HousingStorm.com

5 Reasons Why The Program Is Doomed To Fail:

Like the federal loan modification program that was put into effect just over a year ago, the federally subsidized short sale program, set to take effect April 5^th, is now being touted as the next great hope for homeowners who either can’t afford to, or are choosing not to, pay their mortgages.

But, just like the Making Home Affordable program that released last year with the promise of saving millions of homes, the federal short sale program is drastically flawed, and if enacted, will more than likely end up with the same exact outcome… after many months and billions of wasted taxpayer dollars, the “experts” will be that it isn’t working for a variety of reasons.

In this Nostradamus like post, we’re going to examine why this new program is doomed to fail… do us a favor – bookmark it, and in a year come back and revisit it, and see how many of these predictions come true. Without further adieu, here are 5 reasons why a federal short sale program won’t work:

1. Second (and third) mortgage holders

Here’s a potential scenario: You owe $500,000 on your home, which was purchased in 2005 with an 80/20 loan, meaning your first loan was for $400,000 (80%) and the second loan is for $100,000 (20%). Due to the collapse of the housing market, the home is now worth $300,000. You put it on the market for $300,000 and get an offer for $250,000, which you take to your first lender. Even if you jump through all their hoops, have a valid hardship, and get your short sale approved, that still leaves the second lender out in the cold, holding the bag to the tune of $100,000. The logical, and typical response from the second lender, will be to block the short sale any way they can.

2. Lack of buyers

Even in a perfect world where every lender agreed to take a loss and accept a short sale, there’s still one major flaw – we’re still in a recession, unemployment is at a multi-decade high and still rising, and consumer confidence is at an all time low. Add to that the fact that due to lack of liquidity and tightening of lending standards, many would be homebuyers are now ineligible for a mortgage anyway. Not exactly a formula for people rushing out to buy all these short sale properties, or to secure the funding to do so even if there were.

3. Bureaucracy & red tape by the banks

Have you ever tried to contact your bank for anything? Loan modification, find about or try to reverse a credit card fee, anything?

If so, you certainly know that it’s not the easiest task in the world. One department sends you over to another, who makes you repeat your info and your story. They tell you to fax in documents, then claim to never receive them. They say you’ll get a call back and you never do.

The point is that if the lender needs an excuse to postpone or make it  difficult for you to do anything, they have it… even if they have the best of intentions, the sheer volume of the requests for modifications, short sales, etc, has most lenders scrambling to play catch up.

Then there’s the fact that has squashed the hopes of so many short sellers in the past – even if you can get all the lenders and investors to agree on the short sale, that usually takes 3-6 months! By that time most qualified buyers have either found another home and lost interest in the current deal.

4. Lack of incentive & penalties

Just like the Federal Loan Modification program, this plan is lacking a huge ingredient… namely the lack of incentive for banks to take less than what they’re owed, and the lack of penalties for delaying or not complying with the rules of the program.

According to a NY Times article on Sunday, the program will offer $1000 apiece for 1^st and 2^nd mortgage holders, and $1500 for the seller.

Sure, there’s a $1,000 incentive payout for a bank to accept a short sale, that’s almost more of a slap in the face than anything. Actually, I’m kind of laughing out loud right now at the absurdity of this.  If someone owed you $100,000, and they came to you and said… “well I can only pay you $25,000, but  don’t worry, because my buddy here has another $1,000 for you…cool?” Haha… Does that really make anything better – it’s still only $26,000!!!

Or it looks more like this…

Borrower:  I know I owe you $100,000, but I can pay you $25,000… Is that ok?

Lender: No

Borrower: Ok, ok… well what if my friend uncle sam gives you $1,000 will that help?

Lender: Sure

I mean come on! Where do these smart people come up with these programs?

You really don’t need to incentivize the seller to sell – the fact that they are out of an underwater mortgage is incentive enough in most cases. The problem is, how can it possibly seem like a good idea for banks to take a $1000 consolation prize to take a loss of 5 or 6 figures on a deal?

Without a real, valuable incentive to accept short sale offers, and without a real penalty to lenders who don’t try to make things happen, there will be no real reason for lenders to go the extra mile to accept the short sales.

5. Lack of clear cut, uniform guidelines

Again, there is another huge comparison to be drawn with the federal loan modification program… the final decision is to be made at the sole discretion of the lender. One of the main reasons that the modification program failed is because you could submit the same application to 2 different lenders, or in some cases to 2 different people at the same lender, and receive 2 completely different answers.

Unless there is a uniform set of guidelines for acceptance, there is no way this will work.

Conclusion:

As with the loan modification program of a year ago, this program is destined for failure unless drastic changes are made to it by the government. By enacting these programs that are meant to be a show of the governments dedication to fixing the economy, but not including any real rules for banks to follow, they are delaying the inevitable, costing taxpayers billions more dollars, and making themselves look foolish and corrupt. Now is no time for token gestures, the economy is at the brink of collapse.

Either make changes that have some teeth and force the banks to start playing by some logical rules again, or do nothing, step back and let free market capitalism run its course. Let the market decide what the prices of homes should be, and who can qualify for them.

Sure there will be bank failures, foreclosures, and more pain, but most people who have an understanding of the economy, a few ounces of logic in their head, and don’t have a bank lobbyist at their doorstep daily, will tell you that this is bound to happen anyway. So isn’t it better to “rip the band aid off quickly”? Either let things take their course naturally, or to really take some action to change that course, instead of doing everything and anything, at all costs (literally) to keep playing by the bank’s rules, and stay on the same crash course that we’re currently on?

And then there’s the issue of the millions of people who are facing foreclosure. If they have tried everything possible to get a short sale done – jumped through all their banks hoops, found a buyer, did all the proper negotiation with all involved parties, and the banks still said no… then shouldn’t those people have the right to give the bank their home back with the same ramifications as if they did a short sale? It just seems very illogical to penalize a seller for circumstances that are far beyond their control, and very unproductive… why not penalize the banks who drag their feet and lose deals instead? You’d at least get some more short sales closed.

New York Times Reported on March 7, 2010:

But at the end of the day, the banks would rather make things difficult. According to J. K. Huey, a Wells Fargo vice president, said a short sale, like a loan modification, would have to meet the requirements of the investor who owns the loan.

“This is not an opportunity for the customer to just walk away,” Ms. Huey said. “If someone doesn’t come to us saying, ‘I’ve done everything I can, I used all my savings, I borrowed money and, by the way, I’m losing my job and moving to another city, and have all the documentation,’ we’re not going to do a short sale.”

Please comment below and let us know why you think this new program either will or won’t work. Thanks!

The Tipping Point

In a phone interview yesterday with a writer from the New York Daily News, I was asked…”Jon, where exactly is the tipping point? When do people realize it may be better to just walk away?”  This is a difficult question, I said, because it’s not so clear cut.  It depends on many factors.  However, when it comes to specifically a “strategic defaut”, it may be a little more cut and dry.  At what point does one decide to face the consequences of a foreclosure over pumping more & more money into a home with negative equity every month? Strategic Default can be defined as the growing trend of people who can afford to make their monthly mortgage payment, but due to the fact that they’re upside down on the mortgage or think they can get a better deal elsewhere,  they voluntarily default on the mortgage.  Often times they live in the home for a year or more, using that time to pay down other debts or save up money.  Time will ultimately tell the real answer to this question, but I predict that this year we will see more and more homeowners tipping.

Homeowners Are Technically Renting

An article yesterday in the San Francisco Chronicle said

“The reality is, if you’re 30 percent underwater, you’re effectively going to be a renter in that home while paying your mortgage for the next 10 to 15 years before you get back to break-even with your equity,” said Paul Leonard, director of the California office for the Center for Responsible Lending.

“It’s not enough to have affordable monthly payments, if a borrower can walk across the street and rent some place for less, save money and have a little nest egg by the time their credit score recovers to be able to buy a home.”

And it’s not just a numbers game… in many cases it’s outside factors that cause someone people who have the means to pay to default – changes in jobs, suburban neighborhoods deteriorating as housing values plummet and changes in family life can all act as a catalyst for  a financially stable person to voluntarily choose default.

“We could make our payment every month by doing a little bit of overtime,” said Jose Tolentino of the Bay Area of California. “But we want to start a family. We could rent for half what we’re paying and afford to have kids.”

In many cases, making this choice without needing a catalyst is the best financial decision an individual or a family can make. In a housing market where the majority of signs point to another decline in housing prices, and even the most optimistic of economists and analysts don’t expect any price increases like what we saw during the boom years, it can take years, in many cases decades to recover the equity that’s already been lost.

Brent White, a law professor at the University of Arizona, says that the number of true strategic defaults – people walking away from underwater homes in the absence of other problems such as job loss – seems lower than common sense would dictate.

“People are acting against their own economic self-interest by continuing to pay off houses where they may not have any equity for decades,” he said. “They’re throwing away good money after bad.”

Shame, guilt and fear stop many homeowners from reneging on their mortgages, he said. The government and big banks actively cultivate those emotional constraints because the economic consequences of a large-scale walkaway phenomenon could be dire, he said.

Sure, there’s a credit hit to be considered, and in certain states there may be legal ramifications that a lender can take to try and pursue a deficiency judgment, and then there’s the ever popular “social stigma” attached to walking away, but at the end of the day, when painted in comparison with burdening yourself and future generations with the debt of one bad investment, the consequences start to pale quite a bit. Obviously every situation varies, but when looked at from a purely business standpoint, the Strategic Default option is starting to look better and better to the millions of underwater homeowners out there.

Please let us know what your thoughts are on the Strategic Default debate… at what point does it make sense? Or should one be obliged to pay the monthly mortgage at all costs?

Jon Maddux

CEO

www.YouWalkAway.com

Email me at:  jon@youwalkaway.com

When a homeowner sells their property “short,”  that amount of money that was forgiven by the lender is considered income and typically taxed.   Well, currently the Federal Government is not taxing that money to the short seller but the state of California is.  On Monday, Legislation to prevent the state from taxing forgiven mortgage debt cleared the state Assembly.  The legislation could potentially offer tax relief to thousands of Californians who sold their home through short sale in 2009.  The measure passed 47-27 and is now being sent to Governor Schwarzenegger.

Schwarzenegger’s office signaled later that he may veto the measure. 

Currently, the fed’s tax relief is in place through 2012.  California was forgiving the “income” in 2007 and 2008 but since falling on major budget deficits, the state has since been taxing the amount of money the seller/homeowner was forgiven.

Doug’s take: I can definitely see both sides of this one.  It is a huge help for struggling homeowners that have to sell short to get the tax break.  I know, i have many short sale clients currently and in the past.  They all tell me how tough it is going to be to pay that tax on the forgiven amount.  It would be a much needed break for those in the difficult position of losing their home and have to do a short sale.

On the other hand, the state is in financial ruin as well.  The state needs all the tax money it can get.  We’ve all been effected by the deficit.

My suggestion is meeting in the middle and only taxing half as much as would normally be taxed.  It would be a win-win in my opinion but then again politics are not that easy.  We’ll just have to wait and see how it plays out.  I know my past short sale clients will be anxiously waiting.

If you have any questions about selling your home as a short sale, i’m here to help.  Give me a call or email and i’ll put my short sale experience to work for you.

clear skies,

doug reynolds

Today on CNN they talked about these VERY interesting statistics.

Here are the highlights below:    (full transcript)

VELSHI: And one that we’ve had in the last couple ideas has been this — this idea that there are states or efforts to try and curtail the use of your credit report, your credit history by employers to make a determination as to whether or not you should get a job. But it is a widespread practice.

ROMANS: It really is, and I think most people don’t even understand this. Eighteen states — 25 different bills in 18 states in this legislative calendar, Ali, are trying to limit what your prospective employer can see about you.

A job applicant goes and applies for the job. Human resources or the owner of that business can run a credit check as long as they tell you. Sixty percent of companies do this; 13 percent do everybody as a standard practice.

VELSHI: Wow.

ROMANS: They just run a credit check on everybody. Forty-seven percent just do for selected candidates. Most likely, Ali, people who are going to be touching money, who are going to be running a budget.

VELSHI: Right.

ROMANS: Forty percent of companies just don’t do this at all. They simply don’t run a credit history. But it can be done, and it is legal.

VELSHI: You mentioned something. It’s legal if they ask you and you consent. When you’re in a job market that we’re in now, most prospective employees, people looking for a job, don’t think that they have the right or don’t think it would be wise to say no.

ROMANS: Right. And look, if you’re — if you’re going for a job in a money business, it’s pretty standard. Also, if you’re going for a job in some things that are licensed like day cares or in different states. There are different kinds of jobs you have to have a license, where they have to do a criminal and a credit check on you just to know who you are if you’re dealing with the elderly or you’re dealing with young people.

So, all of your information…

VELSHI: Yes.

ROMANS: You should assume all of your information is available to the person who is thinking about hiring you.

VELSHI: You did some research into what you are most likely not to get hired for as a result of somebody checking your credit.

ROMANS: Yes. OK, so this is a — this is from the Society for Human Resources Management. So, this is a human resources firm. Look, you’re not going to get hired because of a current judgment against you, a lawsuit, an outstanding order against you in the court of law; debt collection, uncollected debt, you’ve got a lot of debt out there. Bankruptcy, 25 percent of the hiring managers would look you over because of a bankruptcy. High debt-to-income ratio, much less and foreclosure (which is only 11%), even less than that.

Other Experts Chime In

MSN.com reported this recently.  I talked about this in my recent blog “Credit Scores Heal, Your Savings Account Won’t!”

Some employment experts say concern about credit checks is overblown. For one thing, they say, companies typically are far more interested in other kinds of background checks, including identity verification and criminal histories. (For more information on background screening, see “Secrets a background check won’t uncover.”)

Job applicants are much more likely to lose jobs because they have a recent criminal history or they lied on an application about their identity, experience or education, said William Greenblatt, the CEO of Sterling Infosystems, a New York City background-checking firm.

Employers are more likely to use credit reports as a way to verify employment history and Social Security numbers, Greenblatt said. Lenders often verify employment when you apply for a loan or credit card, so a credit report is seen as a good way to double-check the employers listed on a job seeker’s application.

Brad Veach, one of our advocates at www.YouWalkAway.com recently had a conversation with an officer in the military that actually makes decisions on peoples security clearances.  He said that “As long as the homeowner discloses to his superior officer (or boss) his mortgage challenges, the issues concerning security clearance and foreclosure (not bankruptcy) are typically overlooked.  They’re not that big of a deal.”   Bankruptcy is looked at as a bigger issue, due to the fact that it usually affects the entire credit picture.

To support this theory, If you can’t sell your home it doesn’t mean you are financially irresponsible.  It’s important to let your superiors know that you are doing something rather than nothing about the problem.  Many people who are in strategic default, are using their extra funds that are normally used for a mortgage payment to pay down other debts & keep themselves from financial ruin or bankruptcy.

In Conclusion

Don’t keep it a secret.  If  you presently have a security clearance and your employer finds out from someone else, it may create a problem that wasn’t really there.  Many people that make these employment decisions are facing similar problems with their own homes.  It may be much more favorable if you talk to them prior to making your decision to default.

Jon Maddux

CEO

www.YouWalkAway.com

Originally posted at the Irvine Housing Blog.

Today we look at one family in San Diego hoping for debt forgiveness that isn’t going to happen.

Love is like oxygen
You get too much you get too high
Not enough and you’re gonna die
Love gets you high

Time on my side
I got it all
I’ve heard that pride
Always comes before a fall

Sweet — Love Is Like Oxygen

Appreciation is like oxygen, you get too much prices get too high, not enough and your gonna die — or at least be forced to pay down debts – a fate antithetical to a borrowing dependant lifestyle.

Recently, I wrote about The Coming Tax Nightmare Over Forgiven Mortgage Debt in California, and recently another story was written about the Hefty tax bill may hit those who lost home.

San Diegans who have lost their homes through foreclosure or short-sales thought they had emerged from the dark times and could start rebuilding their lives.

Then the state tax man came calling.

With less than six weeks before taxes are due, an estimated 16,000 former homeowners statewide will owe $15 million in extra income taxes this year and $29 million through 2012.

Today we look at one family lamenting the $20,000 tax bill they must pay for their failed speculation.

[March 2, 2010 | Photo by Charlie Neuman. Bonnie and Clyde are facing a California tax bill of up to $20,000 because, they have found, the state treats short-sales differently than the IRS.]

Phyllis Roth, 63, a tax preparer, said she did not realize until recently that the state would treat the short-sale differently than the Internal Revenue Service would. She estimates her state taxes at $15,000 to $20,000.

“I didn’t call anybody,” she said. “I was looking online and didn’t see anything. That’s what happens when you rely on yourself.”

Brilliant marketing for her tax preparation business, “Let me help you miss a $20,000 tax obligation. I did.”

For the Roths, who continue to own a previous home and have other assets, their nearly $200,000 in losses does not cancel out their other holdings. The couple said they normally operate conservatively and only bought the home, which they lived in while their son continued to live in their first house, so they could sell it at a profit and pad their retirement accounts.

“If we have to pay it, we’ll pay it,” Phyllis Roth said of the taxes. “It’s less money to retire on, but it’s not the end of the world.”

If we have to pay it? Sure, let’s take our broken State budget and carve out a tax break for HELOC abusers and everyone else who lost money speculating in the housing market. That should provide a great incentive for frugality and curb speculation. Not.

Congress exempted most homeowners from the extra federal tax through 2012, and the state followed suit for 2007 and 2008 but did not extend the provision last year. The state Assembly may vote tomorrow on a bill to repeal the tax, but Gov. Arnold Schwarzenegger vetoed such a bill last year over unrelated provisions.

“The state of California is seriously upside down financially, and I think the governor will probably veto it again,” Nemeth said.

H.D. Palmer, a spokesman for the Department of Finance, said Schwarzenegger remains opposed to the bill in its present form but has not announced whether he will veto it again. Other versions of the tax repeal are in the hopper and could be passed next month, legislators’ analysts said.

Failure to halt the tax could cost Jack and Phyllis Roth of Fletcher Hills as much as $20,000 in state income taxes this year — they paid $781 last year — because of the home they sold short in Flinn Springs in November. They bought it in 2004 for $545,000, invested $50,000 in improvements, and then saw its value fall by one-third before they sold it for $410,000. The result was about $190,000 in net loss that was forgiven by the Roths’ lender.

Notice the words the reporter selected, “They bought … invested.” They did neither of those things; they borrowed. These people put no money down, borrowed another $50,000, sold for a $190,000 loss, and they are complaining because they might lose $20,000 of their money in taxes. We are not saving an already injured party from further pain, we are removing the only real pain these people will feel.

[schadenfreude alert] The state Franchise Tax Board has received an increasing number of calls from former homeowners who are discovering the giant tax bills they face, said spokeswoman Denise Azimi. Azimi said the former homeowners can work out a payment schedule, though the state charges 4 percent interest on such stretched-out payments.

If the tax is repealed eventually, the taxpayers could seek a refund, but for now, they have to pay what is due by April 15 or face a penalty.

Sen. Lois Wolk, D-Davis … who chairs the Senate Revenue and Taxation Committee, said it was appropriate to group all tax conformance measures into one bill. But if her bill is vetoed again, she indicated she would act to get the cancellation of debt tax repealed.

“We’re certainly not going to allow homeowners to have to pay significantly more tax when they’ve had to relinquish their homes through short-sales (and foreclosures),” Wolk said.

Why not? People who have non-recourse purchase money mortgages are not getting a tax bill. It is only investors, speculators, multiple-property owners, HELOC abusers and others with recourse loans who are getting a break. They are not a group who needs subsidies.

Insolvency

Every borrower will try to establish insolvency as defined by the Internal Revenue Service:

Do not include a canceled debt in income to the extent that you were insolvent immediately before the cancellation. You were insolvent immediately before the cancellation to the extent that the total of all of your liabilities exceeded the FMV of all of your assets immediately before the cancellation. For purposes of determining insolvency, assets include the value of everything you own (including assets that serve as collateral for debt and exempt assets which are beyond the reach of your creditors under the law, such as your interest in a pension plan and the value of your retirement account). Liabilities include:

• The entire amount of recourse debts, and
• The amount of nonrecourse debt that is not in excess of the FMV of the property that is security for the debt.

As defined by the IRS, insolvency is a condition of negative net worth; in other words, if you have no assets for the IRS to take, they will leave you alone. True or not, the incentive to feign and declare insolvency is huge.

How many people are filling false tax returns claiming insolvency when in reality, they just don’t want to pay, and they hope they can cheat and get away with it?

Defaulting loan owners are living rent-free in properties, and you are subsidizing this through government bailouts.

Living off the fat of the land
They hold their justice in the palm of their hand
Lay down your gun and surrender quiet
Or there’s gonna be a Cajun riot

Pain is too good for you
Your last breath, is all you have left
Take it before you’re doomed
Cajun hell
Before you’re doomed

Exodus — Cajun Hell

Many people currently living off the fat of the land are doomed. Like the condemned enjoying a final peaceful meal, they wait in comfort for a disheartening drop. In the meantime, we manifest a new housing entitlement in the United States; once you sign loan documents and move in, you are entitled to live in comfort indefinitely.

In a recent post I noted the following:

The amend-pretend-extend dance will continue until lenders tire of paying the piper. Shadow Inventory contains the new entitlement class; while unemployed renters sleep in shelters, unemployed homeowners squat in luxury, sustain false lives on lender largess, and exalt their status in preparation for the unceremonious fall from entitlement.

Today I want to introduce you to the one couple living off lender largess — and indirectly they’re living off you and I as taxpayers subsidizing lenders —  from the LA Times article Many borrowers in default live for free as lenders delay evictions:

Despite being months behind, many strapped residents are hanging on to their homes, essentially living rent-free. Pressure on banks to modify loans and a glut of inventory are driving the trend.

[Patricia and Eugene Harrison, who bought their Perris home seven years ago, have lived there since October 2008 without making any payments on their mortgage. (Irfan Khan / Los Angeles Times / February 19, 2010)]

Do you think any unemployed renters who are failing to pay rent are living that well? Full dinner plates, a solid roof, mementos and permanent storage, comfortable surroundings; we endow these entitlements on those who own.

Often these owners foolishly over borrowed – by the way, how did the couple in the picture get that far behind on a 2002 or 2003 mortgage? These people should be renting or residing in a homeless shelter. Others use their car.

If you can sign your name to a mortgage, you no longer have to fear homelessness, and your level of entitlement increases significantly. Are you comfortable with this entitlement you as taxpayer provide? Is home ownership and loan ownership the new foundation of the American entitlement system? Does this feel just to you?

[Pictured above: Unemployed renter and family who failed to sign loan documents and squat in a house]

When you reflect on it, the threat of homelessness is the pillar of our economic system. If you don’t want to work and produce something of value to society, you endure society’s minimum standard-of-living entitlement, which isn’t a high quality of life (just ask the homeless). In the United States, we use the threat of homelessness to combat sloth; however, now that we have created a new entitled class of loan owners, we threaten the whole system. What is the incentive for couple in Perris to solve their problems and get current on their payments? That costs money. They don’t want to repay money, they only want to spend money. Isn’t their real incentive to ride out their entitled condition as long as possible? 

Back to the article:

It’s been 16 months since Eugene and Patricia Harrison last paid the mortgage on their Perris home. Eleven months since the notice got slapped on their front door, warning that it would be sold at auction.

A terse letter from a lawyer came eight months ago, telling them that their lender now owned the house. Three months later, the bank told them to pay up or get out by the end of the week.

Still, they remain in the yellow ranch-style home they bought seven years ago for $128,000, with its views of the San Jacinto Mountains. They’re not planning on going anywhere.

Are these owners unemployed? Did they put 20% down and now they are in default on a $102,400 mortgage? Or did they HELOC themselves to oblivion and leave the bills? If they did not spend their house, why don’t they sell it and get their equity? Surely, their house is worth more than a conservative mortgage of $100K? How are they different from Bonnie and Clyde?

“We’re kind of on pins and needles, but who’d want to leave when you put this kind of energy into a house?” said Eugene Harrison, 70, gesturing toward a bucolic mural of mountains, stream and flowers the couple painted on the living room wall.

Throughout the country, people continue to default on their home loans — but lenders have backed off on forced evictions, allowing many to remain in their homes, essentially rent-free.

Several factors are driving the trend, industry experts say, including government pressure on banks to modify loans and keep people in their homes.

And with a glut of inventory in places like Southern California’s Inland Empire, Nevada and Arizona, lenders are loath to depress housing prices further by dumping more properties into a weak market.

Yes, housing blogs have been describing the catastrophic effects of inventory dumping for years, and we witness the carnage in markets like Las Vegas, Phoenix, and Riverside County.

Economists say the situation won’t last forever, but in the meantime the “amnesty” may allow at least some homeowners to regain their financial footing and avoid eviction.

So while renters get evicted with nothing, squatting loan owners get to luxuriate to regain their footing.

In the Inland Empire, an estimated 100,000 homeowners are living rent-free, according to economist John Husing, who based that number on the difference between loan delinquencies and foreclosures. Industry experts say it’s difficult to say how many families are in that situation nationally because only banks know for sure how many customers have stopped paying entirely.

Did you catch that number? John Husing is describing shadow inventory, and Riverside County has a serious supply overhang. What are we going to do with 100,000 delinquent borrowers there?

“For some reason, banks are being more lenient with homeowners who are behind on their loans,” Sharga said. “Whether it’s a strategy to try and slow down the volume of foreclosures or simply a matter of the banks being able to keep up with volume is something that banks only know for sure.”

For some reason? LOL! Shadow inventory is a much larger problem than bulls are willing to face. Banks are slow to foreclose for both reasons given. While the banks prepare to blast freeloading homeowners out of their bunkers of entitlement, they must figure out what they are going to do with all those properties. Not to worry, they will come up with some solution that continues to funnel your hard-earned money to their pockets.

Banks Are Now Walking Away From HOA Fees

In an eye opening interview by Chicago Public Radio on Friday, I learned of a Chicago condo owner whose building had turned into an absolute nightmare – 2/3 of the residents were gone, the utilities had been shut off, the place was literally crawling with maggots.

Of the 27 unit building, Dee Hutchinson and two of her neighbors were left with the sole burden of all the HOA fees, leaving them virtually helpless to take care of even the most basic of necessities like heat and extermination.

What really caught my attention about the story, the problem wasn’t that the residents of the building weren’t paying their dues – that problem had come and gone… the interesting, albeit not really surprising fact about this story was the fact that almost all of the condos in the building were owned by banks, mostly large ones like B of A.

Listen to the full interview here…

This story is yet another in a string recently that illustrates the fact that despite banks trying desperately to paint the picture that defaulting on one’s financial obligations is immoral, they are the first to do it when the tables are turned.

Paul Leonard is with the Financial Services Roundtable, a banking industry trade group. He says banks aren’t set up to handle this.

“The entire issue of a bank as landlord is a very challenging one, because they’re not in the business, nor do they want to be in the business of being a landlord. You know, they don’t have “Oh, we’ll just switch over to our system to pay condo fees.” They don’t have that.” said Leonard.

Aren’t set up to handle it eh? Yet they are set up to call and harass a family who’s main breadwinner has just lost their job, or just found out that they had cancer, or had just died? These stories are a dime a dozen, meanwhile while the banks are raking in record profits and charging ridiculous interest rates and fees to everyday folks just trying to get by, yet they see no moral responsibility to their new neighbors in the condo to help pay their share so the residents who have heeded their plea to do what’s right and keep paying, can have heat, and a fridge that isn’t infested with maggots.

But of course, far be it for us to ask them to “switch over their system to pay condo fees”, because that would be just unreasonable, immoral even. Boo-freakin-hoo guys, if you can dish it out, you should be able to take it. That’s kindergarten stuff.  I don’t EVER want to hear an executive from B of A or one of these banks say anything negative about someone walking away from their underwater mortgage again.  Hypocrites!

Jon Maddux

CEO

www.YouWalkAway.com

The last time I won a third-place prize, I was probably about eight. Somewhere, I have an old newspaper. My mother was an editor in the 1950s at the Circulating Pines, which was a local newspaper in a suburb of Minneapolis. She put a story and a photo of my brother and me on the front page. I am holding in my lap a long-haired black cat named Spittsboo, sitting on the front steps of our childhood home in Circle Pines, Minnesota, next to my brother. He is holding a salamander on his shoulder.

I placed third in a pet contest. Well, it was actually my cat, not me, who placed third in a division for longest-haired cat. My cat didn’t have to do anything except sit there to win. My brother’s salamander won first place in the reptile division. That lizard didn’t have to do back flips or jump through a flaming hoop of fire to win, either. I’m pretty sure the thing just sat on my brother’s shoulder.

I mention this because yesterday I was given an office award at my office meeting for ranking among the top 3 agents in sales for 2009. My office in Midtown Sacramento has 80 or 90-some real estate agents. I didn’t enter this contest. It’s something that Lyon Real Estate does. It recognizes its top producers every year. My sales production generally ranks among the top 15 agents in my office — some kind of benchmark Lyon uses — but since I don’t rate myself by comparing myself to other agents, I never really paid much attention to which agent wins what award.

So, it was a surprise when my name was announced and I was handed the award. I considered not writing about it because lots of agents in my office and elsewhere in Sacramento did not fare very well last year. It was a down year for many real estate agents. The market in 2009, like the past 4 years, was dominated by foreclosures, short sales, investors and first-time home buyers, which left a lot of agents out in the cold. The Internet also pushed some agents out of the business because they refused to embrace online technology.

While it is painful to see agents who are suffering, I’ve decided that my empathy for them should not overshadow the fact I enjoyed an outstanding year in 2009. It’s quite an honor to receive such an award. On the other hand, I didn’t compete for it or enter a contest. I just did my job, which is primarily selling homes in Land Park and representing sellers of Sacramento short sales.

This afternoon, Lyon Real Estate is hosting its Annual Awards Ceremony at the Radisson. The theme is . . . dum, dum, dum . . . The Winter Olympics. My office is supposed to represent Cross Country Skiing. I guess I could wear a mink hat and go as a spectator. No, on second thought, I should probably wear a wool hat and some sort of spandexy outfit, which I don’t have in my wardrobe. I’m likely to win something at this awards ceremony, but it’s been hush-hush, like our office awards. I don’t want to appear ungrateful, but I am not planning to dress up like an Olympic athlete. But hey, it doesn’t mean that I don’t support those who do or that I am not a team player.

Hmmm, on reflection . . . maybe it does.

Oh, well. Rebels make good real estate agents, don’t you think? We buck the system. Write our own rules. We’re independent and don’t blend well into the shadows.

After the awards ceremony, I am meeting a buyer who is closing on a home in Land Park. We’re going to sign loan docs at my office and complete our final walk-through. At least my hair won’t be messed up from wearing a wool hat.

Photo: Adam Weintraub

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Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout Sacramento. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. DRE License # 00697006.

The Short Sale Savior, by Elizabeth Weintraub, available through bookstores everywhere and at Amazon.com.

Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.

The views expressed herein are Weintraub’s personal views and do not reflect the views of Lyon Real Estate.

Freddie Mac CEO Charles Haldeman Jr. probably wishes he could take this statement back…

“In a trying and turbulent year, Freddie Mac played a critical role in supporting the nation’s housing recovery,” said Freddie Mac Chief Executive Officer Charles E. Haldeman, Jr. “We provided a constant source of liquidity – purchasing one out of every four home loans originated last year – and our presence in the market helped keep mortgage rates at historic lows. We also helped approximately 1.8 million borrowers lower their mortgage payments, and more than a quarter million families avoid foreclosure.

“We start 2010 with some early signs of stabilization in the housing market, with house prices and home sales likely nearing the bottom sometime in 2010. We expect that low mortgage rates, relatively high affordability and the homebuyer tax credit will help continue to fuel the recovery. Still, the housing recovery remains fragile, with significant downside risk posed by high unemployment and a potential large wave of foreclosures. That’s why our commitment to help struggling homeowners is steadfast – and we will continue working to find ways to keep families in their homes through both our own programs and the Obama Administration’s Making Home Affordable Program.”