Virg Bernero – joins Ken, David, Brian and Special Guest – Mark Brewer – Chairman of the Michigan Democratic Party – learn Virg’s views on foreclosure, the housing problem, jobs in Michigan and creation of the Michigan Main Street Bank – Click here to listen -
Part 1 of 3 (Virg joins in at end)
Click here for the Video Interview
Updated: Thursday, 08 Jul 2010, 6:49 PM EDT
Published : Wednesday, 07 Jul 2010, 4:23 PM EDT
By ROBIN SCHWARTZ
myFOXDetroit.com
SOUTHFIELD, Mich. – The state says help is on the way for Michigan’s hardest hit homeowners. $154-million in federal aid will save thousands of families from foreclosure. But there’s not enough money for everyone, and you have to act fast to apply.
You don’t have to look far to find a foreclosed home. They are in just about every neighborhood, but the state says about 17,000 Michigan homeowners will get help to prevent a padlock on the door. We’re one of five states getting an Obama administration Hardest Hit Fund.
The first big question is who qualifies?
“If you’re unemployed it will help to pay your mortgage payments while you are looking for a job. If you are somebody who has had a medical emergency, we want to be able to allow for us to cash you up on your mortgage so that you’re not put out,” said Governor Jennifer Granholm.
We caught up with Granholm at a Habitat for Humanity building project.
“There is help being offered. You got to take a positive step, and you’ve got to look to do something,” said Ken Gross, a financial crisis attorney in Bingham Farms.
He says there’s a big catch to all of this. Mortgage companies have to agree to sign up for the program. That will start to happen on Monday, July 12, but not all mortgage companies will participate. The state says people should keep checking their website at www.michigan.gov/hardesthit. You can also call 866-946-7432 for more information.
While the plan sounds good on paper, Gross is skeptical about how many people will receive help and how long it will take to get approved.
“My big question is are they going to be effective in the ability to process these applications and get people the help they need,” Gross said.
He says other recent government programs to help homeowners have resulted in an endless trail of paperwork and only a small fraction of people actually getting help.
Specific details on how to apply for the Hardest Hit Fund are still being finalized.
Making Home Affordable Program Enhancements” (HAMP Enhancement Program) announced by the Administration yesterday ….(March 26, 2010) has many components. Relief from mortgage payments for 3 to 6 months for those unemployed, Principal Reductions for homes underwater if you meet the criteria, short sale help, foreclosure delay and relocation assistance as well. How they will administer such a massive program is a big, big question. For the details so far go to New HAMP Enhancement Program
To review the program components of the new FHA Refinance Program also announced on March 26, 2010, go to FHA Refinance Fact Sheet.
There is news on the Principal Reduction arena – but it is not as good as it first sounded. Limited application – but it is a start….
Bank of America Corp. said it would offer more borrowers reductions in their mortgage-loan balances in the latest twist on efforts to avert foreclosures.
The plan is the mortgage industry’s boldest move yet to address the plight of the millions of U.S. homeowners who are “underwater,” owing more than the current values of their homes. It enhances an agreement Bank of America reached 18 months ago with state attorneys general to settle claims they made over certain high-risk loans made by Countrywide Financial before Bank of America acquired that lender in mid-2008.
Reductions of as much as 30% in loan principal will be offered to struggling borrowers who have subprime or so-called option adjustable-rate mortgages, known as option ARMs. (Option ARMs, no longer available, allow borrowers to start with minimal monthly payments and face steep increases later.) Also included will be certain loans that have a fixed interest rate for the first two years before starting to adjust annually.
The program is limited to Bank of America customers who are at least 60 days overdue on payments, who can demonstrate that a financial hardship prevents them from making payments at the current level, and whose loan balance is at least 120% of the estimated home value. The bank estimated that 45,000 customers will qualify for the relief.
Amid the worst wave of foreclosures since the 1930s, banks generally have been reluctant to reduce principal. Instead, most loan modifications—including those under the government-subsidized Home Affordable Modification Program—involve reducing interest rates to as low as 2%. Some also extend loan terms to 40 years to shrink monthly payments.
But banks are finding that many deeply underwater borrowers aren’t willing to keep making even reduced payments because they believe they have little hope of ever having equity in their homes and would be better off renting and perhaps buying a cheaper home later. The Bank of America program is aimed to give such borrowers more hope by reducing their loan balances to current estimated home values.
Bank of America said the program might eventually be extended to other types of loans. The U.S. Treasury, which runs the HAMP loan-modification program, also has been considering ways to encourage more principal reduction but has indicated that any such steps were likely to be modest.
Under the Bank of America plan, the maximum decrease in principal will be 30%, and borrowers will have to “earn” the lower balances in stages over five years by keeping up on their new, lowered payments.
By cutting principal, Bank of America said, it will reduce the risk that these borrowers will default again later. “We believe this could become an industry model for principal forgiveness,” the bank said.
The program also addresses the woes of option ARM borrowers whose loan balances have increased over the years because they made minimal payments that deferred part of their interest due. Some of these borrowers will qualify for a reduction in their principal to as low as 95% of the home value.
To determine the market value of a home under the program, Bank of America plans to use computer models that estimate those values or, in some cases, opinions from real-estate brokers. Those estimated values will then be adjusted annually using metropolitan-area price indexes, Bank of America officials said.
First American CoreLogic, a real-estate data provider, has estimated that 11.3 million U.S. households, or 24% of those with mortgages, were underwater at the end of 2009.
February 26, 2010 – Ken Gross
Help for Homeowners – announced last year, has, unfortunately, evolved into nothing more than government acronyms. HARP (Home Affordable Refinance Program) and HAMP (Home Affordable Modification Program). HARP permits a refinance of a home if the homeowner but the homeowner must be current for the last year and meet normal underwriting criteria. The only benefit to the program is that the lender can refinance up to 125% of the market value of the home. In practice, the government mandated appraisals have been on the low side of market so that few properties can fit within the 125% framework. Worse than that, this program affords no help for people who have sustained financial hardship because if they were 30 days late on a payment in the last year, they are not eligible.
The HAMP program allows modifications to reduce the mortgage payment down to 31% of the Gross Monthly income of the homeowner. This program helps people who have sustained a reduction in their income so that if their present payment exceeds 31% (i.e. Monthly Income is $7,000 per month, Mortgage Payment $4,000; the reduction could go to $2,170 if all other program requirements are met) they are able to obtain a reduced monthly payment. The problem with this program is that the participating lenders have not made the effort to adequately process the modifications applications. Homeowners are told to fax papers in, and then weeks pass and they are informed that the paperwork is missing – so refax. When you call a lender, such as Bank of America, they will not even allow you to speak to a negotiator for the modification. All you can get is a status report. As an attorney, we want to speak with someone to make sure they are properly evaluating the file – but that is impossible because they refuse to come to the phone. End result – of the estimate 4,000,000 people who to be helped, few modifications have been put in place – with only 66,000 permanent modifications in place as of January of this year.
The poor outcomes of HARP and HAMP are not the big story. The biggest problem facing our country – is an economy that is undermined by high unemployment and nonexistent stimulus for the growth of small business. What Washington has missed, is understanding that the dismal real estate market is the underlying problem that must be solved in order to stimulate small business growth.
It does not take a Rhodes scholar to understand the process. Consumer spending drives our economy. Consumers cannot spend if they are unemployed. Even employed consumers will not spend if they have no available credit from the credit card companies and live in fear of losing their jobs. We all recognize to correct this problem, small business must begin to thrive – thereby employing more people, offering more goods and services and driving our GNP. Small business, however, will not and cannot thrive unless banks make credit available to businesses. Banks, however, are not lending. The reason – banks require collateral to underwrite loans. The collateral typically pledged is inventory and accounts receivable and real estate. Real estate is acceptable collateral ONLY if and to the extent there is an “Equity Cushion” in the property.
Here lies the problem. The “Equity Cushion” on residential and commercial real estate has been lost in the Financial Crisis. Because there is no equity in real estate, the banks will not accept it as collateral and therefore ½ of the historical collateral used to support lending is gone with the result that the banks will not lend due the lack of adequate collateral. You can scream and holler all you want about how the banks have improperly conducted themselves in the context of executive bonuses, credit card abuses and everything else. It is not going to matter – unless there is equity in real estate to support lending, you are not going to see lending occur, which means continued virtual no growth for our economy.
So where does the solution lie? The answer is we must return to an economy where there is equity growth in real estate. Right now, ¼ of all homeowners are underwater in their homes. This statistic was revised from 1/3 based on a change in accounting assumptions – but the reality is that there is virtually no Equity Cushing that homeowners have in their residential homes that can support a second mortgage to finance the start up costs of a new business. The commercial sector is even worse off.
The return of an Equity Cushion in real estate will come from only two outcomes. The foreclosure process is one. The other is modification of mortgages that include a reduction in the principal balance of the loans. Equity in real estate will not return if we modify mortgages that only reduce interest rates and extend mortgage terms to 40 years. This is what HAMP allows and what the banks are pushing. The modification process, as it presently is situated, is in reality a method which hampers our return to and Equity Cushion in real estate and therefore delays the goal of returning to a vibrant economy.
Another obstacle to a return to an Equity Cushion that has evolved is the problems that are occurring nationwide in completing short sales on homes facing foreclosure. The short sale, if approved by the lender, accomplishes the task of transferring the property to a new buyer at fair value, thereby giving the new buyer equity in the real estate and future growth. The problem that has occurred, however, is that lenders are refusing to release the selling homeowner from the deficiency on the first mortgage arising from the short sale. The result of this intransigence by the lenders is that the short sale process is far too slow and a selling borrower would be well advised to refuse to a short sale unless the lender gives the release of the short liability as part of the deal.
The clear solution is that our government must intercede to expedite the return to the creation of an Equity Cushion in real estate so that banks will then loan money based upon valued collateral. The foreclosure process take too long and the current effort to modify mortgages without principal reduction only serve to delay the process longer and thereby extend the time it will take for a true recovery. To correct this, we must shift the modification process to mandate principal reduction of the property to within reasonable estimates of fair market values. The “Cramdown” legislation that was voted down by the Senate last April, which allowed a cramdown of the mortgage in a Chapter 13 bankruptcy of a borrower’s primary residence to the fair market value of the home, would have accomplished this goal. Accomplishment of the goal would have occurred not as much through the actual bankruptcy process but by virtue of giving the homeowner’s the leverage of the “threat of bankruptcy” as a means of bringing the lender to the bargaining table to voluntarily reduce principal. This legislation was advocated by the President during his campaign. Unfortunately, with Health Care and the many other items on the agenda in 2009, the banking lobby pervaded on the issue and the Administration did not push for the passage of the bill when it hit the Senate floor last year. This legislation should be reintroduced and pushed forward. Alternatively, the government needs to adopt a mandatory Modification With Principal Reduction Program.
The gist of the opposition to principal reductions to mortgages as enunciated by the banking industry is that there is a “fear” that people who can afford to pay their mortgages on homes underwater would use this process as a means to reduce their mortgage. This argument is the fiction that needs to be resolved. If you accept that the critical goal is that we need to return to an Equity Cushion in real estate, as a critical component of banks lending money and thereby allowing our economy to grow, then there is no need for this alleged “fear” because the better result would be for all underwater mortgages to be modified.
The Banks, of course, fear this result because they will have to absorb greater losses. The Banks, however, are nearsighted. Eventually, the banks will realize that they cannot make money merely by charging usurious interest rates on credit cards, bank overdraft fees and renewal fees – but that they have to loan money to people and businesses. (Isn’t that what banks are supposed to do?) It may be true that in the end the banks do have to take the loss on the real estate that is underwater. It was, however, their lending practices and greed that drove us to where we now sit. So let them take the loss they deserve. Their stock value may decline, but we know it will return. Once this occurs, we will all, including the banks, be in a position to grow.
Ken Gross is a the Managing Shareholder at Thav, Gross, Steinway and Bennett, P.C. The firm is gaining national notoriety for its Financial Crisis Management strategies. Mr. Gross is host of the Financial Crisis Talk Center which airs at 8:30 AM, Saturdays, on Detroit Sports Talk Radio 1130 AM, www.detroitsportstalkradio.com, in the Metro Detroit market.
BINGHAM FARMS, Mich., Feb. 22 /PRNewswire/ — The Financial Crisis Talk Center (FCTC), a weekly radio talk show hosted by Financial Crisis Experts Ken Gross and David Einstandig of Thav, Gross, Steinway & Bennett, PC. on Detroit Sports Talk Radio 1130 AM has launched a new website, www.FCTalkCenter.com.
The new web-based financial crisis resource was created by the firm for consumers and businesses that are searching for help and need answers regarding their vital financial concerns. Visitors to the site can find discussion forums, podcasts and in-depth information on issues relating to loan modifications, debt resolution, bankruptcy protection and tax relief.
“We created the Financial Crisis Talk Center website because we know first-hand how confusing it is for people, who are already overwhelmed by their financial situation, to find resources, information and options to help them,” said Ken Gross, Firm Shareholder. ”We designed this site to provide comprehensive information they need to formulate a ‘go forward plan’ for a successful financial future.”
In addition, visitors can provide their e-mail address and subscribe sign for breaking news alerts relating to the country’s financial crisis, along with updates to attend free seminars offered by the Financial Crisis Talk Center team throughout SE Michigan.
Leveraging their 28 years of experience in resolving business and personal financial and tax problems, The FCTC specializes in meeting the needs of business and individual clients by providing Financial Crisis Management. For businesses, this means crafting a strategy to address delinquent taxes and the problems imposed by banks that are refusing to continue to extend credit to the business. For individuals, the firm designs strategies that include exit strategies from homes underwater, loan modifications, debt resolution, bankruptcy protection and tax relief.
Local organizations are encouraged to contact Ken Gross if they’d like the FCTC to conduct a free seminar for their members.
About Financial Crisis Talk Center
The Financial Crisis Talk Center, sponsored by Thav, Gross, Steinway & Bennett PC and hosted by Ken Gross & David Einstandig, began airing in November, 2008. The FCTC’s goal is to provide the forum and resources needed to advance forward in this difficult time and succeed. FCTC airs on Saturdays at 8:30 AM on Detroit Sports Talk Radio 1130 AM. For more information about the Financial Crisis Talk Center, please visit, www.FCTalkCenter.com.
The Wall Street Journal
Bruce Marks, a community activist from Boston, has long denounced investors in mortgage securities as “predators,” accusing them of exploiting poor people lured into unaffordable home loans. Lately, though, some of those investors have become allies in his battle to avert foreclosures.
As the mortgage crisis drags on, some activists and investors have formed a loose coalition to prod banks into sharply cutting the amounts owed by borrowers whose loans far exceed the depressed values of their homes. Principal reductions are the best incentive for such borrowers to keep making monthly mortgage payments, some activists and investors say.
Big banks, mortgage giants Fannie Mae and Freddie Mac and the Obama administration generally have resisted shrinking what borrowers owe, preferring to reduce interest rates to as little as 2% or extend payments to as long as 40 years. Treasury Department officials have worried that if some borrowers get their principals reduced, even borrowers who aren’t behind will stop paying unless they get the same break.
The strange bedfellows pushing for more principal reductions point to some scary numbers. According to real-estate data firm First American Core Logic Inc., about one-fourth of U.S. households with a mortgage were “under water”—or owed more than their homes were worth—as of Sept. 30.
Andy McMillan
Activist Bruce Marks, above last March, has worked to avert foreclosures. Another activist, below, wore his slogan on his shirt at a mortgage-restructuring event last fall.
Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group LP, estimates 7.1 million of the 7.9 million households now behind on their mortgage payments will lose their homes to foreclosure if nothing is done to change current loan-modification programs. “Principal reduction is the only answer,” she says.
Mr. Marks says mortgage-bond investors like Pacific Investment Management Co., or Pimco, a unit of Allianz SE, are “on the same page we’re on.” That is a significant change of tune by the well-known activist, who is chief executive of a Boston nonprofit group called Neighborhood Assistance Corp. of America. NACA counsels struggling mortgage borrowers.
Last year, Mr. Marks argued that investors were blocking loan modifications. He put a bright-red label that said “predator” over a picture of Pimco co-founder Bill Gross on NACA’s Web site.
Mr. Marks also threatened to send bus-loads of protesters to bond manager Pimco’s headquarters in Newport Beach, Calif. Pimco headed off the protest by inviting Mr. Marks in for a chat with Pimco Chief Executive Mohamed El-Erian and other senior executives. Mr. Marks came away persuaded that banks, not investors, are dragging their feet on loan modifications.
Scott Simon, a Pimco managing director, has recently participated with the activist in Washington meetings about loan-modification snarls. “They help a lot of people,” Mr. Simon says of NACA’s borrower-counseling services.
Other activists also have noted the convergence of their views with those of investors. “We will work with Wall Street” or anyone else who favors “effective” loan modifications that reduce principal balances, says John Taylor, CEO of the National Community Reinvestment Coalition, which includes more than 600 community groups.
Investors in mortgage securities already have had to mark down their holdings to the distressed levels prevailing in the market. Reducing principal on the loans backing those securities probably wouldn’t require any further write-downs to their holdings. Many investors favor reducing principal in a way that would allow the loans to be refinanced into smaller mortgages insured by the Federal Housing Administration. Refinancing would trigger cash payments to holders of the securities as old mortgages are paid off at a discount.
It is more complicated for financial institutions. U.S. banks, thrifts and credit unions held about $952 billion of home equity and other junior-lien mortgages as of Sept. 30, according to Federal Reserve data. If the principal owed on first mortgages is reduced, the institutions probably would have to write down or write off many of the second-lien loans, potentially sapping their capital.
Even so, some banks seem to be warming to the idea of principal reductions.
“Everybody’s realizing there is a place for principal reductions to a much greater extent than before,” says Jack Schakett, a senior Bank of America Corp. executive involved in loan workouts.
At Wells Fargo & Co., though, Mike Heid, co-president of the home-mortgage unit, says principal reductions raise a “fairness issue.” If you are paying your mortgage on time and see your delinquent neighbor rewarded with a smaller loan balance, “why wouldn’t you be entitled to one, too?” he asks.
Treasury officials have said they are considering how to deal with deeply underwater borrowers. “Negative equity is a big challenge,” Seth Wheeler, a Treasury official, told investors at a conference last week.
Investors aren’t united on the best way to modify loans. Many investors like the idea of refinancing borrowers into smaller loans. But BlackRock Inc., a major mortgage-bond investor, is pushing the controversial idea of letting bankruptcy judges restructure shaky mortgages. The company wants to require that judges wipe out credit-card debt and second liens, mostly held by banks, before touching the first liens often held by investors.
Micah Green, a partner at law firm Patton Boggs LLP who represents some large investors in mortgages, says BlackRock`s idea is good in principle but may not be politically feasible given bank lobbying. Banks, which have been offered Treasury incentives for easing the terms on second liens, should work with investors to help put consumers into “new, properly sized” loans, Mr. Green says. “Everybody’s going to have to give a little for it to work,” he says.
Ms. Goodman says regulators may need to allow banks to recognize losses on second-lien loans over an extended period of time to avert a disastrous immediate hit to their capital level
Many small businesses in Michigan are in danger of closing their doors this year due to lack of credit lines and decreased demand for their goods and services.
Unable to get credit from banks, an influx of small companies in Michigan, already on the brink of closure in a struggling economy, filed for bankruptcy last year. And the worst of it probably isn’t over, business experts predict.
“It’s nasty out there,” said business attorney Ken Gross, a partner at Thav, Gross, Steinway & Bennett PC in Bingham Farms. “We’re in for a very difficult year.”
According to credit analysis firm Equifax Inc., small business bankruptcy filings in the state increased 37 percent from September 2008 to September 2009. There were 3,011 small business bankruptcy filings in Michigan in the first three quarters of 2009, compared to 2,197 filings in the first three quarters of 2008.
Michigan had 187,373 small employers and an additional 627,284 non-employer businesses in 2006, the latest data available, according to the U.S. Small Business Administration. The administration defines a small business as one with fewer than 500 employees.
Gross, who has seen the number of entrepreneurs coming to his firm for help with financial problems escalate 50 percent in the past 12 months, developed a financial crisis management program last year to help businesses and consumers analyze their money issues and devise the best solution.
Two or three years ago, if a business was underwater, the owner could just walk away and start over again, he said. That’s not an option anymore, though, because banks have cut commercial loans, entrepreneurs can’t get a personal line of credit, and they can’t borrow money against their homes because home values have dropped dramatically, he said.
Small business bankruptcies in the United States totaled 87,778 for the first three quarters of 2009, up 13 percent over the 77,423 filings reported for all of 2008, according to Equifax.The Obama administration wants to infuse more money into the small business sector to prevent more businesses from closing their doors. President Barack Obama spoke with several bank executives last month to stress the importance of opening more lines of credit to small businesses.
The administration’s action is coming too late for many small companies that already have gone out of business, said Ed Deeb, president and CEO of the Michigan Business & Professional Association and the Michigan Food and Beverage Association. About 150 of his member businesses have closed in the past year because they couldn’t get loans from the bank. In all, there are about 23,500 members in both associations.
“You could go up and down any street and see stores closed, restaurants closed and gas stations closed because they couldn’t get credit,” Deeb said. “These people are frustrated. They don’t know what to do.”
Even with the administration’s plan to pump more money into the small business sector, Deeb thinks there will be too much bureaucratic red tape, which could delay getting financial assistance to businesses that need it the most.
“Obama should have done this six months ago,” Deeb said.
Businesses that are closing for lack of credit run the gamut, said Rob Fowler, president and CEO of the Small Business Association of Michigan. No one is safe, and there is no protection from banks that suddenly demand loans be paid back, even if the business has no cash to repay it.
“This is an acute problem that’s happening at a higher rate than last year,” Fowler said. “It’s very serious, it’s very real.”
Take what happened to master plumber Raymond Case. He had been in business for 32 years, always paying back loans on time. But business dried up in the past 12 months for Northville-based Case Plumbing Inc. His income was cut in half, and he didn’t get paid for some projects because the clients had no money.
Case said he was late paying back two loans, and that’s when the bank socked him with a much higher interest rate. Soon, his debt grew to about $200,000, and he wasn’t able to get more credit to bid on new jobs.
Before plumbers can bid on a job, they have to pay for the entire project upfront. They get paid after the work is finished. But because the bank wasn’t lending him money and he couldn’t get more work, Case was forced to file for bankruptcy so he could wipe out the debt and start all over from scratch.
“I was getting hit from everywhere,” the 56-year plumber said. “I just couldn’t get out of it.”
He sought help from Gross, the business attorney, who advised him to file for bankruptcy in February and form a new company. Gross said he is slowly building up new business, working on small projects, but with a bankruptcy on his record, most banks won’t consider lending to him, and it’s hard to establish new credit.
“It was a relief, but I wouldn’t wish it on my worst enemy,” Case said, adding that he feels optimistic about the future of his business.
Attorney Ken Gross offers the following advice for companies that are in financial trouble:
jyoussef@detnews.com (313) 222-2319
Dave - many thanks and Happy Holidays to you and yours,...December 9, 4:32 am by Ken Gross
Touching commentary...makes me want to go see it. Mitch...December 9, 4:32 am by Dave Smith
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