Strategic defaults may be helping the economy

The first wave of U.S. mortgage defaults is now history and since 2007 few are unaware of its impact on the U.S. economy. Primarily spurred by lenders who made bad loans and borrowers who sold “up” to that bigger home, with larger monthly payments. Lately, something altogether different has been making an increasing contribution to soured debt: Americans choosing to stop making mortgage payments they actually can afford.

A recent report suggests that “Strategic Defaults” accounted for at least 12 percent of all defaults in February, up from about 4 percent in mid-2007. A strategic default is defined as a homeowner who hadn’t previously been delinquent, but then skipped payments for three consecutive months; and stayed current on other consumer debt of $10,000 or more.

Housing analysts say strategic defaults mainly occur when a home’s value has dropped below the balance remaining on the mortgage. A homeowner in that position may decide that continuing to make payments is throwing money away, or may default to get the lender to re-negotiate the terms of the loan. An estimated one in five U.S. homes with a mortgage has “negative” home equity, according to Zillow.com.

In March the Obama Administration announced it was coming up with a plan to encourage cuts to the principal on mortgages exceeding the worth of properties. Previous government efforts did not emphasize principal reduction but focused on lowering monthly payments. Still these programs are confusing and only aid a few who qualify for the specific guidelines. This does not address the millions of homeowners who tried to modify their own loan only to be declined. Often the principal reduction is a smoke screen because the interest rate remains high so the interest that is paid back ends up being more than what a low rate modification would be. For people staying long term, it doesn’t make sense, but for those who just want to find a way out of their home in the next year, it may serve them well. That is assuming the value doesn’t continue to decline.

Whatever you think of strategic defaults from an ethical point of view, they appear to be temporarily aiding the economy, by boosting consumer spending and allowing homeowners to stay current on their other bills. Consumer spending, which accounts for about 70 percent of economic activity in the U.S., rose at a 3.6 percent pace last quarter, more than economists forecast. The increase, the biggest since 2007, was somewhat puzzling considering that the underemployment rate was at 16.9 percent in March, near the highest level in 16 years. (The rate includes people without jobs, part-time workers who would prefer a full-time position, and people who want work but have given up looking.)

All told, borrowers who aren’t making mortgage payments equates to $100 billion annually, an amount of 1% of the US economy. “Presumably these homeowners know they’re going to have to start paying again” to live somewhere, because delinquencies on credit cards and auto loans have been dropping. This may be a sign that homeowners are using mortgage money to pay down other debt, which is great. Maybe many of us have really learned our lesson and now understand that debt literally robs us of our freedom!

The paradox is a little disconcerting because by helping to boost the economy now, and affecting their credit which dictates future ability to borrow…what happens when that boost is gone?

You will find a variety of educational content on the HowToSaveMoney360.com website.

Cease and Desist Letter

For anyone who is attempting to settle a debt or re-negotiate with your lender or credit card company. Use the following Cease and Desist letter. Send your letter via Certified Mail Receipt – you can confirm delivery right from the USPS website.

If you have any question, please don’t hesitate to call me personally 623-252-0545.

Date

Company Name

Address

City, State, Zip

Pursuant to my rights under Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. and Section 805. regarding Communication with Debt Collection, and specifically Section 805(c) Ceasing Communication. I am now demanding that you cease and desist communication with me, as well as my family and friends, in relation to this and all other alleged debts you claim I owe. You are hereby notified.

If you do not cease immediately I will file a formal complaint with my State Attorney General’s office so they have a copy on file. Additionally a copy of all notifications including this one will be mailed to the Federal Trade Commission due to your violation.

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Attached are records to prove you have received the first notice. You are breaking the law and my Attorney will pursue you from this point.

Sincerely,

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Name

Address

What's ahead for 2010

As the new year begins many consumers and homeowners are wondering what 2010 is going to look like. First let me begin by stating that I am an optimist at heart. I believe that there is no better time to be alive then now. I also believe that if we as a nation are to emerge from the mistakes of the past and build a healthier and stronger economy, we have to accomplish a few things....together.

Number 1. We all must begin to rid ourselves of debt. We must stop spending more than we earn. The media is a powerful force that conditions us to spend. Turn off your TV. I'm also guilty of this during the boom time, but have been working systematically to rid myself of debt since June 2009.

Number 2. We must understand what we're dealing with. Like the general on the battlefield, he must be aware of the enemy. As consumers, it's vital for us all to know whats happening behind the scenes with the financial institutions "we used to trust". Yes, "used to" because they have all proven to us that they cannot be trusted. See the previous blog about what banks are doing.

SAVE THIS LINK - my next several blogs will detail situations that prove that banks and financial institutions we have all relied on for so long, are nothing more than greed-based, self-serving, monolithic meglo-maniacs.

For this EC360 Empowered Consumer Blog Post, the graph above should have everyone's attention. The graph shows the coming storm in the financial sector. The reason I suspect the next storm will be worse is simple. The next wave of mortgages that re-set will come "on top of" the commercial meltdown that is just around the corner. The graph clearly indicates that we have not hit the peak yet, and this trend will continue through 2011.

The book I wrote Empowering Consumers with HowToTorials in 2006 predicted a crisis. I was wrong about one thing...how big it was going to be. I hope I'm wrong about what's still to come.

Feel free to contact me if you have any questions about your financial future, your mortgage, credit card debt or any other issues relating to your fiscal well-being. I will do whatever I can to help you. You can download a free copy of the Empowered Consumer handbook at www.howtotorial.com

“CAUTION” Banks and their affiliated relationships.

Few people understand the impact affiliated relationships have on consumers when banks merge with other banks. Even if two banks don't actually “merge” they share information and make data available to each other at the expense of you when they decide to form affiliated business relationships. After all, when would a bank take action in a specific direction unless it serves “them”?

How, “you ask”, does this affect the average consumer? Lets just use the example that's been prevalent in America for the last two years. A family has an unexpected job loss and now has to deal with just one income. They begin to use more credit and as result increase their credit card usage. Eventually, they become stretched to pay the mortgage and are forced to consider other alternatives like Short Selling their home or perhaps Loan Re-Structuring. During the process most people attempt to do the “right” thing and are honest to a fault by completing documentation and sending all their detailed banking information to the loan servicer in a good faith attempt to apply for a loan modification. The issue comes when the bank doesn't approve the work-out due to the bank reserves they still have in savings.

Or, when the homeowner can no longer pay the mortgage and they miss one payment, the bank goes right into their bank account and takes the money. Contrary to what people may have told you, banks can do that as long as they have disclosed the affiliated relationship in the fine print which no one reads. Now you know why you get those statements in the mail two to three times each year saying that “something” has changed at the bank but you can't make heads or tails of it.

Banks are actually forcing people to deplete their savings before they will consider a loan modification. How is this viewed as help? To force people to be broke before helping them is wrong. So, if you are considering a loan re-negotiation, or if you know someone who is, you must keep in mind who your servicer is, and what bank or private investor owns your note.

EXAMPLE A: Homeowner has a first mortgage with Bank of America. They also have a second mortgage with EMC. Remember, EMC is owned by Chase so if there are any bank accounts with Chase, those funds can be taken from the bank if you're late on your EMC payment.

EXAMPLE B: Homeowner has a first mortgage with Countrywide. They also have a second mortgage with MBNA. Remember, B of A owns MBNA and Countrywide, so if there are any bank accounts with B of A, those funds can be taken from your account if you're late on either your MBNA or Countrywide payment. Here's a list of the big relationships:

Wells Fargo = Wachovia and ASC

Chase = EMC and JP Morgan

One west Bank = Indy Mac

National Citi = PNC

B of A = Nations Bank, Fleet Boston, MBNA, US Trust, Countrywide, Merrill Lynch

Contact us if you have any questions regarding this topic, we provide free advise to people everyday and do not charge up front fees. A detailed pre-qualification will help determine if you can have success with a mortgage re-negotiation and plan an appropriate strategy that protects your hard-earned money in the process. Empowered Consumers is a full service loss mitigation firm committed to preserving home ownership. Learn more about us at www.ec360.org

Friendly Banks???

By now everyone knows that you can call your bank to discuss work-around solutions if you're having trouble keeping up with your mortgage. What's not well known is the risk you may face from some financial institutions. The banks are motivated to modify your loan, only if it serves their best interest. There is an endless stream of complaints from hardworking consumers who are getting no where with their banks. Read "The Niche Report" on the www.ec360.org website that further documents the concerns throughout America.

Case in point, I recently spoke with a potential client about a refinance of her primary residence. She was confused about why her bank was trying to get her to refi her first mortgage of $216,000 down to just $157,500. This wonderful woman who everyday cares for people with disabilities called her bank pro-actively to see about getting out from under her current loan because a Balloon payment was coming due in January 2010. She filled out the application and sent in her financials and bank statements. Her bank reserves showed over $100,000 in various assets that she needs and uses to care for her handicapped 10-year old daughter. She works full time caring for disable children and has a very limited income. The bank saw the large balances and sent her a new loan commitment document. She began communicating with the loan officer at the bank via email and was smart enough to save the emails. The loan officer at the bank was very vague with disclosure and never really spelled out the terms of the loan. The woman called her Realtor and her Realtor contacted us.After looking at her original loan documents with her Realtor, it was clear why this bank wanted to get her to come into close with $75,000 and switch her from a balloon, to a 3/1 ARM at 5.5%. When she emailed asking why they sent her a ARM rather than a 30-year fixed, they responded to her by saying, "you can always refi in 3 years".

Whats frightening is that this bank sent her a Residential Mortgage Loan Commitment that lacked the necessary legal disclosures for her to clearly understand what the loan would cost her.What we found after some due-diligence was horrifying! To summarize the facts, we will begin with the first loan. The original Truth-in-Lending Statement (TIL) was off by .25%. Shenever received her final HUD-1 closing statement and there were significant issues with the way her original loan was cast. Next, the bank was trying to literally steal her liquid assets from her bank account which she needs to support her disable daughter. The banks goal was to get into a positive equity position on the property instead of being upside down. There was no reason for the bank to send her a commitment letter for another Adjustable Rate loan when they could have easily offered a 5% 30 year fixed rate mortgage. Further, the new loan documents (which she never signed) also had mistakes on the Truth-in-Lending (TIL) just like the first loan.

We are thankful for the quick thinking of the homeowner and our Realtor partner who brought this to our attention. We're in the process of notifying the lender in writing of the violations and EC360 has already begun to go to work on behalf of the homeowner without any up front fees. For anyone who gets that tinge in the gut saying "somethings wrong" it's usually always right. Listen to your gut instincts, call your Realtor, if you have one, to get an objective opinion, or call Empowered Consumers for honest objective advice at no cost.

"Fall Street" not Wall Street

Yet another Wall Street big wig finds himself in cuffs and on camera after being caught insider trading through a series of contacts and informants. Media is once again stating "this is a wake up call for Wall Street", but how many time have we seen this in the last 7 years? Over 100 high profile executives have been found guilty of fraud. I suspect that most Americans are like me and don't even blink at these stories. By now we understand that this is just the way the system works.

Wall Street is rampant with fraud and corruption, government targets those high profile people that get headlines. The Attorney Generals get on camera saying this is our way of protecting consumers. Funny, American consumers never see a penny of their lost investments - instead the government fines the firms and uses that money to expand an already bloated Government.
CNN Money just reported the nation's tally of bank casualties hit 99 last month when state regulators closed San Joaquin Bank, based in Bakersfield, Calif. This was the tenth bank to fail in CA this year. There are about 8,000 banks in the nation, and an average of 10 banks have failed per month this year, nearly four times the number that failed in 2008. This is the highest tally since 1992, when 181 banks failed. Though 2009's count is still far from 1989's record high of 534 bank closures which took place during the savings and loan crisis, the FDIC revealed there are now 416 banks at risk of failing -- the highest level in 15 years. This year's failures have reduced the FDIC's insurance fund to $10.4 billion from $45 billion a year ago. Faced with dwindling funds, the FDIC has to figure out how to raise money to restock the fund.

Goldman Sachs, the New York-based investment firm turned another eye-popping profit in October, earning $3.2 billion in the third quarter, as revenue from trading rose fourfold from a year ago. As Wall Street firms typically do, Goldman set almost half that sum aside to compensate its workers. Through the first nine months of 2009, the firm socked away $16.7 billion, enough to pay the average Goldman worker $526,814. The bonus pool is on pace to hit $21 billion for 2009, which would match the record bonus payout of 2007. Goldman said it won't decide the size of the bonus pool till year-end.

WOW all this while the average consumer is trying to figure out if they should modify, short sale, or walk away from their home. Not a full year ago HUGE sums of taxpayer dollars were funneled to financial institutions. Critics charge that the lion's share of Goldman's profits comes from making big bets using cheap dollars printed by the Federal Reserve. Plus, given the crisis that followed the failure of Lehman Brothers, there's a sense that government officials won't let big firms go bust. That in effect gives too-big-to-fail firms a license to bet the house. Again we see big Wall Street firms using tax payers’ hard-earned dollars to bet on investments with no guarantee of success.

So what do you do? Educate yourself, reduce your debt, manage your money effectively, and don't gamble. EC360 provides objective information that helps homeowners preserve their equity and capital. Find out more about the Empowered Consumer movement at www.ec360.org