Foreclosure Buzz

I did not just want to pick on poor MSNBC for their foreclosure prevention advice (previously reviewed here)…

LOS ANGELES, California (CNN) — With foreclosures and bankruptcy affecting millions of homeowners, CNN’s Larry King on Tuesday talked to several experts in the real estate industry to get advice on handling the mortgage meltdown. (complete transcript here). 

King: Suppose you have to sell.

Corcoran: There’s one way you can always sell a house in any old market. You can intentionally under-price it. If you go out to your own marketplace and intentionally under-price your home 20 percent to 25 percent less than you think it’s worth, or that a credible appraiser tells you it’s worth, you will sell that house within the week. There’s no such a thing as an unsellable house. It’s always a question of numbers.

Well, that will really solve the foreclosure crisis — just sell your house cheap before the bank does!  Brilliant.  Problem solved.  (Of course the new buyer, and his lender, will not mind that there is a prior lien on the property because the purchase price is not enough to payoff the underlying debt.  No prob.  Wait, that is a problem actually.  So, people cannot sell their homes for less than the amount owed on them. Therefore, if that amount is more than the current value, the owners are stuck.  They cannot sell and they cannot refinance out of an abusive loan.  And unless it is a second home or a vacation home, even a bankruptcy judge cannot change the loan terms to make the loan affordable. (see article)  Which is why all these bad lending practices have surfaced — the current value of the homes have depreciated.  But I am no expert.)

King: What’s the biggest mistake people facing foreclosure make?

Michael Corbett: The biggest mistake right now is when you get that default notice, you ignore it. People think that if they just ignore it, it will buy them more time. It’s absolutely the opposite. The first thing they should do when they get those notices is contact either the lender or go to HUD [the U.S. Department of Housing and Urban Development]. Get a certified counselor. There’s free counseling out there for people, because if you just go ahead and ignore these notices, they automatically trigger legal action. And that moves it faster. If you want to buy some time, call the lender, call a counselor.

Caller: I have a loan with Countrywide, and they will not refinance our interest-only loan, because they say our debt-to-income ratio is too high, and their workout department won’t even look at us because we’ve never been behind on our mortgage and we’re not currently behind. It’s going to reset in August. What can we do?

Corbett: Unfortunately, a lot of the mortgage companies and the banks don’t want to talk to you. It’s very sad, until you’re actually in arrears. Their loss mitigation or their workout department, they don’t want to help you until you’re two months or three months in debt.

King: Barbara has a solution.

Corcoran: I have a solution, and it’s a fall-back solution, but it sure gets attention. You can make an appointment, or not make an appointment, go over there with the deed to your property and the keys to your front door and say, OK, I’ve had it. Here’s my deed, here’s my keys, and you’ll get attention.

One other thing, you should always put your requests by certified mail. By law, the banks don’t have to answer phone calls. But by law, they have to answer certified mail, and a lot of people don’t use it.

Great comment about the problem of servicers not caring until the problem is severe enough.  This is a very serious problem in servicing guidelines that needs more attention, but it is glossed over all too often.  Now the thing about taking your keys and the deed to the servicer in person?  What if lender takes them and says thanks?  Silly.  However, another very nice point about sending certified mail to the servicer.  More about that here.

King: We have an e-mail question from S.O.S. in California: “I got a condo in April of 2005 for $500,000. Now it’s only worth about $400,000. Could I refinance it to get a better interest rate, or should I try to negotiate with the mortgage company to adjust the payment?”

Jorge Perez: I would definitely negotiate with the mortgage company. Lenders are having tremendous problems right now. They have a huge amount of REOs, real estate-owned properties, and they do not want your house or condominium.

We are advising all the people that we know that have those problems to go talk to their lenders, and they will talk to their lenders.

I think one of the biggest problems, nevertheless, is that a lot of people borrowed on variable rate interests when they had mortgages at 1 and 2 percent that grew up over time. And their jobs have not gotten better, and now they’re paying much higher interest rates than when they got their mortgages. And this is a big, big problem in real estate today

How many experts does it take to say – talk to your lender.  The borrower is underwater more than likely (the debt is more than the value) and so it is true that the lender is not going to be excited about foreclosing, but they will do it if the alternative is worse.  (It is funny that when people have equity in the home [debt well under the value] and are hoping to get a workout, the first thing they want to mention is all the equity they have to the servicer.  Here is a tip — don’t mention the equity.  If the servicer knows they can get all their money by foreclosing, and the borrower is starting to default, then guess what….)

King: We have an e-mail question from Debbie in Orlando, Florida: “What’s a family to do if they lose their home to foreclosure? How can they find a suitable place to live? Aren’t they going to be rejected as renters on grounds of poor credit?”

Donald Trump: This is now the time to go out and try making a deal, try buying a house. The banks are there. It’s already financed. You don’t really need the money because it’s already financed. They are already in. They are already wet. I don’t recommend renting now. I recommend now is the time to buy. Buying is much better than renting.

Whoa, the guru of real estate speaks.  His advice is get back on that horse.  Sounds good, but hardly realistic for most I would ponder unless the borrower does not mind a more abusive risky loan than they had before (terms typically given by loan sharks or payday lenders).  And buying is better than renting?  It depends on costs, doesn’t it?  Owning your home may be best in some circumstances, and other times, renting may be better.  If you cannot afford to buy a home using standard financing, then don’t. (Barring special circumstances, stick to a fixed rate, 30 year loan, and if in doubt, escrow monthly with the lender so they pay the property taxes and insurance each year.)  However, Trump is the expert.  Didn’t his companies file bankruptcy a few times?

King: What’s your advice, Robert?

Robert Kiyosaki: Back in the ’80s, I got my butt kicked in the market. That’s when interest rates were about 18 percent to 20 percent and I was trying to make deals at 18 percent to 20 percent. And it really taught me a good lesson that I had to get smarter. So when I got pounded in the late ’70s and early ’80s, I at that point said I better get smarter, and today, I have made millions of dollars because of a bad experience.

But if you’re not — if you don’t learn from the experience and you think the government is going to bail you out, then you’ve wasted a big opportunity to learn something.

Very helpful — what don’t kill us will make us stronger.  Ok, not really very helpful.  I wonder if he was ok with the Bear Stearns bail out?  How about the New Deal?  Should we all just suffer and learn?  Whatever. What about laws to prevent this from happening again?  Nah.  The market will never let this happen again.  We don’t need government interference.  Right.  

So to sum up the panel’s advice on dealing with the mortgage crisis:

• Sell your home at a loss
• Talk to your lender
• Talk to a counselor
• Take your keys to the lender
• Talk to your lender
• Buy another house
• Learn something from the bad experience

Remember, this is from the experts.  Scary.  No wonder we have a crisis.

Filed under: Advice for Borrowers, National Foreclosure News