What do you do if your house is under water? If you owe $300,000 on your home and today it is only worth $170,000. Are you just going to “stay the course” and pay for the house over the next 20 years – paying $130,000 plus interest for air? If you have $50,000 of credit card debt, at 19.9% interest – are you going to just “stay the course” and pay the interest and payments over the next 19 years and 3 months (that is if you make the minimum payments) paying a total of $99,109 to payoff the debt. THIS IS WHAT THE FINANCIAL INDUSTRY WANTS YOU TO DO. If you do this, your credit score may be 725 now and 725 every day for the next 20 years – but you’ll have nothing in the bank for savings and retirement. There is an alternative – by exiting the house underwater and shedding the credit card debt – you can put yourself in a position that rather than “staying the course” you “create your course” – the result – you begin to save the $2,000 per month you were paying on the credit card debt and you bank the $1,000 per month you will save by reducing your housing costs so that you are paying for housing based on TODAY’s market values. You must realize that 2008 values – are in the words of the great, Ernie Harwell, “Lonnnnng Gone.” Saving the $3,000 per month over 20 years, with a modest return will yield you over $1,000,000 in savings.
The choice – a reduced credit score for 1-2 years and becoming debt free and having a savings account of $1 Million – or reaching 70, with nothing in the bank (but, oh yes, a perfect credit history). When you need food to eat or shelter when you’re 72, just try and pay for it by giving them some of your credit score points! Sound harsh – this – is the reality of today’s world. This economy, as miserable as it is – does create opportunity. The hard part for many – is recognizing the reality and taking action.
If you want to learn how to do this – attend the FCTC and THAV GROSS’s free Financial Crisis Management Seminar on December 7, 2011 at 7 PM. Sign up on the Website or call our offices at the numbers listed.
THIS IS YOUR CHANCE TO GIVE YOURSELF THE GIFT OF YOUR LIFETIME THIS HOLIDAY SEASON – YOUR INVESTMENT – AN OPEN MIND AND 1.5 HOURS.
Will Santa Bring an end to the Housing Crisis for Christmas?
November 30th, 2010 12:32 pm ET
By: Lori T. Williams, Esq., Wayne/Oakland Legal News Examiner for Examiner.com and owner/managing attorney of Your Legal Resource, PLLC
Will Santa Bring an end to the Housing Crisis for Christmas? Don’t hold your breath! I interviewed attorney Ken Gross, Managing and Co-Founding Shareholder of the law firm of THAV GROSS, recently for a real estate update. Gross has seen his law practice shift over the past 2 years from 80% Corporate and transactional business law and estate planning to 40% of that work, with the remaining 60% of his work today focused on “financial crisis management”. The clients in the latter category are being helped by Gross and his firm through loan modifications, short sales, or the Bankruptcy process. Gross feels that the Bank’s loan modification process is worse now than ever. “Banks are losing paperwork submitted by homeowners, and if you do get a live person on the phone, it’s hard to find anyone who knows the facts of the loan modification transaction,” remarked Gross. “Furthermore, denials are made with no explanation and often mistakes are made by the banks, making the denial improper.”
Despite the difficulties inherent in the process, Gross enjoys strategizing about which method will best help the debtor solve their financial crises, and for the least amount of money. Gross feels, “if an individual can do for themselves what the Government did for GM, it’s a smart move.” “Often my clients are hard working people who were doing well and paying their bills on time, before the housing market and economy took a hit”. Gross’s goal is to preserve assets and future income for his clients and their family. “If they have 2 mortgages, and their house is underwater such that its value is less than the amount of the first mortgage, they might be a candidate for a Chapter 13 Bankruptcy. That’s the only way to eliminate the 2nd mortgage on the property. At the same time, it’s possible to work on a loan modification of the first mortgage.” Gross remarked, “the process is difficult. In some cases, it is necessary to push the matter to the brink of foreclosure in order to get the banks to agree to a short sale. You just don’t know how the process will go, until you try. Bankruptcy or another Debt Resolution program is available as a relief measure for those clients who can’t modify the loan or get approval from the bank on a short sale.” Gross helps his clients who previously had a good credit score, to understand that their credit score isn’t as important as discharging debt that cannot be repaid because of the current housing market and economy. “The credit score can come back, but if you risk your assets and income to protect your credit score, you are throwing good money after bad”, says Gross.
Gross hosts a weekly radio show on WDFN’s channel 1130AM, every Saturday from 8:30-10am. “The show is called Financial Crisis Talk Center and the goal is to educate listeners about real estate options and debt relief options available under the law today”, says Gross. “The show has resulted in referrals from real estate brokers, mortgage brokers, attorneys, and CPA’s who heard us on the radio, and who referred a client with an upside down mortgage or other debt problems.” “Our listeners tend to be males who are 30-60 years old, since WDFN is a sports station. We’ve been on the air for 2 years now and are growing a regular following.” “As I see it”, says Gross, “we have a limited window of great opportunity to help homeowners shed debt. As the National Economy improves, the window of opportunity to shed debt associated with the housing market will close.” “We all want the economy to improve, but the message is for homeowners and debtors to get educated about their individual rights, so they aren’t holding on to a sinking ship”. For more information about the radio show, credit card relief, tax relief, loan modifications and short sales, Bankruptcy, or other financial problems, visit the website.
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.
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.
