Friday, May 4, 2012

Better off letting it go

Cruising the web I ran accross this article that mirrors what I have been telling people for the last 5 years.  GET OUT!  All the mod programs are not designed to help the home owner. Put your emotions aside and look at the numbers. The people that have let the homes go are the ones that will come out ahead in the long run.

Here's the article (sorry it's a bit long)

I am trying to get your attention. I hope my headline is successful.
Struggling Homeowners, Professionals & HUD Counselors PLEASE READ THIS;

The Board of the Housing Opportunity Collaboration of the Inland Empire (HOCIE) and many others around the country, including the infamous NACA (Neighborhood Assistance Corporation of America) have a heart of gold, but are seemingly unwilling to listen to sound underwriting advice. Instead, it was full steam ahead with a; “save the dream” and “save homeownership at all cost” agenda that the banks LOVED and so they continued to fund their activities while lobbying lawmakers to make private sector professional assistance illegal. It’s worked beautifully.
LPS (Lender Processing Services) REPORTS 47% OF NEW FORECLOSURES WERE PREVIOUS FORECLOSURES. *See page 13 of the most recent Mortgage Monitor report*

The Make Home Affordable Program reports monthly what the average over all debt percentage is for a borrower AFTER they receive a modification. Currentlyit’s 60%! It has been around 63% over the last year. *See page 5 of the most recent Make Home Affordable report* Historically, banks/underwriters knew a back end ratio greater than the low 40’s was simply not sustainable. And yet, under the guise of helping to retain homeownership, banks, with the help of HUD counselors are putting people into modifications that based on statistical data, ARE HIGHLY LIKELY TO FAIL. Why would they do that? Read on…
The banks analysts are in my opinion, smart. They know many will not be able to sustain their payments unless there is a dramatic increase in household income. For most, this is not likely. Most HAMP modifications, as well as the look-a-likes, have an interest rate that will rise beginning on year 5, if the borrowers income does not go up commensurate with the payment increases, they only postponed the inevitable.
On a $250,000 loan, with a 2% interest rate fixed for five years with a 30 year amortization, a typical modification will see this rate rise to 3% on year 6, 4% on year 7 and 4.75% on year 8 today. Once it reaches the 4.75% it will remain fixed for the remainder of the term. The principle and interest payment in this example would go from $924 to $1,304, THAT’S A 141% PAYMENT INCREASE FROM YEARS 5 TO 8. IF THE AVERAGE BACK END IS ALREADY AT 60% JUST HOW IN THE WORLD DO YOU BELIEVE THEY’LL BE ABLE TO HANDLE THE PAYMENT INCREASE? In many cases they won’t and are not and the banks know this in my humble opinion. So why are the banks doing this?

If the banks can stagger the losses and keep the cash flows going, the investors continue to keep a favorable rate of return, the banks don’t have to foreclose and have more unsold inventory, or more homes to care for. They can take the properties back, or encourage a short sale later when the market is better. This is nothing more than managing a large portfolio of high risk loan pools.

I don’t blame the banks. It’s just good business to do this. I blame those who are taking money from them and have the public trust and burying people in debt that they’ll eventually have to get out from under anyway. Worse, the longer they wait, the less chance they’ll be able to participate in homeownership at these favorable rates and prices.

The National Home Builders reported that for every 1% increase in future interest rates, we’ll lose approximately 4-5 million American buyers, the majority of which are minorities. As they make less, on average, they’ll be the first ones cut out of the housing market as rates rise. Again, under the guise of helping, we are putting minorities in a position that will financially set them back for decades and in many cases permanently harm them to a degree that they’ll never recover from.

Homeownership for most Americans is the greatest chance at financial independence, but not when the home has gone down by 50% and must go up 100% just to break even, especially when the borrower, based on proven metrics, can’t afford the debt.

I teach HELP Professionals WE MUST NOT stand idly by and do nothing. Realtors, Realtist, agents & others must knock on doors and somehow reach more homeowners and get people to listen. Sitting in a home you can’t afford and are going to lose eventually is only hurting YOU, no one else. A loan mod that puts a Band-Aid on a gunshot wound is silly.

The National Home Builders reported that Whites score 20 points above Blacks & Hispanics on the affordability index due to making more on average. Further, the Bipartisan Policy Center reports that homeownership rates among African Americans & Hispanics fell more sharply in 2010 than among white non-Hispanics, with a 44.3% homeownership rate among black households in 2010 compared to 45.2% in 1990. The center’s latest report found that there is now a 28% point gap in homeownership between white & black households, wider than the divide in 1990. A separate study from the Pew Center found that between 2005 & 2009, Latinos lost two-thirds of their median household wealth while blacks lost more than 50%.

The greatest opportunity to reverse the trend is to get some of these folks who are not making a payment to short sell, short sell and then lease back and begin the healing process so they may buy while the prices and rates are artificially low. Otherwise, many will NEVER be a homeowner in their lifetime as rising interest rates will lock them out.

This is an opportunity to make a difference. If you’re a HUD counselor, or other professional who cares deeply, please call me. Have me come to your office and go over the numbers with you. Unwittingly for years, you’ve been only helping the banks and the investors. The banks, with the help of the Feds in a; “throw the baby out with the bath water “ action, made it virtually illegal for anyone in the private sector who is honest to help homeowners with sound advice.

I applaud the love and kindness shown to those in need. However, the lack of understanding of the manipulation that is occurring is hurting those you wish to help the most.

*Chris Sorensen’s opinion only. I am not speaking on behalf of HELP’s Board of Directors* I offer my strong opinion here due to my concern that the disparity between the haves and the have nots cannot and must not continue to grow at is current trajectory.

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