Loss Mitigation Express

Hello Visionaries,

The recent economic news that the economy actually grew by 3% in the 3rd quarter is making for great reporting and panel discussions on the airways, internet and fast disappearing print media, but this is quickly dampened by the reality that home prices are expected to continue declining while unemployment heads in the opposite direction along with bank failures and foreclosures.

Today I wish to address one of these issues: that of unemployment. Tomorrow the 3rd. of November I hope to address the blessing of loan modifications for both residential and commercial properties.

UNEMPLOYMENT
While unemployment statistics vary depending on the region and sub-regions throughout the United States, there is a definite increasing trend in the jobless numbers. The statistics are growing at a rate that is pushing into double digits certainly by the end of this year. A weighted estimate has unemployment in double digits as early as the first quarter of 2008 and this speaks volume for territories like Florida whose economy is so highly dependent on services, especially within the hospitality sector. Rapid and massive closure of small businesses is evidenced by “dark “commercial buildings where despite reasonable rental rates, there is just not enough traffic to support the bottom line, so they terminate staff as a further cost-cutting measure.
Currently under consideration is the extension of unemployment benefits for another 14 weeks. The president made this statement recently:
”Millions of Americans want employment but cannot find it, and the administration is committed to supporting these Americans as they look for work and struggle to raise their families and pay their bills.”

While I agree with the concern of the administration to take care of the unemployed who are not only out of work but surely at risk of loosing their homes, it seems that they are looking at this animal from the wrong end. Here is what I mean;

Many small and failed business owners are ineligible for unemployment benefits and so they constitute the “weighted” portion of our unemployment numbers. Because they are not calculated in the “unemployed statistics” they are hit twice as hard since they have to deal with a heavy debt burden, broken financial obligations in addition to the other nuances that come with not having an income. Additionally since they have left the business scene, related services loose yet another customer and the economic contraction continues.

SOLUTION
Instead of continuing to extend the unemployment benefits which amounts to a paid vacation (since businesses are closing), I would be tickled purple if the Feds would infuse these funds into qualified small businesses that would be equal to an average unemployment check for a pre-determined period of time with certain conditions:

The business hires a non-related natural person on the unemployment roll who has had experience in a similar industry
The business entity must prove that they have fulfilled their financial obligation to the state and Federal Government
The business must provide recent and audited financial statements
The infusion of “unemployment capital” must result in increased gross revenue to the business over a 3 month period (or else it becomes a loan)

Some have already expressed doubt about the possibility of implementing this plan but I am a firm believer that if the Federal Government has the human resources to pull of the bail out plans in the time frame that they did, this plan would be a walk in the park. Implementation could be handled in a similar fashion to the “Section 8” rental voucher program used for housing assistance by the state. By using the “employment voucher” the candidate would have the ability to choose from a list of qualified employers then redeem the voucher by getting on the employment roll.

RESULTS
Instead of surfing Face book, LinkedIn and other network sites hoping to land a job (that is just not there), this plan would force the unemployed to buy new garments, fuel their car, purchase lunches etc and head out to a job where they can make a contribution to a business that may eventually decide to domicile them in the long run at a salary above the voucher allotment. We could see small business opening their doors once again and later expand as their rescued employees, help to open new markets for them or simply “hold the fort” while the business owners attend meetings or engage in research and development activities. As the commercial Real Estate market is heading for a major crash, this could be the parachute that will allow that market to make a soft landing and maybe in the foreseeable future make a turn around.

BANK FAILURES
Friday Nights are a bank’s worst nightmares are the Feds descend like on the shaky institutions that continue to loose value as their
Non-performing assets increase and their capital bases decrease. Mention is made here because as we see more shopping malls go dark and cold with vacancies, you can expect to see more banks fold. This fact justifies the need to provide quick stimulus funding to small businesses, because after all is said and done, small businesses are the largest employers and tenants and are definitely the chassis on which our economy rides.

Stay tuned tomorrow for my thoughts on Loan Modifications (Residential and Commercial)………………..

Regards,
Maurice Stewart
Apex Commercial Realty, Inc.
Apex Financial Systems, Inc.
1061 W. Oakland Pk. Blvd. #230
Oakland Park, Fl 33311
Tel: (954) 563-2650
Cell: (561) 202-7939
Fax: (954) 563-3052

I am pleased to advise that life in the “Modification Lane” is getting much easier and more predictable. This is due primarily to the standardization of the industry and the transparency of the system. As the number of servicers that have signed up to with Fannie Mae continues to increase, you should be experiencing increased business, but the key is to turn these files over in an hour.

I am please to report that attorneys have joined you in utilizing the Loss Mitigation Tool and in addition to providing foreclosure defense, they are now offering modifications as a viable first step and a long term solution to the plight of their clients.

Despite the popular line for consumers to “Contact your lenders directly, you do not need to pay anyone to assist you”. Well this is just a confirmation of another old saying “Letting the fox in the hen house”

We have seen where emotionally battered and confused homeowners, listened to that advice and were denied because they lack the information and the stomach to adequately present themselves to the lenders.

Here are my favorite lenders:

Saxon
Citibank
Litton
IndyMac
HSBC
American Servicing Co
Wells Fargo
Chase / WAMU / EMC

My least favorite as you can well imagine is Countrywide / Bank of America.

As the foreclosure rates continue to skyrocket, the need for your services will prevail for a few years yet and especially because so many more homeowners fit within the qualification guidelines of the HMP. Now remember that the borrower does not have to be delinquent, just display “at risk” tendencies.

INVESTMENT PROPERTIES

These are beginning to surface prominently. In states like Florida over 28% of the market contained Investment Properties.

Please do not shy away from them because they too can be modified. The approach to these properties is different in that you have to prove the need for assistance by running an Income Capitalization Worksheet. This worksheet will show how much the loan needs to be adjusted to attain a break even point instead of the overleveraged original position. The question that maybe one of you attorneys can answer is: did the banks contribute to the delinquency of these vestment loans by lending more than the property could support????

I have attached a worksheet to explain how the cycle of money works and how the availability of additional disposable income is critical to the recovery of our economy. Lower tax rates or issuing tax credits have the same effect as a modification; more money to spend.

The availability of cash is being increased by facilitating successful Loan Modifications which, when done effectively, has the ability of increasing disposable income to households. When that household in turn spending the cash, it allow the multiplier effect to take root as the money cycles through the economy based on a consumer’s marginal Propensity to Consume. By looking at the attached sheets, compare the difference in the length of the cycles when we apply the MPC of 90%, 80% and 50% respectively.

As our economy is in a deflationary mode, swift initiatives to increase household incomes by reducing mortgage payments and or reducing taxes for the majority will spare us from a spiraling recession and potential depression.
To compound the issues of our ailing economy, is the existence of a Liquidity Trap in which, banks are unwilling to lend (despite receiving federal funds) resulting in the central bank’s newly-created liquidity being trapped behind unwilling lenders.

The Obama regime having taken a firm hands-on approach to the economy can be described as students of the neo-classical economists (especially John Keynes) while the previous administration is characterized as classical economists who believed that “free markets can regulate themselves” (with disastrous results)

As the Obama Regime attempts to avoid a deepening recession, we see that their injection of capital along with federal guarantees for lenders who allow Mortgage Modifications has set the stage for the capital markets to release its grip on lending by embracing more responsible lending while facilitating more affordable and sustainable loan modifications.

The result can only mean that the economy will start expanding as prices rise and employment rates begin the increase. A closer look at the attachment will show how the mechanism will work as more disposable income is made available to that sector of our population that has a high MPC.
By examining the three sheets you will see how many cycles an increase of $400.00 (in a single household) will go through depending on the Marginal Propensity to consume. (MPC) The general rule is that the higher the propensity (Tendency) the more times the increased disposable income will change hands. Conversely, the lower the propensity to consume is, the less times the additional income cycles or multiplies. As the wealthiest among us display a lower propensity to consume, it is understandable why the government is taxing them at a heavier rate while allowing the 90+% of the population more tax breaks and modification opportunities.

Please take note that our real estate market is beginning to turn around and while prices continue to slide it is doing so at a decreasing rate.

For those of you looking to obtain a loan modification because of an increase in expenses or loss of income please take an opportunity to log in to www.lossmitigationexpress.com and enter your information after you register. If your housing expense (PITI) is greater than 31% of your gross income, you may qualify for a modification even if you are not yet delinquent. This could help to put more money back in your pocket and back on the street

The best kept Loan Modification Secret

As part of the ”Making Home Affordable Plan the Treasury Department (Treasury) announced a national modification program aimed at helping 3 to 4 million at-risk homeowners – both those who are in default and those who are at imminent risk of default – by reducing monthly payments to sustainable levels.

This special program will expire on December 31, 2012 and here is how you qualify for the modification even if you are up to date:

1. The mortgage loan is a first lien Fannie Mae conventional mortgage loan closed on or before January 1, 2009.
2. A borrower will qualify for the program if “monthly mortgage payment ratio” is greater than or equal to 31 percent of your gross income.
3. Jumbo-conforming loans are eligible.
4. The mortgage loan delinquency is predictable.
5. The mortgage loan is secured by a one- to four-unit property, one unit of which is the borrower’s principal residence.

Definition of Reasonably Foreseeable (Imminent) Default
Rather than wait for a payment default, servicers can offer the program when a borrower has suffered a valid hardship and a payment default is imminent if it is likely to occur within 90 days from the initial discussion with the borrower.

Determining Hardship

To determine whether a payment default is imminent, the borrower must have one of the
following hardships (the term “borrower” includes any co-borrower):

1. A reduction or loss of income, e.g., unemployment, reduced job hours, reduced pay, or a decline in self-employed business earnings.

2. A change in household financial circumstances, e.g., death in family, serious or chronic illness, permanent or short-term disability, or increased family responsibilities (adoption or birth or a child, taking care of elderly relatives or other family members).

3. An increase in expenses, e.g., monthly mortgage payment will rise or has risen, high medical and health-care costs, uninsured losses (such as those due to fires or natural disasters), unexpectedly high utility bills, or increased real property taxes.

4. A lack of sufficient cash reserves to maintain payment on the mortgage. Cash reserves include assets such as cash, savings, money market funds, marketable stocks or bonds (excluding retirement accounts and assets that serve as an emergency fund – generally equal to three times the borrower’s monthly debt payments).

5. Excessive monthly debt payments and overextension with creditors, e.g., the borrower was required to use credit cards, a home equity loan, or other credit to make the mortgage payments.

Possible Assistance

Stage 1
Add accrued interest, out-of-pocket escrow (Taxes and Insurance) advances to third parties and any required escrow advances that will be paid to third parties by the servicer during the trial period and servicing advances paid to third parties in the ordinary course of business and not retained by the servicer, if allowed by state law. Late fees may not be capitalized and must be waived if the borrower satisfies all conditions of the HMP Workout Plan.

Stage 2
Adjust the interest rate.

Stage 3 Reduce the note rate in increments of .125 percent to get as close as possible to a target 31% ratio (without going below 31 percent). The interest rate floor in all cases is 2.0 percent

Stage 4
Extend the term and re-amortize the mortgage loan by up to 40 years from the modification effective date.

Stage 5
If necessary, AFTER capitalization of arrearages, reduction of the interest rate to the 2.0 percent floor, and extension of the amortization period to 40 years, the servicer must provide for principal forbearance to reduce the payment ratio to 31 percent. The amount of principal forbearance will result in a balloon payment fully due and payable upon the earliest of the borrower’s:
• Sale of the property
• Payoff

This is a very complex but awesome program that will work for many homeowners who are current but feeling the screw tightening gradually.

Call us for more information and let Loss Mitigation Express test you to see if you qualify.

Maurice Stewart
(561) 202-7939