Kris and Kim Darney

Not everything we write is about real estate.

Today it was announced that consumer prices have dropped a record 1%, the largest decline since 1947.

Why? Simply put, there is increased competition by retailers to get our dollar. We, as consumers are spending less as we deal with reduced disposable income and a continued rise and threat of job loss.

How does this affect us? Reduced prices on our daily consumables…food, clothing, heating, electricity, automobiles and gasoline.

No secret…gasoline has seen the biggest reduction dropping over 14% and has had the greatest impact on the drop in Consumer Prices.

This drop in consumer pricing is the opposite of inflation…and a good thing if you have money to spare.

Keep in mind…

Gasoline…huge price drop! Why? Are we being duped by OPEC? Is there any real threats to our oil sources or are we being controlled by greedy sheiks, the Russian mob and Chevron? My thoughts is yes to the latter.

As consumers and I’m talking about all consumers in the free world, we are at the mercy of OPEC. They are the largest dynamic in the price of petroleum. I say dynamic as they are constantly changing. Our prices are going up because of the war in Iraq and Afghanistan…Pirates in Somalia…know its the lack of available drilling off the Eastern seaboard. What next?

Anyways…with consumer pricing dropping look for all aspects of life to change. Manufacturers will be more competitive to get retailers to buy their production and retailers will continue to lower their prices to get us, the consumers to part with our almighty dollar.

More to come!

With all of the hype of “loan modifications” and “government bailouts” you can’t help but feel that there is a solution somewhere that will save you from loosing your home. I’ve been watching the news, reading everything that comes across my emails and can only say that I get a little sick to my stomach at times.

One must really think about long term when faced with an opportunity to modify an existing loan. It’s such an emotional time, the fact that your going to lose your home is beyond anything I could put into words, believe me I know first hand! The stress seems to go away when you are told that if you just “sign here” you don’t have to move and you get to keep “YOUR HOME!” Wow, those are words that you’ve prayed for.

Here’s the hard reality;what do you do in a few years when you find that your so upside down in the home that you can’t refinance to a lower payment, or worse yet need to move and have no chance of selling unless you do a short sale….and who knows if the lender will be willing then?

As I work with our clients and their lenders on loan modifications, one thing has been consistent. Lenders are not in the mindset to help their current clients. They go off of black and white paperwork, if the borrower fits their criteria they offer up some type of a loan modification. I’ve never seen one, no never, that was an advantage to the borrower. They are a bandage at best!

Lenders are not willing to take into consideration the fact the home is 30 to 50% + upside down. They will usually extend the borrower a lower payment and add all of the “accrued” interest to the end of the loan. We have seen a few lenders discuss the possibility of reducing principal balance 5%, but have not had ONE accepted as of today.

The point here is there is no magic wand, no real fix for the mess of our housing industry. Loan modifications may work for some people, if they are not seriously upside down in their home.

Having lived through the loss of a home, and of course trying anything possible to keep what was “mine”. I look back and realize the blessing of not being given the chance to keep it. Now that the emotions have died down the fact is that if we would have kept that house at it’s upside down equity, I’m not sure if we would have seen it appreciate enough in our life time to have equity….it was nearly $200,000 upside down a year ago…and still dropping.

Those four walls that seemed to mean so much to us now sit empty like hundreds of other homes in the city. I’ve realized that it’s human nature to fight for things that are ours, no one wants to be told they don’t have a choice. Here’s the thing, you do have a choice, you can choose to get out of a bad situation that will most likely get worse before it gets better.

The market is still declining, most loan modifications are going to keep you locked into a home that is going to continue to drop in value. Think about your future.…you can most likely find a wonderful home to live in while real estate continues to drop. Then buy again for half of what you owe on the four walls that you leave behind.

Short Sales were not widely accepted a year ago. In today’s market, your lender is ready to get these bad loans out of their inventory. The President has also realized that people are in need of help and signed into action the mortgage relief act, this relieves home owners of the liability of gains. When your thinking about your “choices” try to step away from the emotions. If it makes financial sense to keep the home, just be very careful to check with your lender before you pay someone to do a loan modification for you. You will be able to talk to your lender/s and find out exactly what terms they will offer.

From the heart of someone who’s been through it…

Tragedy…this home could have been saved only if…

This is the final chapter in a painful story of a Short Sale gone bad.

The “Bankruptcy Negotiator II”, Ryan Bickerton with American Home Mortgage Servicing Inc(AHMSI), refused to accept a short sale purchase agreement offer of $264,000. AHMSI’s supporting appraisal completed 3 months prior was there basis. In our current market…3 months is a lifetime. With home prices dropping at a rate of 3-6% per month, our offer would be in-line with the market at close of escrow.

2 months later the property is back on the market advertised as a “Bank Owned Property”, MLS# i08151962, listed price is $245,000. Go figure!

Mr. Bickerton is the systemic problem with our banking industry. Mr. Bickerton is a “pulse” filling a position that requires intellect and experience to make fiscal decisions that affect investor’s fiduciary interests. His superiors should be held responsible for placing him in a role that he is clearly not fit to handle.

American Home Mortgage Servicing Inc is a small warehouse that services loans. They should be held responsible for their “contribution” to the demise of this nation’s current economic state. Place their leadership on trial for their negligence. This may seem harsh; however, they are the problem!

I am on a soapbox with this message; however, if we don’t hold these decision makers responsible, they will plague us for years to come. The government will, no doubt, come to their or their affiliates rescue at some point and our hard earned tax dollars will bail them out.

Note that this does not include principal reduction as a solution. This new plan is limited to: “extending the term, reducing the interest rate, and forbearing interest”
This is intended to help “thousands” (a drop in the bucket unless it is several hundred thousand), and seems to encourage homeowners to stop making payments until they are 90 days late.

Helpful questions and answers:

Q: What is a streamlined modification?
A: A streamlined modification is a modification that requires less documentation and less processing. In this case, the streamlined modification seeks to create a monthly mortgage payment that is sustainable for troubled borrowers by targeting a benchmark ratio of housing payment to monthly gross household income.

Q: What is the benchmark ratio?
A: This is the first time the industry has agreed on an industry standard. The benchmark ratio for calculating the affordable payment is 38 percent of monthly gross household income. Once the affordable payment is determined, there are several steps the servicer can take to create that payment – extending the term, reducing the interest rate, and forbearing interest. In the event that the affordable payment is still beyond the borrower’s means, the borrower’s situation will be reviewed on a case-by-case basis using a cash flow budget.

Q: Why is it necessary?
A: With the rise in serious delinquencies and increasing number of loans in foreclosure, this program will help borrowers who have missed three or more payments, but want to keep their homes. Because the eligibility requirements and process are streamlined and consistent, the program will allow servicers to reach more borrowers more quickly.

Q: Who is eligible?
A: The highest risk borrower, who has missed three payments or more, owns and occupies the property as a primary residence, and has not filed bankruptcy. The loan is a Freddie Mac, Fannie Mae or portfolio loan with participating investors. To qualify for the streamlined modification, the borrower must certify that he or she experienced a hardship or change in financial circumstances, and did not purposely default to obtain a modification.

Q: Why must the borrower be 90 days delinquent? Why not earlier in the delinquency cycle?
A: This is a streamlined solution targeted to reach the most at risk borrower. For borrowers who do not qualify, other solutions are available. This in no way substitutes for the meaningful efforts by all servicers and investors that are currently in place. The 212,000 workouts reported by HOPE NOIW in September are testimony to that fact. We will continue to see those efforts produce meaningful results.

Q: How many people will this help?
A: While difficult to assess, it is clear delinquencies are predicted to continue well into 2009. Foreclosure estimates are significant. Having a streamlined approach will assist many borrowers who default and more quickly. We estimate this will ultimately help thousands of borrowers.

Q: How do borrowers apply?
A: To be considered for the program, a seriously delinquent borrower should contact his or her servicer and provide the requested information – monthly gross household income, association dues and fees, and a hardship statement.

Q: How do borrowers complete the modification process?
A: Upon receiving the Modification Agreement from the servicer, the borrower signs it and returns it with the 1st payment at the modified terms along with income verification. Once the borrower makes three payments at the modified terms and the account is current as of day 90 of the modified plan, the modification is complete.

Q: When will servicers start offering this program?
A: We expect that by December 15th, servicers will be positioned to work with eligible borrowers.

Sadly…. I am going to tell you about a family that was recently lied to and taken for a lot of money in hopes of keeping the home they were living in by doing a loan modification. The ending on this true story left the family loosing the home to foreclosure, filing for Bankruptcy and if that was not enough, served by the sheriffs department with an unlawful detainer to start eviction from their home.

About 3 months ago Kris and I sat down with Mr. and Mrs. Smith to discuss options regarding their home. You see, the payments had adjusted to nearly double what they were 2 years prior and like most people in the same situation they found themselves unable to refinance due to the home being upside down in equity. In their case, it was a little over $400,000 upside down!

We talked about many things, the couple, that had 2 teenage children wanted desperately to keep the home. After talking with their lender we discovered that the loan modification was not in reach financially for them. The lender would not decrease the principal balance, which was a real factor since the home was truly upside down over $400,000. Kris and I know this to be true because we had just closed escrow on the home across the street just a month earlier.

Mr. and Mrs. Smith decided that they would like to sell the home as a Short Sale and save their credit to buy a new home in a few years when the market was more reasonable.

One afternoon we got a call from Mr. Smith asking us if it was too late to stop the sale of his home, as it was already in escrow and the Short Sale was approved by the lender. Mr. Smith had been approached by a friend that had a friend that told him that he would be able to get him a loan modification, one that was “desirable” and would even be able to help him lower his principal balance.

Needless to say, we cautioned Mr. Smith about the legitimacy of this. Kris and I reminded him of the multiple conversations we had with his lender and the terms that they offered. It’s difficult to think without emotion when your loosing your home, we know this because we’ve experienced it. The last thing you want to hear from anyone is “You have to move” Your ears are always open to anyone…and I mean anyone, that says they can help you “keep your home”.

Well, we gladly helped Mr. and Mrs. Smith cancel their sale with the lender and let them know we would be here to help in anyway we could.

The call came about 2 weeks ago, it was a real estate agent from a well known company asking questions about the home owned by Mr. And Mrs. Smith….The home was sold at Trustee Sale.

Kris called Mr. Smith to make sure all was ok, Mr. Smith told Kris that the “loan modification company” was still working on a loan modification…? Yep, Mr. Smith had paid for services up front to save his home, and unknown to him the home was sold while he trusted this loan modification company to do what they told him they could do….! Mr. Smith called us back later that day and told us the the loan modification company had him file an emergency bankruptcy and not to worry. Again….when your loosing your home…desperation is a very familiar feeling, and Mr. Smith did what most would do, he forked out about $2500 to do the emergency BK Filing.

Less than a week after Mr. Smith filed for Bankruptcy the County Sheriff posted an eviction notice on the home. The home was sold at auction, the BK did not save his home, the loan modification company told him that the lender was unable to offer him anything other than what had been offered several months back……

Please be aware that not all loan modification companies are really helping you, the employees might just be the same group that sold you that screwed up loan a few years ago!