Rec live: Feb 2, 10
Many folks still ask me if it is unethical or immoral to either seek a loan modification or walk away from their underwater home. It’s a question close to my heart, because of my own deeply held religious beliefs and the life circumstances I have experienced under which they have been thoroughly tested.
Recently I was pleased to learn about an academic paper published by Law Professor Brent White out of the University of Arizonia. The paper is titled, “Underwater and Not Walking Away: Shame, fear and the Social Management of the Housing Crisis.”
Join us for tonight’s live show – open to everyone – during which I’ll do my best to highlight some of these issues. Prepare to be a little challenged in your way of thinking! And don’t worry, it’s not an academic discussion. It’ll be light and fun as always!
Now: read the transcript!
Mike Rockwood: All right everybody it’s that time of week again. It’s 6:00 on Tuesday evening, and it is the Foreclosure Doctor. It’s Mike Rockwood and Ryan Rockwood from the 60-Minute Loan Modification Company and we’re here to talk to you — kind of Open Mic about foreclosure topics anything related to foreclosure not just loan modification, of course, also short sales, just walking away negotiated settlement, deed in lieu, any kind of workout of arrangement you can imagine we’re here to talk about.
Ryan Rockwood: Why don’t we say it again just because these people couldn’t hear?
Mike Rockwood: Okay. All right, do you think we’re ready to go?
Ryan Rockwood: Yes. We’re ready to go.
Mike Rockwood: Okay. Sorry about that everybody. We had a little bit of technical difficulty as we often do. We need a new technical director, I think. But at any rate, it’s Mike Rockwood and Ryan Rockwood and we’re here. It’s Tuesday evening at 6:00. That means it’s time for the Foreclosure Doctor Teleconference and videoconference series. Ryan and I literally pushed ourselves away from the desk working on loan modifications and foreclosure workout to spend the end of our day answering your questions about what we’re learning in the area of foreclosure workouts. Our lawyer always wants us to start every teleconference by telling you that we are not lawyers. He is the lawyer and you have to send him money if you want legal advice. Don’t take our advice as legal advice, it ain’t. All it is is telling you what we’re hearing on the streets, what we are seeing, what clients — what kind of deals clients are working out, what banks are up to, and how that home negotiation process is going. We are also not CPAs or tax advisers, but we also do pass on to you all kinds of information about what our clients are finding out in terms of the tax consequences of forgiven amounts and short sales and loan modifications, et cetera, et cetera. So don’t take our word as tax or legal advice, but believe me you should take our advice.
So we’re here to tell you that as bad as everything sounds in the loan modification game, it continues to go quite well for our clients. Now, we don’t stay as in touch with all of you as we should or we could but we do take on number of clients where we do the modifications for them. We’ve always told you that we’re really strong proponents of the Do-It-Yourself Loan Modification effort and really all the foreclosure workout efforts. We really advocate that people do them themselves for a number of reasons, but we also do loan modifications for clients because plenty of people just can’t do it, won’t do it, that they know they’ll never going to get around to it or they don’t have the right temperament for it so they hire us to do it. We got to tell you, in spite of all the bad press, we are — we continue to have good success. Over 95% of our clients get approved. We had two approvals this morning. So we’re very pleased to report that a couple of clients who got really wonderful, wonderful loan modifications, shaving for an $800 respectively off of their mortgage. But you know, those numbers kind of sometimes hide the fact that an even more important thing has taken place. A lot of folks are going from negative amortizing loans — which one of these was this morning — to a slightly lower payment, a fixed rate fully amortized. How beautiful is that? I mean it’s just an about face. This one client yesterday had already — or earlier today had already accumulated $50,000 in negative deferred credit — debt deferred interest. So this just turned it around from each month paying about a month short — or about $100 short, so each month they were digging another $100-hole, little $100 deeper in debt. Well now, they are like full $700 to the positive every month, so it was just extremely beneficial to them. So a lot of good things are happening in spite of all the bad news but today –
Ryan Rockwood: You know it is true. You do think that everyone has gotten out of those horrible arms already but that’s not true. Are you there?
Mike Rockwood: Yes.
Ryan Rockwood: Yes, sit there.
Mike Rockwood: Even some of the neg-ams, you know?
Ryan Rockwood: Yes, that’s one [Indiscernible] [0:05:08] today. It was 200 neg-ams still, and I said, “How much you’re going negative each month?” She said, “You know what? I’d say I don’t even want to know.”
Mike Rockwood: Yes.
Ryan Rockwood: Yes.
Mike Rockwood: Yes.
Ryan Rockwood: Yes.
Mike Rockwood: Oh, that hurts. All right, so…
Ryan Rockwood: Anyway, for those of you that are new to the show, I want to thank you for coming. I want to thank for stopping by. Basically my father, Mike Rockwood, and I put on this show and another one for our personal clients. We put another show on a Thursday night. On Wednesday night, we put on a similar webcasting program for people who want to settle their credit card debt, which is often the next step after getting your mortgage handled as you kind of triage your financial life. But excuse my voice. I got a bit of a cold. But basically, my father — this broadcast tonight is designed to answer questions and to provide up-to-date information on loan modification and foreclosure options which, let’s face it, it’s really hard to find some objective, current information on those topics.
Mike Rockwood: Yes.
Ryan Rockwood: Usually you can find someone espousing a loan modification or maybe short sale or something like that. These are competing voices in the market place and that’s the best you can get.
Mike Rockwood: Usually there are siren song singing you over to their particular solution that, oh yes, also cost you an awful lot of money.
Ryan Rockwood: Yes. So I mean, what we wanted to do is create an environment where we could try — what we’ll try to do is diagnose a client and try to say okay, is the loan mod the perfect thing? If not, let’s recommend something else and push you that way, and so on and so forth, all over the country.
Mike Rockwood: So we help you think through the options because there is a right option for you. There is a way forward and sometimes it doesn’t seem like it but with our experience in all the different foreclosure workout options, we can give you as close to an unbiased opinion as you’re going to get. But we’re very experienced opinion, and we’ve been down all these paths. We really got into this business not by great strategy but actually by financial need. I got forced to pursue loan modifications for myself almost two full years ago now, and the thought — the things that I learned after so many fits and starts and failures and mistakes was that there are an awful lot of tricks to it. So I wrote the 60–Minute Loan Modification Kit to kind of pass all those tricks along to other people, to show people how, yes, you do need — I recommend you do it yourself just like the government does and just like the banks do, but I don’t recommend you doing it alone.
Everybody on the other side of the table, believe me, they’re on the other side of the table. You need someone on your side of the table to interpret the questions for you to help you understand the financial criteria that the banks are looking for so that you can see things. You can level the playing field a little bit so that it’s at least somewhat fair, right? Bank holds all the cards, but with our help, with the help of somebody who has done now almost 200 modifications, you get insider street smarts about how to make it work and that’s what we like to bring to the table. But what we always do is start off this teleconferences with some kind of commentary and latest news update and maybe a teaching on a particular part of foreclosure workouts, and tonight I want to talk –
Ryan Rockwood: We should tell everyone before we get started, how they will contact us.
Mike Rockwood: Yes.
Ryan Rockwood: If you’re watching online, you can sign on to the chat that, frankly sometimes work, sometimes doesn’t. If you have a real burning question, go ahead and email it in to questions@60minuteloanmodification.com. We’ll try to tackle it live on the air. Also, if you have to tuned in on the phone, we will try to give our phone callers their due time and switch over there and ask a phone question but that just never goes great because with all the people on the line, all the background noise and that’s not the best way to get your questions. All right, but you got to do what you got to do. You got to operate with the resource that you got available to use, so based on whichever one of those options you can select, do it. Okay. Now, get back to you.
Mike Rockwood: Okay, so tonight I want to deal for a little bit — I want to dwell for a little bit maybe 10 minutes or so and Ryan, I kind of want to draw you into this conversation because I know you feel passionately about this and I really kind of wanted to be a back and forth, maybe a dialogue between us about why this whole housing mess seems so unfair. There’s really been something just kind of nagging at me since the whole thing started. As it grew and grew and grew and as we realize that at the core of it was an awful lot of, oh, the securitization of our mortgages, the globalization of our financial markets acted like a big sucking vacuum that just pulled mortgages out of thin air actually created some of them, actually gave them to people, encourage people to take mortgages and encourage property values up, up, up so that we get more mortgages so that we can sell more. That whole thing collapsed didn’t it? Now as we all American homeowners are left holding the bag. I’ve increasingly become angry, frustrated, and just had this gnawing sense that doesn’t everybody else sense how unfair this all it is, and of course you get plenty of people who says, “Yes, those bunch of dummies getting those subprime stated loans, buying more home than they could afford.” The people that I call smugglers, I called them smugglers now because, gosh, they were so smug sitting on the sidelines in the greatest housing run up of all time, of all time, of all time. Did I say of all time? We have just experienced the biggest run up of all time and the biggest collapse of all time in the real estate world in the history of mankind.
So the people who sat on the sidelines smug. I’m telling you, they did so because they couldn’t afford to get in. They did so because they didn’t have the nerve to get in or they did so because they didn’t have the brains to get in. Give me a break, to not have gotten in on the housing boom in the last 15 years. If you didn’t do it, you simply are what I call a smuggler. Now, you sit back and you point fingers at people who got caught with all that real estate. Well, okay. But –
Ryan Rockwood: Well you know the other thing is that there is a trace amount of — I don’t know how exactly to describe it but we’re so — it seems like here in — I really don’t know if it’s our country but certainly in our society. We’re so eager to hate ourselves as we hate people who fail. It’s just like the question is these people who are criticizing you today are just making it.
Mike Rockwood: Yes.
Ryan Rockwood: About to fail — they’re tomorrow’s failure.
Mike Rockwood: Yes.
Ryan Rockwood: You know what I mean? They just haven’t admitted it yet. So anyway, what I mean to say by that is all this is basically, I think what you’re doing is setting us up to talk about this article, this academic paper. They kind of touches on some really powerful topics, right?
Mike Rockwood: Yes.
Ryan Rockwood: Well, I mean basically the whole idea being — I mean, I don’t know anything how we got here. I don’t know how it happened. I don’t know who’s to blame. I don’t know whatever. But I can sit in this particular situation from right here where I am and say okay, I have a house that won’t return to its value for five years and to hold it for five years is going to cost me, I don’t know $100,000 in holding cost more than it would to rent. I can say I mean, am I — is there any reality to me being able to carry this housing burden personally, the American — I mean, there are government programs to bail out banks because everyone knows a bank can’t carry it, right. Everyone knows the bank can’t.
Mike Rockwood: Right.
Ryan Rockwood: Bear the brunt of it. Everyone knows that insurance companies can bear the brunt of it. Countries, their treasury bonds can’t bear the brunt of it, whatever, right. But somehow the American…
Mike Rockwood: Yes.
Ryan Rockwood: Is making 30 grand a year, is supposed to be…
Mike Rockwood: Yes.
Ryan Rockwood: The one that the dog that carries that thing home.
Mike Rockwood: Well, let me start by kind of setting the stage and a little bit of a preamble as to how bad the situation really is because most of us are so optimistic that we really don’t like to look at how bad it is, and I don’t either but let’s just talk about for a minute. Right now, today, 15 million homeowners are underwater. That’s about 1/3. So as you look down your block, about 1 in 3 is underwater. They owe more on their home and their home’s worth and most experts agree that by this time next year it will be 50%. Don’t be fooled. We’re not at the bottom. Housing prices have not stopped to decline. The foreclosure rate continues to be strong, so most experts are agreeing we’re going to get to 50% where every other house on the block is upside down.
Now, this kind of hides the fact or kind of masks the fact that in certain states like Florida, Arizona, Nevada, Texas, California, the rates are almost double that and already almost 70% of the homes in Nevada are upside down, 70% are upside down. So and many — because the homes in a lot of — in the states were so expensive, you know what I mean, these are the states that really climb high by 2005. So a lot of these homeowners are upside down by more than 3 to 5 times what they earn in a year. So let that sink in for a minute. They are upside down more than traditionally we have recommended people even borrow to get a home. They’re upside down by that much, much less owing that value on the home. They’re upside down by that much. Let it sink in. As you let it sink in, it should freak you out.
Ryan Rockwood: But to the extent that homeownership is no longer — I mean, when we get to 30% and 50% underwater, our perspectives of homeownership has to change so much so that when you meet someone at the park, then say, oh, we own our home, it’s like telling someone that’s bad freaking news. You know what I mean? It’s going to be shocking to the extent of, oh God, you own a home. That’s not necessarily good news.
Mike Rockwood: Right.
Ryan Rockwood: I mean it is news.
Mike Rockwood: Right. Okay, so — but with such high instance, and remember I said 66% in Nevada. With such high instances of people being upside down, only 3% are strategically defaulting. A strategic default — all of you should get familiar with that term because this is going to become really popular — what that means is that people just playing the side not to make their payment for either because they’re going to decide to leave the home or because they’ve decided they need to do that to get to negotiate, to get the lender to negotiate with them in good faith for a short sale or for a loan modification or a deed in lieu or for whatever. So get a load of that, 50% are going to be upside down yet only 3% are walking away. Why is that the case? Well, we can think of several reasons off the top of our head.
Number one is we love our homes. We really do. We have a crazy love of home. Number two, it costs money to move, right? It’s a hassle. Number three, Americans are eternal optimists about home values. After all, it’s been the way. It’s been this way all of our lives. Homes have appreciated all of our parent’s lives, all of our lives. It’s always been a good investment. We have a hard time starting to realize that things have changed.
Then there are three reasons that maybe you haven’t thought of. The first one is we’ve never experienced this before, nobody has and we don’t know how we think about it yet. Then there’s the desire to avoid the shame of foreclosure, and then there’s the exaggerated anxiety about the consequences of foreclosure. These last two, avoiding the shame of foreclosure and having exaggerated anxiety about the consequences, are the topic of a paper that I really recommend you get and read if this topic is a whole ethical topic of the morals and ethics of the housing downturn if that fascinates you. The study was done by the University of Arizona Law School, and the study is called Underwater and Not Walking Away: Shame, Fear, and the Social Management of Housing Crisis. The author says that those two things are really — that the government and the banks unfairly coerce homeowners into shouldering a larger share of the housing crisis burden then they should.
That’s what Ryan’s referring to. The mortgage contract is real clear. Homeowner make payments or else bank take home. The bank rather than just exercise that legal contract, we get into quite at tizzy because of those factors. They’re socially managing us into shouldering a burden that they’re not willing to shoulder. In other words, if it’s financially beneficially for them to foreclose on your home, they simply do whether you’re a single mom, whether you’ve lost your job, it doesn’t matter the morals or the ethics of it. The legally binding contract is as stated and the bank is expected and none of us judge them morally or ethically. But somehow for individual homeowners, we judge them morally and ethically and we say they’re doing a shameful act or an immoral act or an unethical act. But the authors identify many current proposals that I wasn’t aware of for handling the crisis. You’ll get to kick out on some of these Ryan.
Ryan Rockwood: Oh yes?
Mike Rockwood: Then the authors do have their own recommendation which I am going to become the number one proponent. I’m going to start writing about it. I’m going to start really becoming an advocate of it. Okay, so the first one is should the government in fact be sending money to homeowners instead of to the banks? Would it have been better to have establish or could still be better to establish some kind of fund that would allow — that would either subsidize payments to do the same thing that the banks are doing with homeowners or to actually write down principal, which is something the banks are not doing? Would that have been smarter than to just give banks money that you know by the way that they have not lent the money to homeowners or small businesses, right?
You know that they haven’t passed that money along. I mean, just so we’re clear. That money was used to get a return in 12 months big enough to pay it back and that money was not used for the intention that it was lent out or that it was given out. So that’s the first proposal.
A second one is that we should empower the bankruptcy courts to cram down just like they do on car loans or other installment loans. They can cram down and that proposal has come around a couple of times in the legislature, but the banks have successfully lobbied against it. So that would enable a judge to look like in Chapter 13 and say as they reorganize their debts, I’m going to take that mortgage down from, say, $750,000 on the single family home in Riverside, California down to 85% of today’s current market value, $185,000 in Riverside, California. So what’s good about that proposal is, I mean, that’s what eventually has to be done. That’s what happens when the bank forecloses and resells it anyway. But that would allow the bankruptcy courts a great deal of power. People would flock the bankruptcy. The bankruptcy would be overwhelmed and it would also limit the relief to people who can qualify for bankruptcy. A lot of us cannot because we have a good steady income.
A third proposal is a prepackaged cram down that we could just apply for without going to the bankruptcy, without actually filing bankruptcy. So you got the same kind of cram down but you just apply for it by zip code.
Ryan Rockwood: Oh, that would be cool.
Mike Rockwood: Yes. So here’s — the proposal was that if your zip code has declined by more than 20%, your zip code qualifies. Everybody within the zip code could apply for one of these prepackaged cram downs. The cram down would require that your lender write down your mortgage to 85% or 80% of market value. So some of these things are just absolutely powerful and they kind of turn the current.
Ryan Rockwood: But where are these recommendations from?
Mike Rockwood: These are from various academic sources that have…
Ryan Rockwood: Looked at it.
Mike Rockwood: Submitted proposals to congress.
Ryan Rockwood: In his document that we found, they’re presented?
Mike Rockwood: Well, no. He just references them because he builds up and talks about pros and cons of each of those, but then kind of builds up to a proposal that he thinks is even better.
Ryan Rockwood: Okay.
Mike Rockwood: So this prepackaged cram down one I think is really, really sweet. But you see what these three have done so far is they kind of turn everything on its ear. They kind of say, power is no longer only the hands of the banks to make us afraid of our FICO score, to make us afraid of the shame of foreclosure, but it kind of just turns things on its ear.
The fourth one is at least the government should fund a massive educational campaign and a PR campaign to retrain and educate people that it is not morally and ethically wrong to walk away from an upside down mortgage. See, the author feels like the government is unethically supporting the banks by allowing them to — I mean, they got this big FICO monster that they sick on us.
Ryan Rockwood: Well, that what I feel like too because you get the impression that the President is trying to save the banks.
Mike Rockwood: Yes.
Ryan Rockwood: You know, like I mean, I know he’s trying to save housing through the banks.
Mike Rockwood: Yes.
Ryan Rockwood: But you still get the distinct impression that hurting your bank would be hurting the housing economy.
Mike Rockwood: Right.
Ryan Rockwood: In fact, I heard one lady at NPR say how she came to that thinking that she’s just going to walk away and people wrote in and said is that kind of selfish — she was way underwater.
Mike Rockwood: Yes.
Ryan Rockwood: It was never going to make it back.
Mike Rockwood: Yes.
Ryan Rockwood: She was just going to walk away and no other options. But that is a good option.
Mike Rockwood: Yes. The offer goes to great length. In fact, there’s a whole section of the study that makes it very, very clear that it’s a smart financial decision and it’s best for your family, it’s best for you, and ultimately maybe best for society.
Ryan Rockwood: It can — yes.
Mike Rockwood: Yes.
Ryan Rockwood: In two years he says –
Mike Rockwood: Yes.
Ryan Rockwood: — you can buy another house.
Mike Rockwood: Yes.
Ryan Rockwood: She was kind of like…
Mike Rockwood: Yes.
Ryan Rockwood: What other option is there that doesn’t cost you anything? There’s no paperwork or –
Mike Rockwood: — or you scoop a quarter of a million dollars.
Ryan Rockwood: Yes.
Mike Rockwood: Yes.
Ryan Rockwood: Also, people wrote in and they said — one guy said is this kind of selfish out for themselves thinking they got us into this kind of mess in the first place. I thought, well, I mean…
Mike Rockwood: Yes.
Ryan Rockwood: I guess.
Mike Rockwood: But it was. There are the banks.
Ryan Rockwood: Yes.
Mike Rockwood: Okay.
Ryan Rockwood: So again, we’re asked. You’re right.
Mike Rockwood: Yes.
Ryan Rockwood: So we’re asked to shoulder the burden there.
Mike Rockwood: Yes.
Ryan Rockwood: These are people that cannot.
Mike Rockwood: Yes. So you go to green lights to look at the mortgage contracts. You realize that it really it should be a shared equity kind of situation. I mean, the equity went away and if you want to, the government — he says, he proposes that the government at least should enter into a very expensive and aggressive educational program to make all of us understand that this is purely a business transaction that you’re in with the bank. He recommends — his best recommendation for what to do is to level the playing field a little bit by at least preventing precluding the banks, preventing the banks from reporting mortgage lates and defaults and foreclosures to credit bureaus.
Ryan Rockwood: Wow.
Mike Rockwood: Yes. He says that, at least, or take away this ethical, moral baton that they’re being us with and so then at least homeowners would say, well, we’ll give us some more clear picture on what the implications are in terms of defaulting and walking away from these loans. I’m telling you, my mind has been in this place for so many months that to read this report is just like — it’s like how when you read some holy word or something and it just exactly says exactly what you’ve been sensing or feeling or knowing deep in your soul. That’s how I am with this darn study. It’s just like every page is like yes, yes. So for those of you who have been laboring under the burden of the shame of foreclosure, the shame of the reality that you’ve been casts into.
Ryan Rockwood: You know, there’s even that resistance to doing the loan mod because…
Mike Rockwood: Yes.
Ryan Rockwood: It’s kind of like I don’t want to be a person who…
Mike Rockwood: Has to [Inaudible] [0:28:17].
Ryan Rockwood: Yes.
Mike Rockwood: Yes.
Ryan Rockwood: I don’t want to that puts me into a category that I’m uncomfortable with.
Mike Rockwood: Yes.
Ryan Rockwood: You know.
Mike Rockwood: Yes.
Ryan Rockwood: They say these 81% of people feel that it’s unethical to somewhere in there to not make a mortgage payment.
Mike Rockwood: Well and here’s –
Ryan Rockwood: You know, I don’t think that — I mean, I think that it’s good and kind of neat that people are challenged by these issues.
Mike Rockwood: Yes.
Ryan Rockwood: You know what I mean? It’s just that I don’t like — I guess like most religion — you know I don’t like where most of the people come out.
Mike Rockwood: Yes.
Ryan Rockwood: Where most of this flushes out.
Mike Rockwood: Yes.
Ryan Rockwood: I think you kind of fall a little bit short in a way of, I don’t know, mental effort or something like that. You know what I mean? You don’t stop thinking about right away.
Mike Rockwood: So anyway, we want to encourage all of you to press on. Press on with you workouts. You are about the business of taking care of your finances. Don’t be dissuaded by the fact that — you know, the paradigm that you’re working in says that there is some shame to default, that there is some shame to foreclosure. Don’t believe it. Reject it. It’s a new paradigm. It’s a new time. Think outside the box. Take care of issues.
Ryan Rockwood: Yes, and not to get to like, I don’t know, like what would be the word? I don’t know not — the conspiracy theorist or something like that — you know, this is where shame of fear really start to become tools of mind control –
Mike Rockwood: Yes, sure.
Ryan Rockwood: — and of slavery and of oppression. This is where the radical American, in a sense, really has a possibility of — our minds, I think, can probably cut through a little bit easier than some other society because we’ve said “heave ho” we’re not going to be part of this government anymore.
Mike Rockwood: Yes.
Ryan Rockwood: We’re not going to be part of this tax system anymore. Those are big bull steps –
Mike Rockwood: No taxation without representation.
Ryan Rockwood: — of redefining our reality. Lots of people and lots of parts of the world said, oh, this sucks.
Mike Rockwood: Yes, and just go about their lives.
Ryan Rockwood: Yes. But there is something about American mindset that can overcome this.
Mike Rockwood: Yes.
Ryan Rockwood: Now, there’s the competing issue of the conservative religious whatever we have that’s going through our society. Not that that’s bad but that is going to be competing, I think, on a level of saying morally this, morally that whatever. But I think that you really have to — it is your duty of some level that says what I’m feeling is shame.
Mike Rockwood: Yes.
Ryan Rockwood: I am embarrassed to feel to let my life be ruled by shame. You know what I mean? I want to stand for it and I see it as what it is and that is a tool of powerful.
Mike Rockwood: Yes. I can’t tell you how important I think this is because I think this kind of stuff just sets you free to all of a sudden because not only on foreclosure, not only real estate related but Ryan and I are over-freaking-whelmed by the credit card debt that people are carrying. People that are joining the Credit Card Cure Co-Op, unbelievable. People who earn and $30,000 and $40,000 a year with $40,000 and $100,000 and $150,000 in credit card debt just finally getting to that point where they can’t make the monthly payment and we’ll say to them, who can’t make the monthly payment, “Goodness, goodness girl. Look at your situation,” and we’ll run the math for and the light will go on and she will realize that she would not have paid off this debt in 25 years. Twenty-five years she wouldn’t have paid it off, and it would have been three and four and five times what she had borrowed to buy those things so –
Ryan Rockwood: People are really going to really undervalue their own life.
Mike Rockwood: The craziest of it is that — yes.
Ryan Rockwood: They’re really eager to say –
Mike Rockwood: Oh, I can do that.
Ryan Rockwood: Well, my life could be spent paying off US Bank.
Mike Rockwood: Yes, how noble is that.
Ryan Rockwood: That sucks dude.
Mike Rockwood: It does.
Ryan Rockwood: Yes. I tell you what if — I mean –
Mike Rockwood: See, we got tricked and all.
Ryan Rockwood: If you love US Bank that much, listen, you made a mistake.
Mike Rockwood: Yes.
Ryan Rockwood: It’s that simple. I mean –
Mike Rockwood: It is that simple.
Ryan Rockwood: It could have got a different way.
Mike Rockwood: You got duped, man.
Ryan Rockwood: It could have got in a different way.
Mike Rockwood: Yes.
Ryan Rockwood: It didn’t. We got a mortgage at the wrong time and some stuff happened and you suck it up. There was this one world famous psychologist I read about is retirement party in New York Times a couple of years ago — New York a couple of years ago — and he swears like a sailor and used the “F” word. But he said he was just so sick of people. He said every single person — he’s super famous, right, for like pioneer and all that stuff. He said every single person at the end of every single session, all you could say — all you have to do is look at him and says, “So you’re F infallible.” What did you think, you weren’t. They’re just so distraught. I made a mistake. The way I treated my son, my dad, my whatever, you know what I mean?
Mike Rockwood: Yes.
Ryan Rockwood: He says, “So you’re F infallible.” I’ll tell you what, to everyone in the whole world except you. That is not a surprise. You know what I mean?
Mike Rockwood: Yes.
Ryan Rockwood: You better stop. So move on with it. I don’t think that trying to buy that three–bedroom, two-and-a-half-bath-home is such a bad thing that you try to do that you need to commit the rest of your life to economics, servitude. But if you do, I don’t know. We’ve got to get a membership program to help those people to do. So at least…
Mike Rockwood: All right, we’ve talked.
Ryan Rockwood: All right, we beat that.
Mike Rockwood: But honestly, this is going to become my kind of sidebar for me. I’m always going to be talking about this topic because I think three years from now most people are going to be going, well duh. Why didn’t we see that three years ago? I honestly think this is kind of getting comfortable with a new paradigm, and I think this particular author helps us to see much more clearly what’s going on and when you can see things clearly, you can take appropriate action when you’re duped, when you’re blinded, and you’re handcuffed, you don’t take appropriate action. Appropriate action is going to be messy, it’s going to be dirty, it’s going to be painful, but oh man, it’s going to sweet when we get through it.
Let’s go to some questions. Okay, Mark had asked about how long a short sale will take. Hey Mark, the truth is you just never know and to some extent is it up to you. In fact, I just sent off a short sale packet to the bank for a homeowner in Fort Lauderdale, Florida who last — let’s see, today is Tuesday. It was Friday that he listed the property. He hired me to short sale it for him. I listed it with the local representative last Friday, and today we already have an offer and it is into the bank. So he will probably be out of that property 45 days after he decided to sell it. I have one closing in Southern California on the 16th of February that will have been two years and two months since that homeowner decided to stop making payments and to sell the home short and everything in between. So really to a larger extent it is up to you. You can make it go as fast or as slow as you want. Some people want it to go very fast because they feel like it’s painful. Some people want it to go very slow because they want to stay in the home or they want the renter to continue to pay them rent to try to recoup a little bit of their lost downpayment or sweat equity or whatever. It’s all up to the seller to some extent — the lender — just because the lenders are so swamped. So that’s the answer to that, Mark. It goes about as fast as you want it to.
Then Tim asked. He’s in Florida. I know who asked this question. He says, “Is it 100% certain that we’re going to have to accept some of the shortfall in a promissory note or bring money to closing?” The answer to that Tim is no, it’s not 100%. Here are the factors. In states where the values have fallen so dramatically and banks have the right to hold you personally liable for the loan, an awful lot of those, the banks are, especially on second mortgages, asking for some kind of settlement. In other words, they’re asking the homeowner to take some share in the loss. Sometimes they ask for you to take as much as 25% or 30% of the loss. Sometimes it’s much less. They’ll very often offer you a promissory note at 0% interest spread across many, many years if you want that. But here are the factors that dictate whether or not you can get away without accepting some of the loss. First of all, if you have private mortgage insurance, you’re going to find that that was a two-edged sword. It’s good that the bank had insurance but it’s bad for you because now that insurance company is going to negotiate — I mean, they’re going to negotiate like crazy to not let the bank accept too short a deal and not allow you off without taking some of the burden. So that insurance company serves them. It was their policy that you bought for them, so I guess it does what it is intended to do.
Secondly, if you have assets, if you have a large CD or you have great big savings account or you have a lot of real estate wealth other than the home you live in, you could be — it could work against you because the bank knows exactly what your assets are. Don’t think for a minute you can hide anything from them. So if you have a lot of assets or if you have a real high income, they’re likely to insist on a promissory note. So those are the factors that really make you a bad candidate to get away without paying anything. I currently got a client who in Florida, this one is in Port St. Lucie, who says that’s fine. I’m on retirement savings which is a retirement income which is protected. I have only 401K wealth, nothing else that’s protected. So he actually can’t pay anything other than from his pension. So the lender can’t get any money out of them and I fully expect him to be able to walk away without taking any kind of promissory note. So that’s how it works, Tim. Of course, in states that are completely non-recourse on your primary residence with very, very few exceptions, you cannot be held personally liable. So like in California, you can walk away from that bad situation and they forgive the amount and they cannot pursue you and hold you personally liable. That’s the goodness. Okay, you got some other questions coming through?
Ryan Rockwood: Yes, an interesting one here. First of all, I want to tell everyone that there are some blue buttons on the video page where you can schedule an appointment and if you need to schedule your free appointment for clients, go ahead and go there and schedule it. There’s a drop down on the upper left. Once you go there, then you can select at it. If you need — if you’ve already done your appointments, still want to talk or you’re thinking about buying a product that you want to talk, you can schedule a half an hour appointment and pay for it right there on the calendar. It’s like the time slot. Okay, it’s the best way to talk to us about something complicated.
Anyway, I’ve got this from Richie. He says that he got a loan mod from B of A, but he’s disappointed because it’s not good enough, he feels. So he started the short sale process with the realtor. He still going to try to get a better loan mod and reapply during the process but he’s relying short sale for now. So I think this is smart. What this guy is doing here is he’s saying, hey does it cost me anything? Keep the short sale thing working and up in the air. So why don’t I do that at the same time? I’ll pursue whichever is best for me. He says he owes $150,000 on a house that’s worth $100,000, so that’s a tremendous amount of equity to make up. Getting rid of something like that, that’s never a bad thing pretty much. But anyway, so he’s saying, “How do I delay getting Notice of Trustee Sale so I don’t get foreclosed on while I’m in the short sale process?” They don’t yet know I’ve started the short sale process. I just told them I got to reapply for a loan mod, seven months delinquent right now.
Mike Rockwood: Whoa.
Ryan Rockwood: Yes. So what should I do to keep foreclosure from Bank of America? Da-ra-da-da-ra-da-da-ra-da-da-da.
Mike Rockwood: Well, the good news is, it’s Bank of America, right?
Ryan Rockwood: Yes.
Mike Rockwood: Because they are so swamped that they’ve started subcontracting everything in fact. They even subcontract the analysis of short sales now, but so that’s the good news. It’s Bank of America, Richie. They are really, really still very messed up in terms of just being overwhelmed with the work load.
Ryan Rockwood: We’ll say though, with Bank of America, we have had some cases recently where people doing the dual thing, the short sale and loan mod thing that we have — we always suggest the people to do that. They’ve kind of got the door slammed shut on that, which I think for you is fine. If — what you’re going to have to do to get this thing as — I mean, you’re going to have to commit to one thing or another. Probably, right now, the best thing is to ditch that loan mod and tell them you want to short sale it and get them an offer in the next couple of days. If you say, “Well, how do I get an offer like this?” Lower it by 10,000 everyday until someone comes in that’s a solid buyer that could complete the transaction, okay. This is how you do it.
Mike Rockwood: So you know, the key is if you’re going to run a loan mod and short sale at the same time, you don’t — unless for some reason you need to — don’t tell the bank that you’re doing a short sale because you don’t care. First of all, it’s none of their business. You own the home, and you don’t care. You might not get an offer for three months. So get out there and figure out what the home is going to — what kind of offer you’re going to get from a good buyer. Ryan’s point is very well made. The key is a good buyer not a good price. You got to have a solid buyer and then make the decision. Once you get the offer, make the decision if you want to cut the cord on the loan mod because Bank of America does make you do that.
Ryan Rockwood: Okay. So, and that is just for what it is. I mean if — it all depends — if you’re seven months in, maybe you already had a Notice of Trustee Sale in the past. Now if so, it’s all a different ball game. You need to send them an offer tomorrow and tell them you’re doing a short sale. You can’t screw around, right. But if you haven’t gotten any of that yet, you could still apply for a little while but really I don’t see the value. You know, you’re 30% upside down on the house, 35%. So might as well go to rather the short sale when you have a good offer in on the short sale.
Mike Rockwood: Yes.
Ryan Rockwood: They will wait but not until then. Like my dad said there’s not even any point in telling them until you have a good offer.
Mike Rockwood: Okay Linda asks how much does a forensic loan audit cost and do you think that’s a good investment? I do Linda, and in fact, we offer forensic loan audits through our site. We have a company that we recommend, that we highly recommend and the cost is still just little less than a thousand dollars. I used to think that was too much and not really a good value but in the last six months or so, I’ve really come to be a real advocate of forensic loan audits because it has become harder and harder to differentiate your application and it’s become more and more and more critical that you do. So a forensic loan audit, I think is a good investment particularly if you’re looking at saving $500 to $1,000 per month on your modification.
Now, what I do on modifications for people who hire me to do their modification, I always perform my own do-it-yourself loan modification and I identify kind of low hanging fruit and I include that with my loan applications. So it has become an integral part of my whole modification effort. But I particularly recommend it to people who have really big mortgages like the big jumbo ones. Certainly if you have a mortgage of over a million dollars, I mean that’s a jump change compare to what you’re going to be able to save and a lot of times because you’re not going to be in on the Obama administration’s incentivized modifications because your loan is jumbo, you’re going to need that extra power that extra horse power to get your modification done. So modification — forensic loan audit will cost you like $1,000. That’s about as cheap as they come to maybe $3,000 max. But then if you find all kinds of violations, which you very likely will, you’re going to have to pay $3,000 to $5000 for an attorney to handle the modification for you because it’s really — it kind of goes hand and hand. If you got those big violations, you might as well pull out the big hammer and nail it down, okay.
So then Tim says, “Why are deeds in lieu not working? Why don’t you talk more about that option for foreclosure workouts?” Well, the reason that they’re not working very well is because prices have fallen so much that the banks are reticent to accept the home as deed in lieu because then they realize they just have to go through the same process of a short sale or the foreclosure that you have to go through and sell the property on the market, and it’s going to be really difficult and they’re going to incur all the costs that you would incur in the short sale or that they would pay for in a short sale or that they would incur if they take the home back as an REO. So there really is no financial incentive for them to do it. The deed in lieu is certainly preferable for you in terms of how it is handled in terms of the lates on your payment and the way it looks on your credit score. So it certainly, from FICO perspective, advantageous and it gets the whole transaction done quickly. But primarily because housing prices have fallen so much, it’s not really being accepted very often, and also the bank doesn’t have in — really they don’t have in-house, the expertise to take property directly from homeowners. What they do is they take you through an REO realtor who has an appraiser and an inspector and there’s a title insurance company there and there’s a realtor insurance policy there. So there’s a lot of money to buffer because there’s a lot of risk in taking out property, right. They don’t really have that in place to take deed in lieu in mass like we’re looking at right now.
Lastly, a deed in lieu is also kind of difficult for the lender because it doesn’t strip other liens. So if you have a mechanics lien, if you have a second mortgage, or home equity loan that is tie to the house, it doesn’t strip off those mortgages so they get the house. Sometimes through a deed in lieu, they’ll get the house and then they’ll still take it through the foreclosure process just to get rid of the other guys. So that’s why has it currently is not great or is not being used broadly. Good solution though. Good one if you can’t get it, all right. How are you doing [Indiscernible] [0:49:06]?
Ryan Rockwood: Good, good. Boy, we got an interesting e-mail here.
Mike Rockwood: We talked a lot.
Ryan Rockwood: I think we talked to this person. This person — death of a parent who helped pay the bills who’s [Indiscernible] [0:49:17], I remember.
Mike Rockwood: Okay.
Ryan Rockwood: Did we talk to this person on the phone in get together?
Mike Rockwood: I think so.
Ryan Rockwood: Now we’re getting a mail, death of a dad in this case –
Mike Rockwood: Okay.
Ryan Rockwood: — who we talked to, but the problem was she already had a really good loan. There’s 3.25 arm interest rate only.
Mike Rockwood: Yes.
Ryan Rockwood: Anyway, they cut it down just by calling with some stuff. They cut it down from 952 to 785 on the phone, no documentation. That’s pretty cool.
Mike Rockwood: Yes.
Ryan Rockwood: I mean it’s not a ton, right? But I mean if you did this, the percentage of it or something, you know it’s not bad.
Mike Rockwood: 20%
Ryan Rockwood: Yes. Then anyway, she’s hoping to get more but anyway I guess I don’t know how to say it. Well, she’s kind of, “What do you think I should do next?”
Mike Rockwood: What we don’t know is we don’t know what your debt-to-income ratio is and that’s critical. Number one, if it’s the home that you live in, that’s really good. Number two, if your debt-to-income ratio is over –
Ryan Rockwood: — or an occupant.
Mike Rockwood: — 31% that’s really good, so do this. Calculate right now your payment, your 785, as a percent of your total household income. First of all, you got to make sure that 785 include taxes. Principal, interest, tax, insurance, and homeowners association dues all rolled into one. One mortgage: Principal, interest, tax, insurance, and homeowners association divide that by your household income. If it is more than 31% then you have a really great chance of getting an even better modification than this one, okay. So those are the two factors. You live there, and Ryan says you do. Then it’s your debt-to-income ratio is the next one, and that’s called the front-end DTI, all right?
Ryan Rockwood: All right, maybe we should sign off.
Mike Rockwood: Yes.
Ryan Rockwood: Because I get beat up.
Mike Rockwood: We talked too long I guess.
Ryan Rockwood: Yes. Well, thank you all for hanging in there with us. Congratulations on getting a week closer to getting your own housing financial problems out of the way and gone. My name is Ryan Rockwood, and again I’m here with my father, business partner, Mike Rockwood. We’re here every Tuesday for everyone. For clients, we’re here on Wednesday. Also we’ve had –
Mike Rockwood: No, for clients we’re here on Thursday.
Ryan Rockwood: Thursday. Also on Wednesday, we have a really exciting class. We’re teaching people how to get rid of their own credit card debt. It’s very exciting. Last week, we had one guy settled $20,000 with Bank of America for $9,000 and instead of getting wrapped up and imbedded with some kind of weird shady debt settlement company, you just talk to us once a week and pay us 20 bucks a month. So it’s a pretty good deal. All right, check it out. It’s at creditcardcure.com and we’ll see you next week. Thanks a lot.
Mike Rockwood: Good night everybody.
