Carol Neu, SFR, RCS-D Big Bear Foreclosures

It was a very sad day today for our Market Center in Big Bear Lake because Stephanie Murphy lost her battle with cancer today.

I am sorry to say that I didn't know Stephanie very well. She got sick within months of me joining Keller Williams, but she was loved by all who knew her. When she started her treatments the whole company rallied, organizing drivers to take her to her treatments more than 50 miles away, while others cooked Stephanie's family dinner every night, purchasing the food, cooking it and delivering it to them by 5:30p so the family could have a home cooked meal when Stephanie was recovering from her treatments.

We were all so amazed to see her complete a 5K like the athlete she was soon after finishing what turned out to be her first round of treatments. And we were all so sad when she told us that those treatments didn't work. Through it all Stephanie was a pillar of strength and grace. Those close to her told me that in the last few weeks she was most concerned about helping those who loved her let her go.

Stephanie was beautiful and smart. She was a fiercely devoted Mom and a great Realtor. At 43 she leaves behind her husband Mark and their two teenaged sons. Her Keller Williams family will also miss her deeply.

I have multiple credit cards that I have used over the past ten or twenty years and have treated them responsibly. I chose them all because I could pay them on line and adjust the due dates to be convenient. When I bought a car last year I was told my credit score was quite high.

In mid December I made a large payment against my Citibank business credit card to free up the line. As I've grown my business I've contracted various services which bill the card monthly and I knew I was going to need at least half of the monies paid to meet my obligations. I am expecting a large influx of cash from the sale of a house soon, and at that time I was going to pay the line off, but wanted to wait until then.

The first hint of a problem was getting a notice from one of my creditors telling me my card was declined. When I went online to figure out why, I saw that 2 days after recieving a payment that was at least 6 times my minimum payment, they lowered my credit line to just above the balance owed on the card. When I called them to find out why, they told me they did a check on me, found an irregularity with another account and had the right to reduce my credit as they had done. It had to do with a dispute as to what I actually owed that completely different line, which currently has about a $150 total balance due. By the time the billing period was up, the interest payment pushed my account over the limit. So I was going to transfer some debt to other little used lines, but then that wasn't possible. When I went to check and make sure that these distractions hadn't kept me from scheduling the payments on all the lines I have balances on, I was locked out of one of my Citicards and was scheduling the payment on my BofA the day after the payment was due.

Fast forward to today when I went to schedule payments on all my cards again, and was still locked out of the citicard so now it is late, and when I tried to call the number on the internet I was told to call back during business hours. The Bank of America card that got a payment 4 times the minimum the day after it was due and a call from me to explain what had happened had lowered my credit line to 1/5th of what it had been, and only a few hundred dollars above my balance owed.

I know a bit about how credit works, and you don't get credit score points for overpaying your minimums the way you get dinged for being almost maxed out on your use of your available credit line. So you can be making very healthy payments on your credit lines, and the sheer act of them lowering that line at will can trash your credit score. I'll bet you that if your score goes down they have the right to up your interest rate too, so then all they have to do is lower your line to the balance due and then they can jump your interest rate too.

I pay my cards online because back in the 90's some credit card companies were playing games with mailed payments, forwarding them from one payment center to another until they were late. This feels like that. You pay 25% of the principal balance owed and they lower the line of credit to within a few hundred dollars of the new principal balance, don't give the cardholder notice and when new charges hit the card, as they've been planned based on the orignal line, now the card goes over limit. And should that not happen, well your score goes down because now you're using 95% of your available credit. Again all of this with no notice.

This feels like financial assault to me. I am sick of these financial institutions stacking the deck in their favor and pulling the rug out from under all of us so they can justify charging 30% interest. At this point I'm not comfortable making any plans that involve paying for anything with a credit card. There has got to be a more secure way to do business. I want to stop using these and thus stop paying them interest rates fit for a loan shark. Do any of you have any ideas about where one can turn?

I saw a great documentary called Thrive the other night that has definitely given me lots to think about. It confirmed a lot of what I've been saying about our current mortgage mess, but it goes even deeper and higher up the food chain than I usually go.

If you are suffering through a financial crisis, or a medical crisis, you owe it to yourself to check it out. You can find out more at www.thrivemovement.com.

My resolution after seeing it is to establish a better relationship with Big Bear's local bank to refer my clients for mortgage loans, and work on establishing a network of credit unions and smaller banks to work with.

If you represent a local bank that does mortgages, please contact me so I can learn more about your programs.

If you are talking to Bank of America about getting a mortgage, do not take one more move forward until you finish this.

I represented a seller of a lovely, well priced, well maintained home. Everything was moving along fine and we were right on schedule to close in 3 days when I got a call from escrow on the day that loan docs were suppose to be drawn. Bank of America had reviewed the termite report, which the buyers had received ten days earlier and noted no Section 1 work and some minor section 2 work. Now, in order to draw loan docs Bank of America needed the Section 2 work done and the 4 year old roof certified. REALLY?

So we schedule the Section 2 work, and since the seller’s husband, now deceased, hired the roofer and the seller didn’t know who that was, we had to find someone to certify the roof. While all of this was going on, the buyer’s agent tells me he hopes this can get done soon, as his buyers had a trip planned for outside of the country in a week.

After finishing the Section 2 work, I suggested that that the buyer see if the bank would move that condition to prior to funding instead of prior to loan docs so the buyers could sign and leave on their tip and all we needed was the roof cert, which we expected to get as soon as the roofer was available. It was my understanding Bank of America agreed to this change a week prior to the buyer’s trip. So now we’re waiting for loan docs to be generated and a roof cert.

On Friday morning, two days prior to the buyer’s trip, we produce the roof cert and I’m told that loan docs are expected. By 4 o’clock I’m told that there won’t be any loan docs that day, MAYBE Monday. So one of the buyers decided to wait until the home closes to join the rest of his family on their trip and gets a Power of Attorney from his wife. Escrow asks the loan officer at 1:28pm on Friday whether B of A wants a general power of attorney or a specific power of attorney. They offered no response, but the Title Insurance Officer said a general would suffice for their purposes.

At 9:53am on Monday morning, after the buyer who signed the POA has left the country, the loan officer emails escrow that Bank of America needs a “specific” power of attorney rather than a “general” one. ARE YOU KIDDING ME??? So the buyer joins his family in Costa Rica days after they got there.

Once back another 3 weeks went by with excuse after excuse. Finally the buyers approached a lender who had closed some fast loans, and Nov 1^st we closed with the new lender. You know B of A even called about mid October asking for more documents, promising to close in a little while. Unbelieveable!

Several years ago, probably 2008, I started hearing this "conversation" that went something like "the mortgage melt down was Clinton's fault because his administration put undo pressure on Fannie Mae and Freddie Mac to open up lending to unqualified buyers in bad neighborhoods."

I was still a loan officer at the time and I remember my first, and continued response to this was "Hogwash. What are you talking about???" Last night I had the same conversation with my Dad, inspiring this blog and my account of what happened and why we are in this mess.

When I was originating loans, up until about mid 2007 there were two major types of loans - A paper and Sub Prime. Most A Paper loans were referred to as "Agency" loans or A Paper loans and followed guidelines set up by Fannie and Freddie so that Fannie and Freddie would ultimately buy them. It's been a while since I've originated so my details might be a bit fuzzy, but the guidelines went something like this:

If you had a credit score of 680 or better, meaning you had a pretty good track record for paying your bills, you would qualify for a "stated income" loan. That meant that you could tell the lender what you made without having to prove it. There was usually a nominal increase to the interest rate, but the paperwork was so much easier that most people chose that option. These stated income loans, although perhaps not the greatest idea, were not sub-prime loans but referred to as Alt-A loans, alternative A paper. What I saw from clients doing them were very careful considerations about how the loan payment was going to effect their future ability to pay it back. The higher credit scores generally belonged to people who had a history of making responsible financial choices. And the rumor I heard was that initially, stated income verification was created to allow self employed people to purchase property more easily, since their taxable income was not as representative of their true buying power.

If your credit score fell between 620 and 680 you could do a fully documented loan, using tax returns and W-2's to verify income.

There were some mid lenders, who did not sell their loans to Fannie and Freddie who offered more desirable options to people whose scores were between 620 and 680. They would offer stated income options.

Had all borrowers been required to prove their income, home prices would not have been able to rise so wildly, because the income borrowers would have been able to prove would not have allowed them to pay the prices for real estate that were being paid.

Sub-prime loans were for those with credit scores usually between 500 and 620 and most of that money came from Wall Street. Most of these loans had "teaser" rates, comparable to an A paper loan for perhaps 2 years, set to adjust after that, often every 6 months and involving wild adjustments that would equate to an increase of hundreds of dollars a month.

In 2007 subprime loans accounted for about 25% of the outstanding mortgages, and when things started to go bad, the statistic I heard were that about 15% of those were defaulting. If you do the math, that means that this whole mess was triggered by the default of just 3.75% of all existing mortgages at the time.

I say TRIGGERED very deliberately. If someone builds a bomb and the trigger is disabled the bomb can then be neutralized without hurting anyone. Disabling the trigger event would have been to extend "teaser" periods, allow what we called rate and term refi's, where they simply rolled the principal balance into a different rate and term agreement. So why wouldn't they do this?

I learned a long time ago, that if you ever want to understand why a logical solution to a problem is not followed, all you have to do to understand it is follow the money:

Wall Street firms, referred to in the industry as investors, had been de-regulated and are now allowed to create banks that lend money in the mortgage markets. Mortgages would be sold to others, exempting originators from any consequences if the loan went bad. So now investors could make a lot of money when they created the loans and had no risk if the loan went bad. But wait, investors could also buy an pseudo-insurance policy, called a credit default swap, that paid them if the loan went bad. So now, no matter what hapened, investors had a no risk money machine. How many loans would you try to create in a channel like this if you could? Well, investors created A LOT. The only way to create the amount of business they created was to loosen the guidelines so that more people qualified. And why not do that, since investors wouldn't be holding on to any of these riskier products, and if they happened to get unlucky, they had insurance so they couldn't lose. Then when one of the largest issuers of Credit Default Swaps, AIG Financial, couldn't pay, investors (Hank Paulson) convinced the government (the Bush Administration) to bail AIG out with our tax dollars.

The looser the guidelines, the more money was available to people and the more people competed for real estate, driving prices up.

So far, I'm not seeing a Democrat pressuring anybody! If anything, the party claiming to be a champion for the common man was asleep at the switch!

In my conversation last night with my Dad he said, if Fannie and Freddie weren't buying Sub Prime loans, then why do they have so many bad mortgages now?" I thought that was a pretty fair question.

So earlier in this piece I said that 25% of mortgages in 2007 were subprime. So that means that 75% were not, and lets then assume they were A paper Agency loans. Fannie and Freddie had 75% of the market, so statistically they will have a larger share of whatever's happening in that market, thus defaults. There is no disagreement that people have lost jobs, equity, investments. Those with business have seen their incomes and profits reduced. So those A paper borrowers, who entered into loans believing they could count on their income at the time to continue into the future may not be able to live up to that commitment today. And then, there are those who lost equity and couldn't refi out of their adjustable rate and now can't make the payment or look at their lost equity and just call it quits, defying the model that their loan qualifications were based on. In short, a lot of the people who always paid their bills on time were effected too. In yesterday's blog, I wrote about a lovely, educated, elderly couple who I had to lock out of a property they lost in foreclosure. I did the purchase money loan for them in 2005 for the house they now live in. They had very high credit scores and took out Agency loans.

My Dad told me he believed the media he'd been listening to. All I have to say to that, we are all subject to a political media machine that is very good at "spinning" lies into truths. If you find yourself questioning that fact I have one phrase for you:

"Weapons of Mass Destruction".