. Cash is typically not considered an acceptable source of funds. A paper trail will be needed to show any transfer of funds.

• Did you just get a new job? If so, no worries as long as you aren’t commissioned or can’t guarantee how many hours you will work. If you’re newly commissioned or self-employed, I’ll need to see a 2 year history.

• Did you co-sign with somebody on a debt? If so, no worries – I’ll typically have to include that debt in your qualifications regardless of who is paying the debt. (of course each case is different – just be aware co-signing may affect your situation)

These are just a few instances of things to look out for. Your best bet is to council with a trusted professional before entering in to a purchase agreement to make sure it goes as smoothly as possible! I look forward to your comments and questions.

To your success!

aMY L cavENDER

Simplified Mortgage Solutions

Twitter: @mylender

Here's a must-read for any real estate professional - Bringing some sanity to the "who's to blame" game. April 9th, 2009 4:02 PM

Tired of listening to the politicians and b-news reporters march around screaming (with their torches and pitchforks)? Here's a must-read article written by Bill Berliner and posted to Mortgage News Daily's website yesterday. Bill is a recognized expert in the world of risk assessment and mortgage-backed securities as well as a prize-winning author. You can read his profile on MND's website. Enjoy!

P.S. - THANK YOU, BILL, FOR PERMISSION TO POST YOUR ARTICLE. - rc

______________________________________________

MBS OP-ED: Who's to blame?

by Bill Berliner Posted Apr 08 2009, 05:34 PM Email Page Email Page | Print | Bookmark

While the markets themselves appear to have calmed down a bit, the noises emanating from politicians and pundits about the financial crisis have reached new decibel levels. Over the past month, we've been treated to the AIG fiasco, Jon Stewart's public flogging of Jim Cramer, and Time Magazine's "25 People Responsible for the Financial Crisis." This gem includes naming Lew Ranieri, the creator of the mortgage-backed security, as a culprit (which is like blaming Henry Ford for all car accidents), while studiously ignoring the role of Congress in impeding the more active regulation of the GSEs.

The most telling piece was a New York Times column by David Brooks entitled "Greed and Stupidity." In attempting to evaluate the causes of the global economic downturn, the piece outlined the two "general narratives" that are gaining currency among observers, which he labeled the Greed Narrative and the Stupidity Narrative. To me, this column illustrated the type of simplistic and arrogant thinking associated with the recent reporting on the financial crisis. I strongly believe that it's a necessary exercise to attempt to understand what has happened over the past few years to both financial markets and the global economy, and Brooks certainly makes a number of good points. However, there are critical flaws in his analysis. It is extremely simplistic to divide it into these two elements. What he categorizes as "stupidity" on the part of bank management was actually the result of overconfidence in the ability of financial modelers to replicate the behavior of human beings, as opposed to physical phenomena such as particle motion or heat diffusion, on which a lot of models are based. (I hope to explore this subject at a future time.)

However, the column's most troubling and dangerous assumption is that it's other people's greed and stupidity that is responsible for the crisis, with the general population being innocent victims overwhelmed by events beyond their control. A fair analysis would lead to the conclusion that responsibility for the crisis is shared by 1) Wall Street banks, 2) mortgage lenders, and 3) borrowers. (In fact, the only people that bear no responsibility were renters that didn't work for banks, brokerages, or realtors.)

While bad lending practices have been the focus of much attention, the amount of equity taken out of the housing market by homeowners had an equally profound affect on the financial system. The sad case of Ed McMahon serves as an example. The former Tonight Show sidekick bought a house many years ago which had, over time, appreciated in value to more than four times his purchase price. Unfortunately, he had "monetized" the growing equity through cash-out refinancings. When he was unable to work due to health problems, he could no longer pay his mortgage(s); moreover, he could only sell his house at a loss, since the downturn in the real estate markets left him underwater on his loans.

The accompanying chart illustrates this phenomenon at the macro level. According to Federal Reserve statistics, the total value of real estate in the US at the end of 1999 was $12.3 trillion while total mortgage debt was $4.7 trillion, resulting in a combined LTV of 38%. By the second quarter of 2007, the value of real estate peaked at $21.6 billion, while mortgage debt had grown to $10.2 trillion, pushing the market's LTV up to 47%. This suggests that almost $2 trillion in equity was pulled out of the housing market through second-lien financing and cash-out refis during that period. Moreover, homeowners continued to pull money out of their homes even after real estate prices began to drop. In the third quarter of 2007, total mortgage debt increased by $118 billion even as real estate values declined by almost $500 billion.

The massive removal of equity from the housing market had a number of disastrous effects. The combined effects of high leverage and declining home prices clearly contributed to the spike in defaults and foreclosures. Homeowners who couldn't continue to service their loans could no longer be bailed out by selling the property, leaving homeowners with the choice of either selling at a loss or defaulting on their loans. The decline of home prices in an over-leveraged market has also impacted consumer behavior. Over the last few years, economists recognized that "equity takeout" (i.e., the ability of homeowners to finance a variety of purchases by treating their homes as piggy banks) was a key ingredient in the rapid economic growth experienced between 2002 and 2006. The sharp declines in consumer spending experienced during the current recession, in that case, are at least partly attributable to the decline in equity takeout.

The loss of this funding source resulted from both the decline in home prices and the reduced availability of mortgage financing, especially for credit-impaired and self-employed borrowers. This is in addition to the obvious fact that large numbers of people bought homes that they clearly couldn't afford, and were (either unconsciously or explicitly) banking on the dual hopes of rising incomes and real estate prices.

Therefore, it's disingenuous to point fingers at "banks," "lenders," "Wall Street," etc. without taking into account the important role played by huge numbers of borrowers in the disastrous events of the last two years. I don't dispute the fact that Wall Street executives were egregiously overpaid, and the Street's compensation practices created incentives for a host of bad decisions and behaviors at all levels.
However, the collective activities of homeowners had equally pernicious effects on the financial system. Although it is satisfying for politicians and the media to rail about the "unbridled greed" on Wall Street, it is both foolish and disingenuous to ignore the role of homeowners and borrowers in crippling the financial system.

While it's necessary to examine the events of the past few years and assign responsibility, it's important to do it in a fair, complete, and dispassionate basis. The blame games being played by politicians and the press, exemplified by the witch hunt surrounding AIG's bonus payments, flirt dangerously with a descent into McCarthy-ite bullying. (This includes the Administration, Congress, and the state Attorneys General that tried to intimidate AIG employees by threatening to release their names.)

Finally, "blame" itself is a dangerous concept without the requisite thought and discipline. An apropos thought on the subject can be found in the 1973 movie "Papillon." The character Louis Dega was asked whether he would blame the title character, suffering from starvation and inhuman conditions in solitary confinement, for turning him in. His response: "Blame is for God and small children."

Once a month, my company hosts realtors on a listing tour. The last one brought about real, live fun. We started at Legacy Title. We had a few agents on the tour that hadn't joined us before. The purpose of the tour is to provide the listing agent and seller with valuable feedback. The one listing that stood out was built in 1995, although it felt like it was built in 1985. Popcorn ceilings, blue carpet, outdated furniture and the smell of cigarette smoke. Needless to say, we had feedback. We have a stager on board too - before I knew it, she was rearranging furniture (the seller's didn't live there anymore). It was such a hoot! I'm sure that agent will be on the tour from now on.

Our next tour is February 4th. We have all the listings booked but have room for participants wanting to do something a little different with their business.