The Dreaded 1099-C

Here's what a blank form looks like.  In a Short Sale or Foreclosure this is what the Lender might chose to file (a foreclosure might send you a 1099-A too). 

Like any other 1099, one copy goes to the taxpayer (you) and another copy goes to the IRS. 

(click to enlarge)

The most important box is

Box Number 2:  Amount of Debt Canceled

This is not your loan balance.  It's your loan balance, plus every single little nit picking fee the Lender can tack on.  Add penalty and fees too!  

In a Foreclosure, these fees and charges are pretty much left unchecked by anyone from the homeowner's side. 

In a Short Sale, either the Listing Agent or a Negotiator can help negotiate a reduction of these charges.  In fact everything in a Short Sale is negotiable including the very issuance of this 1099.

Remember, the Lender is reporting this to both you and the IRS as "income".  While you may or may not fall under the protection of the Mortgage Forgiveness Debt Relief Act (HR 3648), there is also the State tax consequences to be considered.

When I hear homeowners who say they don't care about a short sale, "just let it go to foreclosure",  because they are not going to gain anything from it - this is one of the first gains I think they don't see.

I can see that.  If you didn't receive a 1099-C, because you completed a short sale and your Negotiator minimized Box 2 or negated the issuance of the 1099 all together, would you notice? 

Maybe not. 

But I can say, TurboTax (or your tax professional) would notice more if they didn't.

What is a Forbearance?

One of the options you might have in avoiding foreclosure is sometimes called Forbearance.  It's often spelled with an e (Forebearance) probably because of it's relation to Foreclosure.

Forbearance or more accurately, a Forbearance Agreement is exactly that.  It's an agreement between you and the lender.  It generally allows you to stop making payments now, (temporarily)  and add those payments to the end of your loan.  Some forbearance agreements allow a gradual payback .

Unlike other loans you might have, if  you fall behind on your mortgage, in order to catch up you'll have to completely catch up.  Your Visa card will gladly take any money you send them.  Your mortgage servicer will actually return your incomplete payment.

Got Examples?

You bet!  Here's two. 

---

Joe vs. the Volcano

You probably know Joe.  Maybe not by name but you remember him.  He worked on a fancy cruise ship.  Joe's job is to light the Baked Alaska.  He's a highly trained and well respected person.  It's a dangerous job.  Very few can do what Joe does. 

Unfortunately, Joe lost his job.  Out of respect to Joe's privacy I can't go into details here.

He found a new company almost immediately.  On another ship, with another cruise line that would hire him, but because of the nature of his job he would have to wait almost six months to set sail.  He was out of work for almost six months!

Joe looked at Craigslist to no avail.  Joe used all his savings and tried to keep up with his payments.  He was more than 3 months behind.  Now that he had his first paycheck in hand, it was time to make his mortgage payment.  Joe called his Lender.  His Lender said he needed to pay all the missed payments, plus all the penalties.  Joe didn't have that kind of cash.  Joe called his Lender again and this time they were very rude to him.  They told him to just make his payments.

Joe was distraught.  He was ready to walk away, to let his home go into foreclosure.  He wanted his home, he had a job, and he had a mortgage he could pay, he just couldn't catch back up.

Joe was talking to the wrong people.  He was talking to his lender's collection department.  It wasn't his fault, it's where they sent him.

Enter the Forbearance Agreement.  Joe finally got to the correct people (not the collections dept).  Together they worked out a Forbearance Agreement.  He would start making his payments again and, because he could, he would also start catching up on the amount he was behind.  Joe was now back in good standing with his lender!

---

Don't Stand by Kathy

Kathy didn't lose her job.  Poor Kathy was having the time of her life!  She was enjoying yet another cruise off the Sicilian Coast. 

Marvin and Melissa had never been on a cruise.  They were a young couple honeymooning from Paducah, KY.  They were seated at the table next to Kathy.  Marvin wasn't feeling so good.  Maybe it was the tequila shooters at lunch, maybe it was the seasickness.  Whatever it was, just as the waiter started to Flambe their dessert Marvin's stomach decided to return it's contents to the dinner table.  Remember the pie eating contest in "Stand By Me"?  Keep that thought. 

The unfortunate waiter, who was a highly trained professional and had thought up this moment that he had seen everything, suddenly realized he had not (seen everything).  In his surprise, the dessert cart went flying! 

Poor Kathy.  She suddenly found herself an integral part of the Baked Alaska, lactose intolerant as she was.  The caramelizing sugar, estimated to be at 320 F, caused 3rd degree burns over much of Kathy's arms and legs.

Always proactive, she called her lender from the helicopter.  Kathy faced a month in the hospital.  It would be two months before she could return to her job as an exotic belly dancer in Vegas.  She initially talked to many of the same people Joe did.  She also got many of the same answers.  Luckily she finally ended up talking to the right person.  He arranged a Forbearance Agreement that put off her payments for the next two months and added them to the end of her loan.  Kathy was back to being good with her Lender.

So there's two fine examples of how a Forbearance Agreement could help.

The key to your success is to talk to the right people.  If you need help getting to those people, or don't know what to say when you do - give me a call.

(925) 288-9977 Ext 104

Clouds

"Partly Cloudy", said my local weather person.  Partly Cloudy is good thing if you are laying back after a picnic with your sweetheart on a summer day. 

Any sentence with the cloud word in it is the last thing you want your real estate professional to utter, especially from your escrow / title person.  A clouded title can easily kill a deal.

What's a Cloud?

Generally, a cloud on a title is due to someone owing someone something.  Generally, that someone either didn't know about the debt, wouldn't pay the debt, or simply couldn't pay the money.  Generally that cloud can be removed by a simple quit claim deed.  That's the end of the generalizations.

Why is this important?

When the stock market has a correction to the downside we see the professional traders looking to buy  bargains.  The same holds true for real estate.  There are some great bargains out there.  The pro's are already looking and buying real estate.  As we continue, the amateurs are going to be tempted to look for that bargain.

Obviously, those bargains can be found in various distress sales.  Those distress sales come in three different flavors and have three very different levels of cloud risks associated with them.

1. Buying a Foreclosure or home that is has a Notice of Default filed against it.
2. Buying a Short Sale
3. Buying a REO or Bank Owned Property.

Buying a Foreclosure

This seller has been running behind for a long time now.  There's a reason they are in default - they couldn't pay.  If they couldn't pay the mortgage, they probably owe other people too.  Some of those people have the ability to put a lien on their home.  There's a cloud.  This lien could be just a little light and fluffy cloud or it could be a thundercloud.  Garbage liens - usually light and fluffy.  Tax Liens or Mechanics Liens have the ability to seriously hamper a deal.

When you are buying a Foreclosure you are buying from the homeowner.  Chances are they are not represented by a real estate professional (can't afford it).  Are they going to initiate the title search prior to your contract?  Not a chance.  in a foreclosure purchase, the cloud is usually discovered after the contract.  You can see how that just doesn't work,  right?

Buying a Short Sale

This seller usually has a real estate professional guiding the way.  They have brought the lender in on the deal.  Usually they have had a title company complete a title search and discovered any liens that might be on that title.  When you purchase a Short Sale, both parties will usually have a clearer picture of the deal.  No surprises.  That doesn't mean there won't be clouds.  But those clouds will be known and can be dealt with prior to the contract.  This is a big difference.

Buying a Bank Owned Property (REO)

The seller is the Lender.  The property has been through the grinder.  It may have started as a Short Sale.  It didn't sell and so the owners fell behind to the point where it became a NOD.  Once again, no sale.  Finally the Trustee Auction came and due to the lack of equity it didn't sell and was turned over to the Lender. 

Here's the bright and sunny on this picture.  Chances are all clouds, all liens, all liabilities attached to this home were taken care of as it as it passed from the homeowner to the lender.  Buying a REO?  You'll probably have a clear day when it comes to title.

Wise Words

If you are looking for deal, no matter which flavor of distress you like,  do yourself two favors. 

1. Always use true real estate professionals who are familiar with the type of deal you are considering.  As my friend Brian Brady says, "If you thought dealing with a professional was expensive, wait until you find out how much dealing with an amateur costs!"
2. Always buy the best title policy you can buy.  This is not a place to try and save a few bucks.  You did know that there were different levels of policies available, didn't you?

Now, just because the REO has the least chance of having a clouded title this doesn't mean you should look only at REOs.  The title issue is just one piece of the puzzle.  Each version has it's own specific Pro's and Cons.  That REO also has the highest chance of being the most abused of the three as well.  But that's an article for another day.

  

Technorati Tags: REO, Short Sale, Foreclosure Investing, Clouds on Title

My Blogging Road Map

My name is Mike Mueller. I am a Loan Officer / Mortgage Broker / Mortgage Planner in Concord, California. I have been in the industry for 14 years, I've seen the good times and the bad. I work for Patagonia Finance in the San Francisco Bay Area. I am a residential mortgage broker for all of California, a commercial broker for all 50 states.

I was talking to a reader yesterday who had searched Google for a particular problem she was having. She typed in not keywords like most people do, but her actual question. Google interpreted what she was looking for and served up results. That led her to one of my blogs. The wrong one. She read many of the pages but when she couldn't find what she needed she called me. I was thrilled! Really. That's why I list my phone number at the top of every page.

I write to 5 different real estate blogs (almost daily). Each one has it's own particular flavor and purpose. Four of those are right here, the other is an international real estate network. I also guest blog in several other places. For now, I'll just limit this map to what is here on Patagonia Finance's Website.

Mike's Minute...

This is my main blog. It's been going strong since early 2001. It's a catch all, general purpose bin of useful information. It is usually 100% all my writing. No guest authors, no reprints. The topics can range from financial news (Bernanke is scheduled to speak this morning) to explaining complex mortgage plans and theory in layman's terms, to a little fun. All in all it's my personal spin on what is topical right now in the mortgage and real estate business.

The Foreclosure Report...

As a national blogger I have come in contact with some of the very best real estate people. Real honest ethical professionals who always do what is best for the client. As a loan officer I have also seen the evidence of what the worst people in the industry can do. With many homeowners facing foreclosure there was a void in the internet where these homeowners could find that honest unbiased information. The Foreclosure Report was my answer and fills that void. I have over 30 different real estate agents, loan officers, title and escrow people contributing their honest information for those homeowners in trouble. I also have searched out and found the contact information for as many Lender's Loss Mitigation Departments and continue to add to that list. The Foreclosure Report... is aimed at the homeowner that is trouble now or worried that they might be in the near future.

Foreclosure Investing...

Obviously this is the other side of the coin. Much like The Foreclosure Report, this site deals out honest and ethical information but is aimed at the person looking to purchase or invest in foreclosures, Notice of Defaults, Bank Owned Properties, and Short Sales. The information contained in this site is primarily for the investor looking at purchasing rental property correctly. Believe me there are hundreds of ways to do it wrong. Late night infomercials, get rich quick seminars, and scammers have always found this arena fertile ground for their devious ways. We work very closely with our preferred investor clients. While this site delivers only some of what we give our clients, it's a start.

Reverse Mortgage Help

Here's another area where the scammers and unethical individuals can reap steep rewards. Make no mistake, as Reverse Mortgages increase so will the crooks. This blog is meant to counter that and provide simple honest information. A reverse mortgage can make a huge difference in the quality of life for seniors when properly done. As the nation's boomers age this will soon be a very important aspect in the mortgage world. Working with a true mortgage professional will be critical. Knowing the difference vital.

So that in a nutshell is a virtual roadmap to who I am, what I write, and what I do.

I can't fight the bad guys all by myself but via the power of blogging and search engines, I'm trying.

Thanks for reading, and please please, feel free to call me, anytime!

Mike Mueller

Technorati Tags: mortgage, real estate, short sales, foreclosures, reverse mortgage

7/10/07 NODs (CA)

Notice of Defaults

This week, for the State of California, there were 3,692 Notice of Defaults (NOD) filed with the County Recorder office.

Here are just some of the notable counties:

County	# of Defaults This Week
Alameda	280
Contra Costa	178
Fresno	192
Los Angeles	761
Orange	260
Riverside	366
Sacramento	234
San Bernardino	474
Solano	48

If you, or someone you know

• May be soon Late on their Mortgage Payment
• Is 3o Days Late,
• More than 30 Days Late,
• Has a Notice of Default Filed,
• In Foreclosure,
• Trustee Sale Date set,

The time to act is now!

The Foreclosure Report

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Sometimes Holidays are for Worrying

With the Fourth of July holiday tomorrow I am looking forward to the Parade, the BBQ, and the Fireworks.

Holidays are times for us to slow down, to catch up with the Family, to reconnect with Friends. 

Holidays are also times when our busy day to day schedules take a break, allowing times for reflection and clear thoughts. 

Unfortunately for so many that break also means "those thoughts and worries" bubble up again to the surface.

You might recognize some of them:

• The "How am I going to make that next payment" worry.
• The "When my loan adjusts, where will it adjust to?" thought.
• The "How am I ever going to catch up?" worry.

Sometimes these thoughts and worries are so powerful they consume us. 

They make what should have been a relaxing day turn into an anxious, worry filled day. 

Catching a Frisbee while contemplating index and margin isn't what it's all about.

My recommendation to you, should you be one of those worrying types is this.

Go out and have a great time.  But make a promise to yourself and your family that first thing Thursday Morning you'll start being proactive.

Start by looking into The Foreclosure Report. 

Even if you are not in Foreclosure, it has some very valuable information for you!

• What to do before you are 30 Days Late
• "How To" Articles
• Scam and Fraud Alerts
• How to Conduct a Short Sale
• 7 Ways to Resolve Today
• Foreclosure Articles
• How to Stop Foreclosure
• Deed in Lieu
• Loss Mitigation

And so much more!

Make that promise to yourself right now - Then get out there and teach Uncle Bob that you are never too old to slip and slide!

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No, Seriously...

I was working late the other night, it was after 8:00 PM.
The phone rang.

It was a Local Real Estate Investor. I know that because that's what he told me. He found me on ActiveRain.

He was calling because he had an exciting offer for someone just like me.

He was soon to be auctioning off a home in nearby Discovery Bay.

I replied that was indeed, very exciting. (He didn't hear the sarcasm in my voice)

He was looking for a "Marketing Partner".

okay...

Local Real Estate Investor: "We're prepared to offer you exclusive rights to pre-qualify each and every bidder!"

okay...

Local Real Estate Investor: "We're looking for a mortgage company, like yours, who can capitalize on the enormous potential of this offer"

okay...

Mike: "Let's get down to nuts and bolts. Who is WE? and what's this going to cost me?"

Local Real Estate Investor: "I work with Professional Real Estate Investor Partner. We're looking for 2%"

long period of uncomfortable silence...

Mike: "Uh, 2% of what?"

Local Real Estate Investor: "2% of the sales price."

Mike: "What's the property going to sell for?"

Local Real Estate Investor: "I don't know it's an auction."

Mike: "Yeah, right. What's the property valued at?"

Local Real Estate Investor: "We estimate around $540,000"

Mike: "So you want $11,000 from me? And for that I get to prequalify ALL your bidders?"

Local Real Estate Investor: "Oh, sorry, I mis-spoke, we want 2% of the starting bid."

Mike: "OK, and what is the starting bid then?"

Local Real Estate Investor: "My partner and I haven't yet determined that exact figure just yet."

another long period of uncomfortable silence...

Local Real Estate Investor: "We're looking for around 8 to 9,000 - ballpark."

Mike: "For the starting bid?" (ok, so I was messing with him a bit)

Local Real Estate Investor: "Oh no, sorry for the amount we'll need from you."

Mike: "So you want $8,000 to 9,000 from me? And for that I get to prequalify ALL your bidders?"

Local Real Estate Investor: "See, I told you it was exciting!"

Mike: "Exciting Indeed! Before I commit, I'll just have to run this by my Professional Mortgage Financing Partner."

Local Real Estate Investor: "That's great. I'll call you tomorrow."

Now that we were buddies, partners, and teammates...

Mike: "Hey, this house isn't in foreclosure is it?"

Local Real Estate Investor: "No, but the lady was worried about not making her payments and she answered one of my ads. She signed the DEED over last week. She just rolled over for me."

Mike: "Wow that's great! I'll talk to you tomorrow."

You know exactly what this is all about. So did I.
Somewhere in Discovery Bay, a poor little old lady has lost any hope of saving or having any equity.
She signed her home away, it's gone.

She has a mortgage though.
Does she know the house is going to be sold?
Does she know she'll have to move?
When the house sells, will the mortgage actually be paid off?

This stuff just makes me sick!

While I am not a violent person, I'd love to send Guido to pay my new friend a visit.

Check out "The Foreclosure Report"

For additional reading:

• http://www.saukvalley.com/articles/2007/05/17/features/personal_finance/340382223453162.txt
• http://content.hamptonroads.com/story.cfm?story=125076&ran=94047
• http://www.boston.com/business/personalfinance/articles/2007/06/02/state_cracks_down_on_bailout_scams/
• http://www.cmonitor.com/apps/pbcs.dll/article?AID=/20070519/REPOSITORY/705190311/1028/OPINION02
• http://www.wmcstations.com/Global/story.asp?S=6514629

Real Estate Investor?

This is Part One in a Three Part series

The System

Have you ever seen one of those signs and wondered?

"We Pay CASH for Homes!"

or the latest incarnation...


"Real Estate Investor Apprentice Wanted"

Wonder how all these people could pay cash for all those homes?

Wonder why the same looking signs have popped up everywhere?

Wonder why if they have so much money, they can't afford better signs or advertising?

Wonder why if they are seeking an Apprentice - why are they driving a beat up Pinto?

I have too.

So a little over a year ago I paid good money to go to this big Real Estate shin dig in Moscone Center. It was put together by the Learning Annex. It had keynote speakers like Anthony Robbins, Robert Kiyosaki, and even The Donald.
I certainly wanted to "Learn" and why not learn from guys like that?

For three days, for twelve hours a day, I attended "class" after "class". If I remember right there were over 80 different "classes" offered. Not by the Keynote guys above, but by True Professional Real Estate Investors. These people were some of the most successful people on the planet. They had spent the early years of their life learning how to strike it rich with real estate and now wanted to give something back.

I know they were truly successful because of the expensive silk suits they wore. And then I couldn't help but notice their flashy watches. Oh and the way they talked about their last vacation. And then to verify what I already knew, they also told me they were (extremely wealthy). Each and every one of them did.

Amazingly, they were all willing to share vital information, the very same information it took them years of hard work to learn, with anyone!
Almost.

Just as long as you were one of the first 500 people to make their way to the back table and give their wonderful helpers a credit card.

Don't think of the $1,800 charge as a high price to pay for 12 CDs and a booklet. It's an investment in your future!

Time and time again, in each and every "class", with the very same speech pattern, the rush to the back was on. People of all walks of life were suddenly running for their financial lives.
Not for the door (as I might have hoped) but for the back table!
These good people would literally inundate the 20 or so wonderful helpers.


"NO... Take my Platinum Card first, I was here first!"

At times it reminded me of glorious holiday times past.
Cabbage Patch Kids, Tickle Me Elmo, and Beanie Babies have nothing on this spectacle.





Continued soon...

How far will their Foreclosure drag you?

As I watch my list of Notice of Defaults / Foreclosures rise and rise each month, I have to wonder just how devastating the effect of this will be on surrounding homes.

Here is a quick overall picture on what usually happens.

As a homeowner starts to struggle the first thing that happens is sometimes what is called "deferred maintainence". We can call it neglect for lack of a better word.

As they continue down the spiral path towards foreclosure the yard goes unkept, the lawn unmowed, the weeds grow high, the garbage piles up, the windows go uncleaned.

They say the first thing that happens when you fall behind is you lose that "Pride of Ownership".

No matter what, one of three things are going to happen with with this house:

1. They might be able to refinance and catch up - maybe.
2. They might put the property up for sale - maybe a short sale?
3. They might let the property go to Foreclosure at which it will either be bought by a bidder or retained by the bank (REO).
   

OPTION 1, REFINANCE:

If they can refinance, perhaps they can also catch up on the Pride of Ownership items they've been neglecting.

OPTION 2, LISTED:

If the property is listed for sale, it's under duress, it's not because the owners feel the time is right and they want to move up to a larger home with better schools. It's a fire sale. They are looking at getting out as quick and cleanly as they can without spending another dime.

• It isn't going to have new paint and carpets is it?
• It isn't going to be neat and clean is it?
• And it certainly isn't going to be staged!
  

We all know, a staged home will generally sell faster and for more than a similar home - Right?

"Mr. and Mrs. Homeowner... I know you can't afford to pay your mortgage but I believe your home will sell faster if you pay $x,xxx and have it professionally staged". Yeah, that's a likely conversation that'll never happen!

OPTION 3, FORECLOSED:

Now what? Either the bank owns the property and lists it with a local broker or an investor type now owns it. While the Broker may pay to have the lawn mowed they are not going to spend the big bucks to bring the property up to snuff with the regular homes around it.

In Options 2 & 3 above - the home will be sold to someone eventually, but it will also be sold at something below it's true market value potential.

The home next door, the home down the street and the home a 1/4 mile away all will be unintentional and innocent bystanders.

The Sales Comparison Approach of Appraisal has to take into account the recent transactions in the surrounding areas. While a certain amount of explanation on the appraisers part may help shift the blame of declining values in the neighborhood to foreclosure activity, it's temporary at best!

The Truth is - your home's value is determined by and and can be positively or negatively effected by, the homes and homeowners around you. And unfortunately that is something you have absolutely no control over!

For related reading see: The Foreclosure Crunch

This isn't a Country Song...

I wanted to share a sad story I found this week.

It is from Chris Hendricks.

Chris runs a full service online printing company you've probably heard of, www.PsPrint.com. A large part of his business deals with the marketing that Agents produce.
Recently he was in Washington D.C. for the convention of the National Association of Realtors.

Chris had taken a taxi earlier and then coincidentally had the same driver the next day.
On the first trip they had exchange small talk as you might normally expect.
But the second trip was different as the driver spent most of his time on his cellphone.
Chris relates that while the man was originally from Yemeni, he could decipher some of the conversation.

"I discerned the words "scam," "house," "children," and that he had worked for 23 years to own his home and that if he worked 24 hours a day every day he could never make the new payment."

The taxi driver ended his call and Chris talked to him for a minute.

"He explained that last year he had been injured, spent time in the hospital, and refinanced his home to lower his payments. The mortgage he was placed in obviously had a teaser rate and, more obviously, had a rapid escalation back to market rates. He "thought" he was lowering his payments from $1800 a month to $1100 and that the refinance was a godsend to help him during difficult times with his health. This week he learned that his "new" payment was being adjusted to $3300 a month and that he will likely soon lose his home-- after 23 years"

You may have recognized the loan program as a Payment Option ARM.
While you may not personally hear many stories like it, this same situation is playing out each and every day.
It's happening all across the US.
It's happening here in the Bay Area.
It's happening right here in upscale Walnut Creek.

And it's not happening to just Cab Drivers.

I've heard the same story from Business Owners.
I've heard the same story from Government Employees.
I've heard the same story from Registered Nurses.
This story has no bounds.
It is not limited to lower income housing, in fact there have been studies suggesting that the hardest hit will be the upper middle levels, those with loans under $1,000,000.
I know we have plenty of those around here!
Here's a snippet from an earlier article, The Foreclosure Crunch

I did a little research locally.
I went to the County Records.
I asked for a list of homeowners who...

• Live in a single family home (no condos)
  
• In the Lafayette, Orinda, Moraga, Walnut Creek, Alamo, Danville, Pleasant Hill and Concord area.
• Who have an Adjustable Rate Mortgage at least 3 years old with A Paper lenders.
• I also limited the search to the first 1,500 names.
  

Surprise!
My list started in upscale Lafayette (just because that's what I listed first) and never left!

Read the entire Chris Hendricks Story Here

UPDATE: I wanted to make the link to Tony's story below live.
He writes an excellent blog called The Mortgage Cicerone
Those of us in the business know the true story behind it all, we're not easily fooled by the deceptive marketing practices.
Read Tony's Story: http://tgalleg.typepad.com/my_weblog/2007/05/are_you_paying_.html

MM

Work it Out!

I came across what might be a very valuable site for homeowners in trouble.

It's called WorkItOut.com

I did a little background checking and although the site is in "beta" it is NOT an start up.

From the outside it appears to be on the up and up.

It was originally registered with Network Solutions back in 1998 by a legal firm in Irvine, The Wolf Firm, and specifically Alan Wolf.

I did a little further digging and found that this isn't an "open to all" type of club.
To join, you have to be referred by your lender.

There is a limited amount of content on the site available for all to see including what I believe may be the most important two features;

• The FAQ, which gives the reader brutally honest answers to many of the common questions they may want to ask. It's here: LINK

• The List of Lenders and the contact information for that lender's Loss Mitigation Department.
  

What is that?
Let's say you are in trouble. You know it. So who do you call?
You call your Trusted Mortgage Professional!
Good call - so to speak.
But unfortunately, after running numbers and scenarios, they said there was nothing they could do for you.

Now who do you call? Your Lender - that's who!

There's a problem here too. You start with the toll free number and spend the rest of the day on hold and then finally explaining in great detail why you are calling, only to be transfered to the next representative or department who may be able to help you. This goes on with 17 different departments until finally you either hang up or get lucky and get the right department.

The people you really need to talk to within your lenders spiderweb of phone banks is the Loss Mitigation Department.

Luckily for you they are all listed right here. http://www.workitout.com/mod/glossary/view.php?id=98

I noticed it also has answers to a few questions not specifically Foreclosure related.

If you want a copy of your credit report do you know where to go?

NOT www.FreeCreditReport.com - right?
It's not free.
It is a marketing gimmick design to sign you up for their "Triple Advantage" service.

The site you DO want to use is www.annualcreditreport.com
It's the only site,

Let me repeat that again for emphasis...

It's the ONLY SITE, that allows for a truly free annual credit report
But you already knew that right?

Guilt by Association

When I have a free weekend, I like to go out and visit open houses in my area.

No, I don't wear a hood and over sized sun glasses.

I like to use www.homesopentoday.com to find the homes local to me.
It's one way I can get into the trenches and learn what is going on out there.

I was discussing with an Agent this weekend the topic of Foreclosures.
Bill Clemente of Security Pacific in Walnut Creek.
Bill is a smart, heads up kind of Agent.

I was impressed with his knowledge and understanding of the driving forces behind the market.
Bill is currently working on a Short Sale in Antioch - trying to help a client out of a tough spot.
Short sales are going to become more prevalent as we move forward into this market correction.

One of the issues we discussed is the fact that in this area where the short sale property is located, there have been a number of Notice of Defaults and Foreclosures. These properties have either sold at the public auction for less than market value, or have been returned to the lender and are going to be sold as REO.

Either way, we were discussing how this effects the regular homeowner.
Because the properties are sold or moved at below market prices, the comparable values in the neighborhood drop. Clearly a case of Guilt by Association.

In the instance of his Short Sale, the homeowner is still current in his payments.
Surprised? I was too.

The main reason, and perhaps the only reason, he has to walk away from his home is a lack of value. That is a direct result of factors outside his control having a dramatic effect on his personal life.

I ask, if you were the brother of Ted Kaczynski how would your life have changed?
Would people judge you (unfairly) not because of what or who you are, but because of who you know or who knows you.

Guilt by Association.
It may not be fair but it happens in many different forms, and it's coming to a neighborhood near you!

The Foreclosure Crunch

This is part Three in a Four part series of articles detailing the changing mortgage market.

The Foreclosure Crunch

The Foreclosure Crunch is closely related to the LTV Crunch.

In fact, both crunches fuel on each other.

I would suggest you first read the LTV Crunch before you dive into this easy concept.

Now where to start?
Hmmmmmm .....

Let's start with the 3 TRILLION in Adjustable Rate Mortgages that we know are just about ready to change, or recast in the next year. That's a huge number! And yes, it is a national number but it is going to have an enormous impact of home loans in here in Contra Costa. I mentioned we know these loans are set to change but what does that mean?

As an example, let's say you financed a couple of years ago. The best rate and term your broker found you was 5.625% fixed for 3 years (or 5, 7, or perhaps 10). It was fixed at a time in history where the rates were the lowest. That's the good part. the bad part is that the loan now is set to adjust to the current rate environment. And rates are higher now than they were then. That means the monthly mortgage payment is going to go up. How much? On a POA it could be as much as double or triple! Other loans might be a bit more manageable.

Like explained in the LTV Crunch, and the Credit Crunch, these borrowers may not be able to refinance into anything! When that happens they can either:

• Live with it and try to meet their obligations,
• List their home for sale,
• or fall behind and go into Foreclosure
  

I can tell you that many of the people I have dealt with are already strapped for disposable income. Trying to keep your head above water is a temporary situation at best. If that payment continues to rise what do you think is going to happen?

Our local housing market is somewhat crowded already. How long do you think it will take a homeowner to sell right now? Not a pretty picture is it?

That leaves Foreclosure.

But let's just say you have an ARM.
You also have a great job, plenty of cash, and overall you are doing just fine.
Maybe you last refinanced or bought with an equity position of around 20%?
This possibly can't effect you - can it?

Wrong!

Try this...

1. Go to google maps and pull up your property.
2. Now draw a circle 1/4 mile around your home.
3. Now count the number of homes in that circle.

If any of those homes in that circle sell for under market value, go under, REO or sell at auction. your home just lost value as well. If it loses too much your ability to refinance into something manageable may be compromised no matter what YOUR personal financial situation is.



How about those people on the fringe of your circle? Their values are related to those 1/4 mile further away, and so on, and so on.
So really, a foreclosure many many miles away could domino into your home!
Bummer, eh?

"Yeah Mike, but I live in an upscale neighborhood. We don't have those kind of people around here."
Wrong again.

I did a little research locally.
I went to the County Records.
I asked for a list of homeowners who...

• Live in a single family home (no condos)
  
• In the Lafayette, Orinda, Moraga, Walnut Creek, Alamo, Danville, Pleasant Hill and Concord area.
• Who have an Adjustable Rate Mortgage at least 3 years old with A Paper lenders.
• I also limited the search to the first 1,500 names.
  

Surprise!
My list started in upscale Lafayette (just because that's what I listed first) and never left!

WOW!

So if you think your neighborhood is safe, if you think you are safe, consider yourself now informed.

It's not all bad news though.

I've said it before and I'll say it again,
"If homeowners are proactive now, they can navigate a soft landing. If they are not, they could find themselves in situations outside their control that could lead to personal financial disasters like bankruptcy and foreclosure."

If you do not know what kind of a mortgage you have, if there is any chance at all, I urge you to seek out a professional review ASAP. Only a Professional Mortgage Planner will be able to give you an objective opinion on where you stand.

The LTV Crunch

This is part Two in a Four part series of articles detailing the changing mortgage market.

The LTV CRUNCH

L.T.V. is simply an acronym for Loan to Value.
This is a surprisingly simple computation resulting in a percentage.

Let's assume you have bought a home valued at $800,000.
To buy that home you took out a loan for $640,000.
Your LTV is going to be 80% - easy right?
We took the loan amount and divided it by the value.

LTV has a cousin. CLTV - the C standing for "Combined".
That brings the other loans you might have into the equation, loans tied to the property like a Line of Credit.

Using our example, let's now assume you have a 1st Mortgage of $640,000 and a HELOC (Home Equity Line of Credit) for $80,000.
Now you owe $720,000 on your $800,000 home.
That's a CLTV of 90% right? Following so far?
Pretty easy stuff.
Now we're going to twist it a bit.

The Maximum LTV or CLTV is determined by the Guidelines.
The Guidelines are a set of rules detailing all the parameters of what loans the lender will do.

"Who cares what the Guidelines say?"
For one, the Underwriter who approves your loan does.
Underwriters live by the Guidelines.
To paraphrase the heavy metal band "Faith No More" They care a lot!

And to make matters worse, I have news for you. The Guidelines are changing.
They are getting tighter and tighter.
A year ago, a typical Guideline might have said something akin to "The maximum LTV on this product is 80% with a maximum CLTV of 100%"
To a loan officer that means this program will allow an 80% first mortgage and a 20% second.

That was then - this is now.

That same text might have a completely different tone today.
"The maximum LTV on this product is 80% with a maximum CLTV of 90%".

That doesn't sound so bad does it?

But wait there's more! (one of my favorite infomercial lines)

The value on your home is determined by the sales price of others around it.
That's called the Comparison Approach of Appraisal.
This is an important concept.

Going back to our example.
Your home was valued at $800,000 and you had a CLTV of 90%.
Let's now assume you need to refinance.
Your present loan is about to recast and your payment is going to go up.

The appraiser comes in, does his thing, and comes back with a value of only $750,000!
Why?
The other homes in your area that have sold in the last 3 to 6 months, sold for less. That's why.
Your home value is a direct result of the recent sales prices of other like homes in your area.

Important Concept #2:
As the value of your home decreases, your LTV increases.
Conversely, if your home value increases - your LTV decreases.

But I digress, let's go back to your refinance.
The appraisal comes back at $750,000 and now your CLTV is not the 90% it was but instead it's 96%. The aforementioned Guidelines for the loan that you are applying to clearly state a Maximum CLTV of 95% or worse yet 90%.

The result? - You cannot qualify for that loan and must find another loan program, another alternative, or live with it. This is because of two things. The guidelines changed, and foreclosures and financially distressed homeowners in your area have lowered the value of your home by selling at prices lower than your market value. Both items clearly outside of your control.

The Moral of the Story:
What's going on around you, in the country and in your neighborhood, no matter what your personal financial situation might be, can have drastic implications on you and your financial situation.

I am an optimist. I look at this as an opportunity for those that are prepared to rise above.
I have been recommending to all my past clients to review their mortgage plans, examine their goals and needs, and make adjustments to those plans sooner than later, if need be.

The Credit Crunch

You may hear from time to time about the Transparency of Real Estate.
There are people and companies marketing this term daily.
It refers to the general idea of the borrower or clients ability to see and know what is happening "behind the scenes".

I'm all for that!

In the broader sense, I like to see behind the scenes in the greater mortgage world.
I'm one of those types that wants to know how a company is doing.

• Are they in good financial health?
• Do they have great customer service?
• Or are they hurting and teetering on the brink?

Many times the things I see as a Mortgage Broker go virtually unnoticed by the general public.
One of which is the tightening of credit guidelines across the board.

Welcome to Part One - The Credit Crunch!

Make No Mistake!
This will and does effect everyone, no matter how good or how poor your credit is.

WAMU (Washington Mutual) issued a statement to the press recently that went unnoticed by the mainstream. In that statement, they said they were "emphasizing higher-quality loans to boost earnings and cut risk after its home loans unit lost $113 million from January to March."

I can see why it went unnoticed.

Here's what you need to know:
Just how much are they "emphasizing"?
How about 70%? Yeah - 70%!

Let's put it this way.
WAMU is one of the biggest lenders nationwide.
The loan you qualified for to buy your home, or the loan your 99 neighbors have is no longer available - period!

How will this effect you?

Follow the bouncing (snow) ball here...

• Maybe not you, but when any of your 99 neighbors need to refinance in the coming months they are going to be in for a little shock.
• They will not qualify for a refinance - plain and simple.</