Recorded July 1. Transcript to appear shortly!

Transcript coming soon. Recorded 6/3/10

If you quit paying your equity line of credit, and you have
no equity anymore, it’s very likely the loan will be charged
off.

In the short term, that means it’s gone. In the long term,
it’s still a big “what if.”

Will someone buy that chargeoff and come after you some
day? Possibly. Will it just disappear forever? Maybe.

Below is a transcript of a teleconference we did recently
all about this aggressive, still-too-early-to-tell tactic.

Download HELOC Chargeoff Report Here

To your success,

Mike Rockwood
Loan Modification Program

p.s. If you have any experience good or bad with chargeoffs, please let me know. We’re still very leery about recommending this strategy.

“An Open Letter to Anyone with Investment Properties with Bad Mortgages…”

Millions of Americans invested in rental properties in the past 10 years. With annual appreciation in the 10%+ range, lenders willing to finance up to 100% of the purchase and tax advantages galore… who wouldn’t?

Myself and most of my clients all got burned in the recent boom then bust of the market, and we’re all dealing with the grim new reality of real estate in the USA—proactively.

Smart homeowners in trouble are taking action with 3 distinct strategies I call “Cash Max,” “Cherry Pick,” or the “Charlton Heston” approach.

Let me explain what these mean…

CASH MAX is a strategy for those ready to throw in the towel and move on. This is rarely the best choice, but sometimes, the house is so upside down and messed up—or the timing is bad—and it’s the only option left.

Here’s an example:

John A. bought several homes in hardest-hit areas of Florida with a highly leveraged position. Today, all four homes are more that 50% upside-down. He’s 50 years old, has a steady income, and a reasonable retirement set aside.

If he walks away now, he can recover and continue to grow his retirement assets over the next 20 years. But if he tries to hang on to these homes with over $600K of negative equity, it’s a lost cause. He’ll be dead or dead broke by the time his investment actually starts to cash flow positive.

John and the bank lost their mutual bet on the long-term value of his home, and now, the legal arrangement they made (a.k.a. his mortgage) is being used to divvy-up the damage. John lost his investment and the bank will soon learn that they will lose theirs as well.

CASH MAX ACTION PLAN
1. Stop paying the mortgage
2. Protect all other assets
3. Meet in-person with a local bankruptcy attorney
4. Be sure you fully understand the recourse your lender(s) have
5. Use whatever legal means available to delay all transactions (you might as well keep your home(s) until they kick you out)

CHERRY PICK is a strategy for people with multiple properties, some with equity and some with zero or negative equity. This strategy involves simply picking and choosing which homes you’ll save, and which homes you’ll let go.

Let’s look at a case study:

Tim owns three single family homes along with his own primary residence. All the loans were initiated as primary residence mortgages, though his extra homes are now rental properties.

Tim used ballooning equity from one home to purchase the next and found himself in 2006 with two homes that had almost no equity because he had leveraged them and one home with no equity because the value had literally fallen by 60%.

Tim is a home builder, and his business is ½ what is was just 12 months ago, so his income has dropped dramatically.

Tim will get a big income spike in 6-12 months at which time he’ll qualify to modify his own primary residence without a problem. Now for the cherry picking… Tim gets his bank to agree to a short sale on two of his three rental properties, and as they sell, his debt-to-income ratio improves drastically making it easier and easier to pay for and eventually modify his primary residence and one remaining rental unit.

CHERRY PICK ACTION PLAN
1. Stop paying the mortgages on your “losers”
2. Stay current on the “winners”
3. Act swiftly to aggressively short sell your “loser” properties by employing a short sale flipper or a real estate agent you trust
(call me if you need a referral)
4. Immediately initiative the loan mod process for your “keepers,” but drag it out until at least one of the “losers” sells (then you’ll be in a better debt position for a loan mod)

THE CHARLTON HESTON has become my own strategy of choice. Although I did give up one home to a short sale in 2008, my attitude on the rest of my homes has been that no one is taking them from me except from my “cold, dead hands.”

Excuse the melodrama, but that’s how I feel. Buying a home is a serious endeavor—emotionally and financially—and I’m not giving any of mine up. I believe (along with most of my clients) that owning property is almost always a better position to be in than not owning, and I’ve decided to “ride-out the storm” of this economic implosion without acting hastily.

It is a hard-nosed strategy that requires brains and nerve and vigilance—and also enough income to qualify to modify your loans.

CHARLTON HESTON ACTION PLAN
1. Develop a strategy using loan modification, short sale initiation, or a deed-in-lieu request as leverage in negotiating with your bank
2. Clearly understand the foreclosure process in your state so you don’t make a silly mistake
3. Understand your lender’s recourse (if any)
4. Modify, modify, modify… the goal here is to lock in a fixed below-market rate for the life your loan and keep you home(s)

I will send you updates as we can add more clarity and more action items for each strategy. Please let me know how these ideas jive with what you are seeing in your work.

Loan Modification Programs & Help

Our credit scores have become much more than simply a financial reward for prudent use of credit. With the information explosion of the past 25 years, credit scores have become a measuring stick used by prospective employers, insurers, private investigators, marketers and lenders of all types. Further, during the economic run-up of the past 7 years, a person’s FICO score became a status symbol of the new “real estate wealthy class”.

And so, it is with great trepidation that many of us face the untenable prospect of trashing our good credit standing by missing payments as part of a real estate “workout” with the lenders. But, tough times require tough decisions by tough people.

And, like in any impending “emergency” we can minimize the damage and speed the recovery by understanding it and preparing for it. Specifically, you should know: 1) how the credit rating system works, 2) how much damage will be done by a mortgage late payment, short sale, deed-in lieu, foreclosure, and bankruptcy, 3) street-smart ways to minimize the damage and 4) street-smart ways to speed our recovery.

What’s your credit “Heritage”?
For many of you this dip into poor credit is a first-time thing and you hate it. You’re the lucky ones. Your displeasure will propel you back into 700+ FICO range within 24 months. Your good habits and the street-smarts will control your actions in the coming months, reaping you financial rewards and renewed peace of mind.

For others, bad credit has been an ongoing issue – like a bad penny that just keeps turning up. No matter how much you try to avoid it you seem to slip back into it periodically. Like chronic dieters, you keep reverting to doing exactly what you don’t want to do. You’re frustrated.

You probably often give up trying and just tolerate the financial limitations, frustrations and occasional embarrassments that come with poor credit.

Such folks face the biggest challenge of adult life – changing habits. It’s not nearly enough to want to improve your credit score…although that’s an important start. Financial habit-changing requires all the psycho-social support that any major habit changing effort does. It is beyond the scope of this chapter, but it’s a topic that I am passionate about.

Minimize the Damage
Most of my clients miss 3-5 mortgage payments and most suffer at least a 100-150 point FICO decline. My own score dropped to 550! Not fun, not financially rewarding, and not something to be proud of. But,…well you know.

It’s important to know that the FICO scoring formula is a “predictor” of future credit performance. It’s not meant to reward or punish, but rather to predict the likelihood that someone will pay their bills as agreed over the next few years – based solely on the information in a credit report. It is, therefore, complex and difficult to accurately assess (and it is a carefully guarded secret).

When looking at late payments, the FICO scoring formula considers the information on a credit report by 1) Recency, 2) Severity and 3) Frequency. In your default situation you cannot control the severity (mortgage lates are severe) and the frequency really depends on how fast your lender responds with a reasonable workout plan. Recency is THE issue that you should focus on. Delay the credit damage as long as possible and then get it over with as quickly as possible.

Speed the Recovery
Seven Credit Repair Best Practices will help you to recover faster. These are measures that should become part of your ongoing financial management. Now is a great time to implement them and develop them into habits.
Never make a payment late again. Take this seriously and figure out how to get your payments in on time, every time.

Never close any credit accounts and use all credit accounts. You’ll not improve your credit score by avoiding the use of credit. Don’t let any accounts lie dormant, even if you have to go to Sears to buy laundry detergent on their card!!

Open new accounts only after careful evaluation and for specific smart purposes. You may (if you have 4 or fewer credit cards) want to open a new credit card account to raise your total available credit limit. Having more than 4 credit cards is not advisable.

Constantly apply for higher credit limits with your existing accounts. Using only a portion – a low percent – of your available credit is beneficial. This will be especially challenging in this economic downturn. In fact, many credit card companies are reducing credit lines in an attempt to reduce their exposure.

Make payments on every account 2X per month. You get FICO benefits for making a payment AND for paying your required amount each month. So you’ll get additional benefits by paying half the total, twice per month. If your cash flow doesn’t allow this, then make at least a minimal additional payment each month to get the benefit.

Pay down your non-secured accounts (such as credit cards) to 30% of your available balance and keep using the accounts frequently. Don’t let them exceed 30% ever again. This is the very best use of any monthly savings from missing mortgage payments…get these balances low!

Hire a reputable credit management company to dispute your credit report negatives. Don’t even THINK of doing this yourself. I know this advice flies in the face of my usual “do-it-yourself” mantra. However, my experience is that this process (disputing) is an essential part of credit repair and it’s WAY beyond the ability, patience, or capacity of mere mortals.

I’ve NEVER had a client succeed in removing all they needed from their credit report, even using the online dispute services offered by the three bureaus. It’s costly to use a credit repair company, but well worth it.

If you implement these practices, you’ll fully recover from any FICO reduction in 6-24 months. Track your progress by checking your FICO score at FairIsaac.com for about $15. Expect it to take at least 6 months for significant progress.

Hardship Letter Questions?

My philosophy on Loan Modification… “Cheat me once, shame on you. Cheat me twice – SHAME ON ME!”

Do you really want to use one of those former sub-prime brokers for ANYTHING? Do you really want to pay for a “forensic audit” when you just need an application filled-out and some advice? No, don’t try to pay your way out of this one. You might as well flush that money down the toilet. Mortgage Modifications are better done yourself with insider information to make it good and fast! Here’s why.

1. You Already Have Help
A ton of tax money has gone toward helping homeowners get mortgage modifications. Lenders and the federal and state agencies involved have staffed and contracted to make the process easy and readily available to you. Dozens of community-based non-profits have staffed to meet the challenge. Also, many first-rate private companies (such as the Collection Agency Resolve Corporation and the debt counseling company Greenpath Debt Solutions) have contracted with the lenders to facilitate the process. Some of these resources are truly helpful.

These well-intentioned organizations are, for the most part, helpful. That’s the good news.

2. No one Loves You more than You?
Not the non-profits – Like most government or bureaucratic efforts, the non-profits provide way too much information and no tactics to benefit you! If you want to write a term paper on mortgage modifications, you’ve hit the mother lode. If you want to get a winning mortgage modification, it’s better to look further.
More troubling, these organizations owe allegiance to lenders as well as homeowners. They’re charged with reaching an equitable settlement.

I don’t know about you, but that’s not the type of backing I want in my corner! You need insider advice on how to win! You want advice that is unabashedly aimed at getting YOU the best deal – fast.

Not the Lenders - The lenders are clearly your adversaries. Not in the sense that they want to thwart your efforts, but they try to get you to accept the best deal for them. After all, the “Loss” part of the “Loss Mitigation Department” does not refer to YOUR loss!

Not the for-profit loan mod companies! For-profit loan modification companies are in it for the money. They maximize the number of clients they start and minimize the time and expenses spent on each one. Many of these companies are out-of-work former sub-prime loan brokers.

Loan mod firms botch loan modifications all the time by:
- Dropping the ball on follow-up
(They’re mainly concerned with new customer acquisition.)

- Sending out hack form letters

- Accepting the first offer the bank throws out

- Revealing damaging information to the lender, even without the lender asking for such information

There’s no shortage of new and interesting scandals produced daily by this new industry. Google for a recent one in your neighborhood!

Lastly, none of the lenders, non-profits, or loan modification companies take much of the work off your plate.

Relax, it’s not Rocket Science!

The process is simple, though it’s not easy. With our experience to guide you, you can submit a powerful application in as little as 60 Minutes. You CAN do it and you SHOULD do it.

You Can Make it Personal
Business is personal – people to people. You’ll be more effective if you understand that and work with people.

After all, the clerks and customer service representatives, negotiators, and supervisors you’ll contact are folks just like you – working blokes – with mortgages of their own! Connect with them if you can. Not only will it help your cause but it will also make the whole process more pleasant.

Your personal involvement in your loan modification will speed the approval and result in a better financial deal for you. Just like any DIY project, with good plans and good tools “you can do it, and we can help!” Let’s modify something together!

Mortgage Modification Questions?

For me, the housing market implosion became personal. If you’re reading this article it’s likely that the crisis has become that way for you, too.

Never in history has so much wealth “evaporated” so rapidly. It became a global problem, too, as mortgage-backed securities and derivatives are traded on exchanges around the world.

Approximately 15 million Americans purchased homes at the height of the housing bubble (from 2004-2006). Today they find themselves at “Ground Zero” in the housing crisis. Some experts say more than 8 million homes (16%) will go into foreclosure before 2012.

Over 600,000 loans were modified in 2008. That number is expected to quadruple in 2009. The burning question on the minds of homeowners today should be, “How much and how rapidly can I modify my home loan?“

For me this has been a “Blinding glimpse…of the OBVIOUS.”

In 2005 I purchased a long neglected home with big dreams of rehabbing it for my own. It seemed like a sweet real estate deal – and it was – until the U.S. housing market collapsed.

Unfortunately, by that time I had already sunk $90,000 into improvements, so I resigned myself to riding out the housing downturn. At least the home turned out lovely and my wife of 34 years was pleased.

If only it were that simple! Not only did the housing crash wreak havoc on my home value, but it also tore a chunk out of my primary monthly income. I limped along financially until the summer of 2008, when I was hit with a particularly slow period in my work.

Suddenly it seemed financial calamity was upon me! It was clear I couldn’t meet my obligations. I racked my brain for a solution: “Where could I cut back? What is the absolute minimum I could pay? Do I have any stocks or investments to sell?”

IndyMac held the 1st Mortgage on my home. So, I swallowed my pride and called IndyMac. I knew that IndyMac itself had failed and had recently been taken over by the government (in other words, my tax dollars were keeping it open).

I batted away initial rejections and pushed forward to one supervisor after another. I found out they did, in fact, have programs that were designed to help but I didn’t qualify because I had been paying my mortgage on time! Talk about getting kicked while you’re down, huh?

It made me angry that an honest, regularly paying homeowner could not get assistance when the lender itself (and all of its executives) had already received significant assistance with tax dollars.

I Wanna’ talk about ME!

I have always been conservative. I take pride in working hard and dreaming big. Like most Americans, I don’t expect handouts. I’m proud of my ability to care for myself and raise a happy family with solid moral values and work ethic.

You get the picture…I’m probably a lot like you! “Salt of the earth!” But I began to feel that the economy had fundamentally changed, especially the housing market, and normal homeowners were being left behind to carry the burden.

New tales of corporate excesses are revealed daily. We learned of VIP loans for Senators and platinum parachutes for executives at Countrywide; Detroit’s big three automakers flew into Washington on private jets to pick up their government handout; Wall Street theif Bernard Madoff admitted to cheating clients out of a cool $50 billion; and on and on! It looked like a collapsed house of cards.

Remember Blazing Saddles? It contains a scene in which Gene Wilder’s character describes good, traditional citizens. He says, “They have unchanging values, the salt of the earth people – you know – morons!” That’s how I felt. That’s how I still feel…moronically passive while getting robbed!

My first loan modification was absolutely torturous. I actually failed three times on it before I finally cracked the code! I read through hundreds of pages of information published by non-profits, spent hours on hold with the bank, and attended one of the first Loan Modification live events designed to assist homeowners in distress.

Instead of the anticipated turnout of 200, some 2,000 people showed up. Many of them waited over 5-hours just to talk with a bank representative.

“Can we just start again?” I asked. “Sure,” replied the bank rep, and he deleted my entire file! Slowly, I was learning the rules of this game.

Finally I caught a break from IndyMac! It happened at a live event that was part of a nationwide effort to help at-risk homeowners. It was strange scene in Van Nuys, CA. Desperate homeowners overflowed the facilities and overwhelmed the staff. The crowd was made up of lawyers, construction workers, stay-at-home moms, real estate agents and just about everyone else you can imagine. It took hours to get through the line which snaked out the door.

In my lifetime there had never been an event like this, and it was impossible not to see the similarities to the long lines of desperate
Americans in line for soup and bread during the Great Depression.

Well, it certainly shook my psyche a bit. But sometimes reality bites!

Here’s a copy of my modified loan agreement that came out of that meeting:
Just look at how this modification helped me!

IndyMac – 1st Mortgage on my own home

Original Rate: 6.5%
New Rate: 5.125%

Monthly Savings: $686

This effort netted me $686 saving per month. Do I have your attention now?

Needless to say, it got my attention! How often do we get the opportunity to reduce monthly expenditures by $686? Most people have to get a 2nd job to earn that much – and that’s taxable income!

And, here is the financial benefit to me:

National City Bank - 2nd Mortgage on my own home

Original Rate: 9.0%
New Rate: 1.0%
Monthly Savings: $262
Loan Modification Hardship Letter

I had gone from inept bumbler to laser-focused loan mod mercenary. I was fast, fearless and dead serious about getting the best loan modification! Now, my experiences can help you.

I learned from my mistakes and documented them. I refined my process. I became extremely efficient and deadly accurate.

Red Flags
If you’re looking for loan mod help, avoid any business that:

• guarantees to stop the foreclosure process – no matter what your circumstances
• instructs you not to contact your lender, lawyer, or credit or housing counselor
• collects a fee for services before providing you with any
• accepts payment only by cashier’s check or wire transfer
• encourages you to lease your home so you can buy it back over time
• tells you to transfer your property deed or title to ANYBODY else
• offers to buy your house for cash at a fixed price that is not set by the housing market at the time of sale
• offers to fill out paperwork for you…instead of with you
• pressures you to sign paperwork you haven’t had a chance to read thoroughly or that you don’t understand

For all of the above reasons, I think you should do your own Loan Modification.