HAMP, HARP, and Harpster

My fondness for alliterations compels the title. I could not resist. The purpose of this post is to welcome Lake Oswego attorney extraordinaire, Kelly Harpster, to the blogosphere – that vast otherworld known as the Internet, where one can accomplish two respectable goals: (a) Sharing important information on self-selected topics, and (b) doing so through the lens of our own personal Weltanschauung.

Quite coincidently, Kelly and I commenced our solo practices at approximately the same time – early 2010. We had both previously worked at the large Portland firm, Davis W right Tremaine. As a further coincidence, almost immediately after opening our separate practices, we became interested – nay, fascinated – with the world of bank foreclosures, and the havoc being wreaked upon Oregon homeowners who found themselves in properties and debt from which an orderly retreat was nearly impossible. For both of us, it became clear that the financial services industry, from Wall Street investment houses such as Goldman Sachs, to the lending and servicing industries, such as Bank of America, Morgan Stanley, and Wells Fargo – to name a few of the survivors of the crash of 3Q 2008 – were primarily responsible for what has become a foreclosure crisis of epic proportions. While the Big Banks [my term] queued up to take billions of taxpayer-funded bailout money, distressed homeowners, awash in negative equity, were all but forgotten.[1] It had become clear to us that the “Little Guy” [my term], was in dire need of help, legally and legislatively. To that end, Kelly has worked tirelessly since starting her solo law practice.

Although, I had a head start in my blogging ventures, when in 2010, I impetuously leaped, like Hotspur, into the fray, I am pleased to see that Kelly has recently done so as well – albeit with more deliberateness – with “The Housekeeping Report – Oregon Mortgage and Foreclosure News.” It is a welcome addition of useful, current, and reliable information for all who choose to visit.

For those who know Kelly, they know that she is smart…scary smart. When, where, and how she has the time to devour the vast amount of knowledge and information she retains is something of a mystery. Perhaps she is actually a twin, and together they masquerade as one. However she does it, it is accomplished with relish, and the results are immediately recognizable; she knows whereof she speaks. So for folks who know Kelly, I am sure they are already enjoying her new website. It is rich in valuable content, designed to inform her legal peers and help The Little Guy, at the same time.

And for those who do not know Kelly, I invite you to meet her vicariously, through the news and views she shares at The Housekeeping Report. As I learned long ago at Davis Wright Tremaine, Kelly is what we called a “quick study.” She grasps issues at warp-speed, synthesizes them into bite-size pieces, and adds a dose of hot sauce that is her [sometimes] wicked wit. Readers will not be disappointed.

Congratulations Kelly! Welcome to the blogosphere!

[1] I acknowledge the government’s efforts through HAMP and HARP, but, in my opinion, they were doomed from the start, since bank participation was voluntary. The remarkably poor statistical success of these programs bears this opinion out. Clearly, the effort has improved over time, but one has to wonder whether it is now, too little too late. [If “deservedness” for financial help was a criterion for distressed homeowners, who are required to submit “Hardship Letters” before receiving assistance, why were the Big Banks not required to do so, as well? In fact, by all accounts, they received billions of bailout dollars whether they wanted it or not. – PCQ]

“Some borrowers default because they no longer possess the ability to repay their mortgage loans. However, there is a group of borrowers who may continue to possess the ability to repay but who elect to default for strategic reasons. These borrowers are commonly referred to as “strategic defaulters.” For purposes of this report, strategic defaulters have the financial means to make their monthly mortgage payments, but choose not to and walk away from their contractual commitments to pay.” FHFA’s Oversight of the Enterprises’ Efforts to Recover Losses from Foreclosure Sales – FHFA Office of Inspector General [Audit Report October 17, 2012]

The online website, DSNews,[1] recently posted an article announcing that “According to a recent survey that polled 1,026 U.S. adults, 32 percent stated they believe homeowners should be able to strategically default without facing consequences.” The survey was conducted by JZ Analytics, pollster John Zogby’s company. According to the article, Mr. Zogby personally found the results “alarming.” “What jumped out is how many Americans feel it is acceptable for homeowners to walk away from a mortgage and go into foreclosure. If Americans carry on with that mindset, it will continue to cause problems as the economy undergoes a slow recovery.”

What I found “alarming,” and what jumped out at me, was that Mr. Zogby, who supposedly has his finger on the pulse of America, would be surprised at all. So, in an effort to learn more about this senior analyst at JZ Analytics, I dug into the deepest recesses of the Internet, and the best I could determine was that he apparently has been on Mars for the last five years looking for signs of intelligent life that he could give polling surveys to. Given this professional hiatus, perhaps Mr. Zogby can be forgiven for his incredibly lunk-headed reaction to an incredibly complicated issue.

Unfortunately, we’ll never know the exact questions that were used in the polling or the demographics of the persons polled. I’m guessing Mr. Zogby gave the poll out along with party favors at a liquor-infused retreat for lending industry big shots at some Bahamian luxury resort.

But never mind ignorant polls, polling, and pollsters. The term “strategic default” is a pejorative term cooked up by Fannie, Freddie, and the lending and servicing industries to stigmatize the banks’ former clients as irresponsible deadbeats. [“Don’t bother using your own money for a downpayment; we’ll just piggyback another loan on top of your first one, so you can use the bank’s money to finance 100% of your home purchase – it’s virtually free, and you can refinance over and over again, and never have to pay it off!”] Technically, the term “strategic default,” includes an implicit assumption that the borrower can “afford” to make their loan payments, but consciously chooses not to do so.

But let’s look at the real picture:

The subprimers, no-doc-loan and stated-income crowd, washed out within months of their loan closing. They were financially unqualified from the start and both lender and borrower knew it. But as long as real estate values were going through the roof, there was always a “Plan B”; either refinance[2] out of the oppressive loan[3], or sell the property at a profit. This was in 2005; there was no such thing as a “strategic default” back then. There was no choice, no decision, and certainly no strategy. Within a month or two of funding, the Big Banks got their money back as the loans were packaged and sold into pass-through trusts as securities for investors to gobble up, believing the shills in the crowd ratings agencies’ assurances that they were AAA grade investments.
So who are the folks defaulting today? Having spoken with hundreds of Oregonians in various stages of distressed housing situations, I believe I know. [Mr. Zogby, are you listening?] They are the folks who, despite the loss of 40% – 50% of their home’s value; despite the loss of their entire downpayment; and despite the fact that they may owe the bank $100,000+ more than their home is worth, they’re still hanging on. In other words, they have become captive renters, unable to move forward; many used their retirement funds [at the cost of a 10% income tax surcharge]; their children’s 529 savings, and some even use their credit cards.
Not to be forgotten in an analysis of the term “strategic default,” is the meaning of the word “strategic.” Obviously, it suggests a conscious decision. In fact, it suggests more. It implies an intelligent, considered analysis. However, in the vernacular of the lending industry and their apologists, the term includes an inference that the borrower can “afford” to make the payment, but elects not to do so. Contrary to the short sighted analysis of some [Mr. Zogby, are you still listening?],the word “afford” is a highly relative term. For example, perhaps one can “afford” their mortgage payments, but at what long term cost? Here are some considerations that many folks factor into their decision to discontinue making their mortgage payments:
- The 3-Ds, Death, Divorce, and Debt. For example, when one loses a spouse or significant other, who was wholly or partially financially responsible for making ends meet. Divorce speaks for itself, and more loudly in times of financial stress than harmony. Debt plays a factor, when – as many folks did – strapped borrowers lived off their credit cards or lines of credit.
- Children. This is a broad topic. Here are a few aspects of the issue: (a) A young couple wants to have children, but their home, its location and/or size make that impossible. They need to move on, but are being suffocated by a home awash in negative equity. (b) School districts; a family wants to move into a district more suitable for their children. (c) Pregnancy; the family wants to move closer to friends and family to help raise the child. (d) Savings for children and their education; Homeowners are presented with a choice to pay for schooling, or for a mortgage that has thousands of dollars of negative equity that will not – for the next decade – ever become positive equity.
- Employment. During the economic downturn that has plagued this country since 2007, many folks lost jobs. Some still had jobs, but found better employment opportunities elsewhere. However, they did not have sufficient funds to bring to closing to pay off thousands of dollars of negative equity.
- Loan Modifications. Although some lenders may deny it, the truth is that before most lenders will even consider a loan modification, the borrower must be in default. I have had many clients who report that although they were not in default when they first sought the bank’s help to modify their loan, they were told they had to stop making payments. What they weren’t told was that it would damage their credit; that the bank would pile on late fees and other charges. Moreover, many such “modifications” were denied after a year or more of trying – and at the end, applicants were informed they did not qualify. But by then, the loan was so far delinquent that it was impossible for the homeowner to get current. [Riddle me this Batman Mr. Zogby: Does following the banks’ instruction to stop paying the mortgage count as a “strategic default”?]
- Life. In addition to the above, there are circumstances thrown at all of us by fate. Illness and accidents being prime examples. The vagaries of life can have catastrophic consequences on one’s ability to pay their mortgage. But unlike the days when banks actually held on to their own loans, now it’s pretty hard to go to your neighborhood banker for help. Rather, today, struggling borrowers are given 1-800 numbers answered by low-paid employees with bogus titles [e.g. “Office of the President and CEO”]. In some instances, these jobs have been outsourced, and the person at the other end of the line knows nothing beyond what’s in their script.

But wait, there’s more! Mr. Zogby’s above quote seems to equate not paying one’s mortgage with “going into foreclosure.” In fact, foreclosure does not necessarily follow from the act of not paying one’s mortgage. Many, many, folks are fully prepared to try to short sell their homes rather than being foreclosed.

This option presents several advantages for both lender and borrower: (a) A short sale is a much faster disposition option than any other pre-foreclosure alternative; (b) Certainly, it is much faster than waiting around to be foreclosed, which today occurs in fits and starts, as the Big Banks continue to be entangled in fiascos of their own making, such as MERS, robo-signing, borrower litigation, and a variety of other public relation embarrassments ; (c) A short sale is generally regarded by borrowers as having less of a stigma than being foreclosed; (d) Banks prefer the short sale process because that moves the property into the marketplace, where the carrying cost of taxes, insurance, and maintenance are shifted to new buyers. (d) Short sales are preferable to the banks over deeds-in-lieu-of-foreclosure, since, again, a short sale shifts the carrying costs to new buyers.

Not to be outdone in the Nuts and Dolts Department, Mr. Zogby’s effort at insightful comment to DSNews demonstrates a complete lack of understanding about today’s financial crisis. After climbing out on a shaky limb, he proceeds to saw it off thusly: “If Americans carry on with that [strategic default] mindset, it will continue to cause problems as the economy undergoes a slow recovery.”

Wrong, again, Boy Wonder. Today, our “slow recovery” isn’t the result of borrowers not paying their mortgages. In fact, if there were more folks who – for whatever good faith reason – chose to stop paying the mortgage on their underwater homes, they would get queued up faster for some form of pre-foreclosure disposition, such as a short sale or deed-in-lieu.

[BTW, I will accept almost any reason as a “good faith” reason. Remember, the bargain the banks cut with their borrowers and vice versa – which was memorialized in the promissory note and trust deed or mortgage – was that “If you don’t repay the loan, we get to take the home back and resell it to somebody else.” Also, remember that back in circa 2005 – 2007, both borrower and lender believed that skyrocketing property values eliminated any risk of payment default and foreclosure. At the time, no one, not even Alan Greenspan, saw what was to come from the “frothy” real estate market and essentially “free credit.” In other words, the assumption by all was that even if a borrower defaulted and was unable to refinance, the lender would get a property back that was worth more than when the loan was first made. To put a finer point on this Grand Bargain is to perhaps explain what it was not. It was not an agreement that borrowers must pay on a loan even if it no longer made any economic sense; it was not that repayment was “required” even if doing so was to the financial detriment, and possible fiscal ruin, of the borrower and his/ her family and future.

Rather, the deal between borrower and bank has always been clearly provided in the loan documents: “You pay off the loan and we will remove our lien from your property; You default and we get to take your property and resell it to satisfy your debt to us.” Nowhere in the loan documents is “strategic default” – whatever that is, addressed. – PCQ]

For Mr. Zogby and others who believe their expertise in one field qualifies them to make foolish statements in unrelated fields, the reason this country has undergone a “slow recovery” is thanks to our cracker jack government leaders who gave us HFA, HAMP, HARP [1.0 and 2.0], HAFA, First Time Buyer Incentives, and on and on, ad nauseum. The theory was to create the illusion that the Administration was actually doing something to help homeowners by throwing money at the problems, regardless of whether they worked. [This is discussed more fully here. – PCQ] But what the government didn’t do is FORCE – politically or otherwise – the Big Banks, who caused this crisis in the first place – to recast loans so they would work for homeowners. However, bank and servicer compliance is always voluntary. It’s all carrot, no stick.

The fact is that continental shift moves at light speed compared to loan modifications. The government has willingly permitted the Big Banks to game the system for the last five years. A crowning example of the government’s approach to helping consumers is to create the Dodd-Frank Act, a tome of 2,300 pages of gibberish that did nothing but leave the heaving lifting to the administrative process, where lender lobbyists could wine and dine their favorite political hack in order to emasculate the rulemaking. Today, over two years since enactment, the scorecard stands as follows: 63% of its rulemaking deadlines have already passed and only 29% of the required rulemakings have been finalized. Nice job. Virtually every government solution, including the faux $25 Billion National Mortgage Settlement, has been voluntary for the banks. The White House talks tough, but treats the lending industry more like Johnny Appleseed than John Dillinger. In short, Big Banks are permitted to cherry pick who, what, when, why, where, and which, borrowers they will help. The ones most in need of assistance never receive it. Default – or whatever pejorative one chooses to use, is the last resort.

When you couple the total failure of the government borrower assistance programs with the unemployment numbers, you get the real reason for our slow recovery. Homeowners are held hostage in homes they (a) can either no longer afford, or (b) need to move from for any number of reasons. Distress ensues. Job creation and relocation suffer. Confidence drops. Poll that Mr. Zogby!

Although I am not a fan of moral equivalency, no thoughtful discussion of “Strategic Default” is complete without comparing the plight of Beleaguered Borrowers with the fortunes of Big Bank execs for the last five years. Part Two will explore that topic.

[1] “DS” as in “Default Servicing.”

[2] Refinancing generally requires a 60% loan to value (“LTV”), but with market value appreciation, it was presumed that would occur.

[3] Many had “teaser” rates that were unrealistically low, and then adjusted to much higher rates. Some loans permitted borrowers to pay less than the stated interest rate, which meant that the deferred interest was added back to the principal and would also bear interest. These were the infamous “negatively amortizing” loans or “Neg-Ams.”

Economist [e·con·o·mist; noun] – An expert in the production, distribution and consumption of goods and services, but is a complete idiot when it comes to making good business decisions for homeowners awash in negative equity. Q-Law.com Unabridged Dictionary

The following July 26, 2012 article appearing on a default servicing website, dsnews.com[1] caught my attention the other day: “Economists in Survey Oppose Strategic Default, Principal Forgiveness.” Herewith, are some of the gems: Continue reading “More Nuts and Dolts”

For anyone who has sought a loan modification or some other pre-foreclosure solution to their distressed housing situation, they must surely recall the treatment – or lack of treatment – they received from their lender or servicer. In some instances, one knows in a heartbeat that the processing job has been outsourced to some third world country, where the communications break down before they start. In other instances, the processor has the monotone of one that has just taken a Valium before getting on the line. They have the same people skills as zombies reading teleprompters. Perhaps the most ridiculous ruse is the official title these folks are given, considering their low-level status on the corporate ladder: “Office of the CEO and President.” Given the number of employees carrying that title, this “Office” must be the size of a football stadium.

The question that has plagued me for the last several years has been, “Why don’t the Big Banks improve their customer relations?” For every distressed borrower they offend, they’ve not only lost a future customer, but possibly a half dozen more family and friends the borrower tells.

Well help may be on the way! Of course, not from the Big Banks and servicers. No, they’re far too busy and important to develop an outreach program that actually injects a sense of humanity into the process of helping others. In a sense, when it comes to aiding distressed homeowners, the job of Big Bank public relations has also been outsourced – this time to Fannie Mae.

As reported in DS News.com, Fannie Mae has announced a customer care training program:

“What we’ve learned through the housing crisis is that if everybody takes the responsibility to work together and act early, then we can prevent foreclosures and keep families in their homes in many cases,” said Leslie Peeler, SVP of Fannie Mae’s National Servicing Organization. “We want our servicers to be trusted counselors to their customers, from attentively collecting documents to advising them of their options and guiding them through the process.” [Underscore mine. – PCQ]

Well, Riddle Me This Batman: Where were you guys in 2008, 2009, 2010, 2011? Why is this just now occurring to you? Have you had an epiphany? Are you only now realizing that it helps to treat borrowers like human beings?

Here are some P.R. tips for Fannie’s servicer trainees:

Don’t lose the borrower’s paperwork;
Don’t insult them with requests to update information that cannot and does not change [such as a lifetime disability];
Don’t work with a borrower while at the same time initiating a foreclosure against them – that isn’t a trust-builder;
Don’t play the “trial modification” game, where you take their money, never credit it to their account, and then after 8-10 months, unceremoniously deny them for permanent mod for unspecific reasons;
Don’t state in your recorded voice-messages that you return all calls in 24 hours, if you have no intention of doing so;
Don’t give your supervisor’s name and number on your telephone greeting, and conveniently fail to include their extension;
Don’t….well, you get the point.

According to the DS News article:

“One key component of the program is to create a single point of contact in the call center for each customer to ensure that a relationship can be built between the homeowner and their servicer representative. A single point of contact can also help ensure that foreclosure prevention options are properly presented.” [Underscore mine. – PCQ]

Hmmm. But what good is a single point of contact, if they can’t seem to keep their job? I have one client seeking a modification and we’ve had five different “single points of contact” in less than a year. Where is the “relationship building” there?

Memo to Fannie Mae: Have as required reading for your trainees, Dale Carnegie’s “How to Win Friends And Influence People” and – as difficult as it may sound – Have them memorize the entire Golden Rule. Yes, all eleven words!

Senior Supervisor, Bank Hardship Letter Department

Have you ever been curious about what “test” the Big Banks apply when deciding to allow short sales? I have. What follows is my analysis only. Readers are free to disagree; but remember, a couple of anecdotal stories overheard at a cocktail party, do not a trend make. There are rules and there are exceptions to those rules. I’m interested in the rules. – PCQ

First, we know that the Big Banks all base their borrower assistance programs on the concept of “deservedness.” Now, with the help of a sleeper agent working “deep cover” at the highest levels of a Big Bank, we have discovered the following purloined paperwork (including this candid staff photo taken at work), describing, in depth, the inner workings at one lender’s Hardship Letter Department:

“You get our help only if you deserve it. To be deserving, you must have a “hardship.” We get to define the meaning of “hardship.” It must relate to something unplanned or beyond your control[1]: Such as illness, death, divorce, job loss, financial inability to pay, mandatory relocation, etc. Pregnancy cannot be “unplanned” or “beyond your control” according to the Planned Parenthood folks, so it won’t get you into our “deservedness” line.

When you seek our help, we expect you to prepare and sign, under oath and penalty of perjury, a “Hardship Letter,” describing in detail, your tale of woe, beginning from early childhood and continuing through adulthood. We ask that it be hand written on cheap bond notebook paper (blue lines only – and no fancy yellow legal pad paper!), with a No. 2 pencil and shaky hand.

Before writing your Hardship Letter, we recommend watching one or more of the following sad movies to serve as your cinematic Muse and help conjure up the appropriate melancholy [in no specific order]: Titanic, Schindler’s List, Steel Magnolias, and Ordinary People. For the distressed older Baby Boomers, we suggest Love Story and Old Yeller. Continue reading “Do You Know Who Just Read Your Hardship Letter?”

In my earlier post I was critical of the Obama Administration’s second run at jumpstarting the woefully inadequate Home Affordable Refinance Program or “HARP.” As pointed out in my post, HARP had been an abysmal failure since its inception in 2009. Then, on September 8, 2011, in the course of rolling out the American Jobs Act [which appears dead in both the House and Senate – PCQ] the President stated:

“And to help responsible homeowners, we’re going to work with federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4%. That’s a step – (applause) – I know you guys must be for this, because that’s a step that can put more than $2,000 a year in a family’s pocket, and give a lift to an economy still burdened by the drop in housing prices.”

At the time, there was not much to go on, since like so many of the Administration’s pronouncements, they are little more than trial balloons that get floated, and finally run out of the hot air. So, where are we now, seven weeks later? Well, the folks that brought us HARP I are slowly giving birth to HARP II. But as of the date of this post, we’re still waiting on specifics.

There appear to be certain similarities and certain differences. First the similarities: Continue reading “HARP 2.0 – Old Wine In New Bottles”

The sad reality is that negative equity, short sales, and foreclosures, will likely be around for quite a while. “Negative equity”, which is the excess by which total debt encumbering the home exceeds its present fair market value, is almost becoming a fact of life. We know from the RMLS™ Market Action report that average and median prices this summer have continued to fall over the same time last year. The main reason is due to the volume of “shadow inventory”. This term refers to the amorphous number of homes – some of which we can count, such as listings and pendings–and much of which we can only estimate, such as families on the cusp of default, but current for the moment. Add to this “shadow” number, homes already 60 – 90 days delinquent, those already in some stage of foreclosure, and those post-foreclosure properties held as bank REOs, but not yet on the market, and it starts to look like a pretty big number. By some estimates, it may take nearly four years to burn through all of the shadow inventory. Digging deeper into the unknowable, we cannot forget the mobility factor, i.e. people needing or wanting to sell due to potential job relocation, changes in lifestyle, family size or retirement – many of these people, with and without equity, are still on the sidelines and difficult to estimate.

As long as we have shadow inventory, prices will remain depressed.[1] Why? Because many of the homes coming onto the market will be ones that have either been short sold due to negative equity, or those that have been recently foreclosed. In both cases, when these homes close they become a new “comp”, i.e. the reference point for pricing the next home that goes up for sale. [A good example of this was the first batch of South Waterfront condos that went to auction in 2009. The day after the auction, those sale prices became the new comps, not only for the unsold units in the building holding the auction, but also for many of the neighboring buildings. – PCQ]

All of these factors combine to destroy market equilibrium. That is, short sellers’ motivation is distorted. Homeowners with negative equity have little or no bargaining power. Pricing is driven by the “need” to sell, coupled with the lender’s decision to “bite the bullet” and let it sell. Similarly, for REO property, pricing is motivated by the banks’ need to deplete inventory to make room for more foreclosures. A primary factor limiting sales of bank REO property is the desire not to flood the market and further depress pricing. Only when market equilibrium is restored, i.e. a balance is achieved where both sellers and buyers have roughly comparable bargaining power, will we see prices start to rise. Today, that is not the case – even for sellers with equity in their homes. While equity sales are faster than short sales, pricing is dictated by buyers’ perception of value, and value is based upon the most recent short sale or REO sale.

So, the vicious circle persists. In today’s world of residential real estate, it is a fact of life. The silver lining, however, is that most Realtors® are becoming much more adept – and less intimidated – by the process. They understand these new market dynamics and are learning to deal with the nuances of short sales and REOs. This is a very good thing, since it does, indeed, appear as if this will be the “new normal” for quite a while.

[1] This discussion ignores two other additional factors, employment and confidence. We see the effect of this every day; notwithstanding record low interest rates, and record high affordability, there are many, many potential buyers still sitting on the sidelines.

“You’re not going to create jobs until you fix the economy; you’re not going to fix the economy until you fix housing; and you’re not going to fix housing without addressing foreclosures….” Kathleen Day, spokeswoman for the Center for Responsible Lending.

After returning from a two year sojourn to the Moon, the Obama administration has returned and has now decided to focus on jobs – housing will apparently come later.

On September 8, 2011, the President rolled out the American Jobs Act. While I believe jobs are critical to reviving our economy, they cannot be addressed without also addressing housing. Why? Because the housing industry, and its many related industries, is the engine that fuels growth, employment, and perhaps most important, consumer confidence.

So, in reviewing a transcript of the President’s recent speech, I wanted to see what he would propose for the moribund housing market. Here’s what he said:

“And to help responsible homeowners, we’re going to work with federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4 percent. That’s a step — (applause) — I know you guys must be for this, because that’s a step that can put more than $2,000 a year in a family’s pocket, and give a lift to an economy still burdened by the drop in housing prices.”

Wait a minute! Out of a 34 minute speech, this 30-second sound bite is supposed to help fix the housing crisis? Without saying so, it sounded as if the President was referring to the old 2009 HARP program that was supposed to help four to five million homeowners. The real numbers show that only 838,000 borrowers actually refinanced, and of that number, only 63,000 had negative equity over 105%. Continue reading “The Obama Jobs Program Ignores America’s Housing Crisis”

Having counseled approximately two hundred Oregon homeowners drowning in negative equity, I have discovered that many, if not most, believe that somehow their lenders can literally swoop down and take not only their home, but all of their bank accounts, savings, retirement funds, and/or daily wages. In truth, the only real power most banks have over a borrower, is the ability to negatively impact their credit, and by extension, their future ability to borrow. On the other hand, one’s credit is a composite of many different data points, not simply a single “black mark” from one distressed property event. To that extent, a credit rating can be strengthened over time, and like a muscle, it builds up through consistent and prudent use over time. In today’s rental marketplace (which is populated by many former homeowners coming out of a distressed property transaction), a credit score impacted by a single distressed housing event has little or no bearing on whether a landlord will rent a home or apartment to them. In an effort to provide some peace of mind, listed below are certain “rights” that all home owners have under Oregon law. These rights cannot be taken away – they can only be voluntarily given away.

The following Bill of Rights assumes the following facts: (a) The home was used and occupied as a principal residence. A “principal residence” or “primary residence” in my vernacular, is the residence you occupy most of the time, and hold out to the city, state and federal governments (e.g. the post office, DMV, utility companies, etc.) as your “home.” A second home is not, by definition, a “primary residence.” (b) There is only one loan on the property and all of the borrowed funds were used to acquire the home. Second trust deeds can sometimes be problematic. If you have a second trust deed as well as a first, all is not lost – it just requires a little more planning, and some smart negotiations with the bank.

Caveat: This summary is not meant to be legal advice, as each person’s factual situation is different. No attorney-client relationship is sought or created by this post.– PCQ

Continue reading “Distressed Homeowners’ Bill of Rights”

In common parlance today, a “default” denotes either nonperformance – or inadequate performance – that falls short of a written rule, guideline, or criterion. It is not something that, by itself, can be judged or evaluated absent the presence of a measuring stick. While a breach of contract is an objective characterization of someone’s failure to perform according to the terms of a legally binding agreement, a breach of ethics, is a subjective characterization of someone’s failure to perform according to the terms of the holder’s belief system.

However, what the lending industry has successfully done is to mix the objective nature of “default,” say under the terms of one’s mortgage, with the subjective inference that the breach is equivalent to a moral failing. Hence, the term “strategic default,” used by Big Banks to stigmatize the folks who don’t perform in accordance with the terms of the note and mortgage or trust deed they signed. [Admittedly, there are those who have no affiliation with the lending industry who are also guilty of this pejorative characterization. Yet, I can forgive most of them, since they’ve never “walked a mile in the other persons’ shoes.” Accordingly, their opinion is the result of unconscious ignorance – not conscious conflation. – PCQ]

So, the purpose of this post is to put the term “default” back where it belongs. In other words, to remove the judgmental conclusion that defaulting under one’s mortgage or trust deed is a morally reprehensible act. Continue reading “In Defense of Borrower Default”