In case you’re interested, the weather in India is really quite lovely this week. The humidity’s low, there’s no wind whatsoever, it’s sunny and in the low to mid 80s. I’m not thinking about going there or anything, but it does sound like lovely golf weather, I’d say.

Not only that, but the economic conditions in India, while they’re not what they were a year or more ago, are still not that bad. Jobs are pretty easy to come by and the young people are generally optimistic about the future. It sounds like a pretty nice place to visit, although I’m pretty sure I couldn’t live there. I’m a U.S.A. kid and it’s hard for me to be out of the country for more than a month. I start craving American crap; McDonald’s even… so, sue me.

Outside of the occasional disaster, terrorist attack, a disagreement with Pakistan, or something about man-eating tigers, I never really give India a second thought really… until today when I had the most interesting cultural experience. I met someone from India… not in person, mind you… but while on the phone. That book was right… the world truly is “flat”.

It was totally unexpected too, which made it all the more interesting. When I dialed the number I was calling, the last thing I expected was to meet a nice young Indian man named Ashmi; I think that was his name anyway, it was difficult to be sure. When I couldn’t make out his exact name, he said I could call him Sam, which I thought was very nice of him. My name’s Martin, but he was having trouble with that as well, so I said he could just call me “Mark”. Close enough is good enough in matters of international relations, I think.

So, I bet you’re wondering how this whole thing happened. Funny story… I was actually trying to get my mortgage modified and since President Obama announced that there was now a fabulous government help-line phone number I could call, I thought I’d give it a go.

And that’s how I met Sam… I mean Ashmi… or Assme… or Eshmi… I’m not trying to be insensitive here… I’m really not sure. The connection wasn’t bad, but I’m not all that familiar with certain Indian dialects, so it was difficult for me. Other people would do much better, I’m sure.

Anyway, Sam was very interested in helping me with my “loone mode,” was what I think he called it. He couldn’t tell me whether I qualified or not, or what the process would entail, but he was certain that my president had created something very wonderful and was quite taken with Mr. Obama. He asked me if I knew when President Obama might be visiting India and I told him I wasn’t sure, but would check and get back to him.

I asked him about my LTV and DTI ratios, and I told him about the hardship I’ve endured and he was very sympathetic, although he did say that over in India things are much worse. Apparently, and I did not know this, the average wage in India is around $1750 a year in American dollars… I think. The conversion process was cumbersome and I’m not nearly as up on the Rupee as I should be, for which I apologized. Again, other homeowners are probably more familiar with things like that, so by no means am I claiming to be a representative example.

After a while I realized that he wouldn’t be able to help me with much more than filling out a form and getting a reservation… at least I think that’s what he said he could do… don’t hold me to it. He might have been saying something about American Indians having to live on reservations, or something about his new revelations or relations… it was part of a conversation that was moving quickly and I was struggling to keep up. I said that I’d like to sign up for help and he took my information so now I feel a lot better about saving my house from foreclosure. I just hope that my local Post Office can read between the lines because instead of “Martin Andelman,” I’m pretty sure he’s going to be mailing stuff to “Marck Antlermon”.

It’s not really a huge problem, however, because he said someone might also call me back, and I’m almost positive he got nine of the digits right in my ten-digit phone number, so whew… dodged a bullet there.

So, I guess my government has leapt into action on my behalf and as of today… I have to tell you… I’m so relieved. After spending the last several months working around the clock to keep up with my mortgage payments… trying to hold on until President Obama’s housing rescue plan was ready to go, tonight… I’m going to sleep like a baby.

Thank you, President Obama! I agree with Ashhmii… no, it was Aeshemi… never mind, Sam… you really are proving to be everything the American homeowner could have wanted and more. Our prayers have been answered. I’m so glad I didn’t pay that law firm the $3500 they wanted to handle the loan modification negotiations with my bank. This way I don’t have to pay a dime, and I’ve already learned a lot about India, so I’m ahead of the game already.

See people… give Obama a chance… he’s making things happen for the middle class in this country. And if you call the government help-line, which is toll-free, by the way, and you happen to get Assmi… no, Asonomi… something like that… ask him if he goes by Sam… and tell him Marck said hello!

Signed,

One Relieved American Homeowner from Main Street U.S.A.

P.S. Oh yeah, my new friend in India wanted me to pass something along to others in America. Apparently, the United States has many very good restaurants that specialize in the cuisine of India. My friend knows this, because he has a cousin that is over here working in one of them that is owned by his friend’s father. He says that when you eat in a such a restaurant, be sure to order the Beeryani, or Berryani, or Biryani, something like that… and to also try the Ulu Dartha or Aloo Paratha, I couldn’t be totally sure which one was right. Try sounding it out with your waiter, because although he couldn’t offer much information about my mortgage, Sam did seem to know a whole lot about Indian food.

Originally posted on July 20, 2009,

… and yes there’s a reason I’m telling you that.

Have you ever waited for a day to come? A special day. A day when all would begin to look right in the world once again. My first such day was April 10, 2000… the day the dot-com bubble went pop. The sound was so loud you could hear it from Silicon Valley to Wall Street, and it took quite a while for the country to get the gum out of its collective hair.

It’s not that I was gloating, far from it. It’s never fun to see your country plunge into a recession during which some $7.3 trillion in consumer wealth would soon disappear. All I’m saying is that on April 10, 2000, I started to understand the world again, and it was a good, safe, calming feeling.

You see, I never went in on the whole “new economy” thing. “There’s no such thing as a new economy,” I’d said so many times during the years 1997-2000. Someone wanted me to buy furniture.com. I didn’t. The company was one of the first to go under. Why? Because, as I suspected, people like to sit a couch before buying it… go figure. I was told to buy Pets.com too, but didn’t. Why? Because I suspected that it might be expensive to ship 50 pounds of kibble across the country overnight. Who knew?

During those years I was consulting for companies and I felt like the whole world had gone start raving mad. Companies with no profits were trading for 1,000 X earnings because they were “monetizing eyeballs”. Kids, that in my estimation couldn’t keep a hotdog stand open over the summer, were now running multi-zillion dollar conglomerates and I couldn’t understand how or why. When AOL bought out my client at the time, Time Warner… well, I almost lost the blackened-seared-ahi-on-squaw-bread-with-compote-reduction I’d had for lunch.

So, when the bubble finally popped and it became apparent that the 25 year-old emperor that had been selling the whole monetizing eyeballs story to venture capitalists on napkins, actually was nude… I breathed a sigh of relief, as much as anything else. The madness would finally be over. I’d be considered a smart guy once again.

Well, another one of those days arrived for me today. And again, it felt good, relaxing, like everything in life would soon make sense once again.

Remember back in late 2006 and early 2007? The housing bubble had popped, and that came as no surprise whatsoever to me. The only surprising thing about that bubble popping as far as I was concerned was that it hadn’t happened sooner. And by the way, I think that true for most people. Everybody knew that real estate would pull back and take a cyclical dip in the shallow end, perhaps bumping its head and getting a nasty lump as a result. I don’t think we saw the total eclipse of the sun coming, as it did, but we knew it was a bubble, and that like all bubbles, it would eventually pop.

What did surprise me was what our politicians and the media started blaming the meltdown on: sub-prime borrowers. Anyone that read me back then knows it well… and if I said it once I said it a thousand times: it’s NOT the sub-prime borrowers. At best people were confusing a fuse… with the bomb. Actually, I could easily argue that rising oil prices caused the meltdown as I could sub-prime borrowers. But there was no talking to people… they heard it was sub-prime borrowers and they were not going to be dissuaded by any evidence to the contrary.

Truth be told, it was sub-prime borrowers being blamed that got me writing frequently again, after taking a few years off since writing a book and then traveling around the country picking up speaking fees just to talk about what I had written. When the world started blaming sub-prime borrowers, I knew it was time for me to put pen to paper and start showing others the fallacy in their thinking. My very first article was written immediately following a dinner my wife and I had gone to, at which I had been forced to listen to the sub-prime borrower story of the day. Although it came in many flavors, the story went something like this:

Irresponsible poor people bought houses they couldn’t afford using spring loaded loans that adjusted, causing them all to be catapulted out of their homes in foreclosure, and resulting in the meltdown of the financial markets.

Hogwash. Horse Pucky. Total bunkum. It was never sub-prime borrowers that were to blame, it just appeared to be possible and when the banking lobby’s PR machine went into gear, people found it easy to accept. I still have a friend who thinks the meltdown’s cause had something to do with people irresponsibly buying jet-skis. Some beliefs are hard to let go of, I suppose.

I understand it. I really do. You can see it in my older articles. I was getting a teensy-weensy bit jealous of the “brand-new-home” people towards the end there myself. How could you not? So, when the bubble popped, it seemed easy to accept that some of “those” people were the cause. Not the good responsible ones, mind you, but the ones that never should have been there in the first place… the sub-primers. Come on… let’s snub them.

There was even a twinge of racism in the phrase, sub-prime borrower. Almost like it might have been “sub-par human,” but someone spruced it up at the last minute to avoid looking too cruel. I hated it, but not only for that reason, I hated it because it was a ridiculous idea. The sub-prime borrowers, in my mind anyway, were less likely to default than others, because sub-prime borrowers really want their houses bad. Sub-prime borrowers pay their bills and lenders usually like them as a result. They pay their bills and they pay high fees and interest rates.

I went to graduate school with a guy who was the president of a large grocery store chain, Food For Less, I believe was its name. And I remember him telling me how his stores were always in low-income areas, but that they had fewer bounced checks than the grocery stores in the wealthier neighborhoods. It seems that poorer people made sure that they lived within their means more carefully than their wealthy neighbors across the tracks.

Even Warren Buffet liked sub-prime borrowers. In fact, Berkshire Hathaway still owns a company that makes largely sub-prime loans on some sort of pre-fabricated housing solution, and that company never did experience the sub-prime meltdown as was being reported by the media.

The main reason it never made sense that sub-prime borrowers were to blame, besides the obvious reason that sub-prime borrowers really want their homes, was the absurd assumption that these lower income people didn’t know how much their payments would be a year or two down the road. I simply couldn’t believe that could be true in large number. I don’t care how poor or uneducated a person is relative to others, they know how much they pay in rent… I mean mortgage payment amount, each month.

Another thing I knew about sub-prime borrowers was that they didn’t move into a new home with the idea that they’d lose the house a year or two later and be forced to move. Not knowing the future amount of your monthly mortgage payment, or moving somewhere with the idea of moving a couple of years later sounded more like the way wealthier people might behave than sub-prime borrowers.

Sub-prime borrowers hate moving… especially their refrigerators. They can’t afford fancy moving companies who come pack everything up and unpack it at the next homestead. They call friends like me who are stupid enough to always own a truck. The whole experience moving is downright miserable for sub-prime borrowers, so they avoid it whenever possible.

There were lot’s of other reason to suspect the sub-prime borrower story, the size of the market relative to the damage being caused, for one. So, anyway… I guess I should get to the point of the article. New evidence has been compiled by Stan Leibowitz, a professor of economics who is the director of the Center for the Analysis of Property Rights and Innovation at the management school at the University of Texas, Dallas.

And as it turns out… can you guess? It wasn’t sub-prime borrowers that caused the meltdown, more than their influence, it was zero down financing that created this mess, according to Professor Leibowitz and the actual data. As stated by Leibowitz:

“The evidence from a huge national database containing millions of individual loans strongly suggests that the single most important factor is whether the homeowner has negative equity in a house — that is, the balance of the mortgage is greater than the value of the house. This means that most government policies being discussed to remedy woes in the housing market are misdirected.”

Misdirected? Yea! Yahoo! Oh when the Saints… go marching in… oh when the Saints go marching in…

Go on, professor…

“… the focus on sub-primes ignores the widely available industry facts (reported by the Mortgage Bankers Association) that 51% of all foreclosed homes had prime loans, not sub-prime, and that the foreclosure rate for prime loans grew by 488% compared to a growth rate of 200% for sub-prime foreclosures. (These percentages are based on the period since the steep ascent in foreclosures began — the third quarter of 2006 — during which more than 4.3 million homes went into foreclosure.)

Sharing the blame in the popular imagination are other loans where lenders were largely at fault — such as “liar loans,” where lenders never attempted to validate a borrower’s income or assets.

Wow… did you read that? It wasn’t the liar loans either.

The analysis indicates that, by far, the most important factor related to foreclosures is the extent to which the homeowner now has or ever had positive equity in a home.

The difference in policy implications is enormous: A significant reduction in foreclosures will happen when and only when housing prices stop falling and unemployment stops rising.

This guy is wicked smart. He goes on to explain that the administration’s Making Home Affordable program is ill-conceived, and he does so on very solid ground and in an inoffensive way. Perhaps the Obama administration will consider Professor Leibowitz’s findings and correct the current course.

Here’s the article in yesterday’s WSJ: http://online.wsj.com/article/SB124657539489189043.html
And please forgive me if I sounded arrogant there at the beginning. I was feeling just a little bit taken with myself for a minute or two… so, sue me. I’m okay now.

Sub-prime borrowers… you are about to be vindicated!

Watch what happens next. Other journalists are going to write about the professor’s conclusions. After that, the talking heads will be all over it. Before you know it, our country will start to question what’s happened here and who really is responsible. And meanwhile, banker after banker will be seen going into court, for one reason or another. All while the foreclosures spread into white middle and upper-middle class neighborhoods from sea to shining sea.

People will get mad… and then madder. (It helps to read the next paragraph using the voice of James Earl Jones at the end of Field of Dreams. And if you haven’t seen it, see it.)

And by the time the 2010 midterms roll around, people will come, Ray. They’ll come to Washington D.C. for reasons they can’t even fathom. They’ll turn onto the Beltway not knowing for sure why they’re doing it. They’ll arrive at their voting booth as innocent as children, longing for the past. Of course we mind if you look around, politicians will say. It’s only $50,000 per person that you all owe. They’ll pass over the politicians without even listening to them: for it is America they own and prosperity they lack. And they’ll walk out to the mall; sit in shirtsleeves on a perfect afternoon. They’ll remember the power they had when they were younger and voted for heroes. And they’ll vote for people that will truly represent them and it’ll be as if they dipped themselves in magic waters. Their memories will be so thick they’ll have to brush them away from their faces. People will come Ray. The one constant through all the years, Ray, has been America. Our nation’s banking lobby has rolled through Congress like an army of steamrollers. We need Congress’ thinking to be erased like a blackboard, rebuilt and perhaps erased again. But our America will withstand time. This banking lobby’s control of this congress and this administration: it’s a part of our past, Ray. We’ll remember, all of us, what was once good and could be again.

Oh… people will come Ray. People… will most definitely come.

Sent to Sen Feinstein in April of 2009…

What follows is the text of a letter I sent to Senator Feinstein today. The situation is grave and worsening as related to private sector loan modification companies. Soon they will all be gone if something isn’t done by those in government, and once that’s the case, homeowners will have nowhere to turn for help. I know… they can call the government hotline, but I’m tired of being nice about this… after 47 years on this planet, I can’t believe anyone believes the government program will work, much less help. And anyone who tells me that homeowners can simply call their bank and get their loan modified is simply delusional.

Please help me preserve the only chance we have at a solution to the foreclosure crisis that doesn’t cost the taxpayers countless billions… the only solution that makes the banks fix the problem they played a large part in creating. We don’t need bailouts. We just need loan modifications. And the legitimate companies that are helping consumers remain in their homes and avoid foreclosure are the last companies we need to put out of business.

Use any or all of the text that follows and send as many letters and Emails as you can. Send them to your state senators, congressional representatives, and Departments of Real Estate. But please, do it today… or tomorrow might be too late.

Dear Senator or Congressional Representative:

Lately, I have been paying close attention on the government’s position on the emerging loan modification industry. I am writing to you today because it has become abundantly clear to me that the government, I assume unknowingly, is making the situation measurably worse for distressed homeowners.

Several weeks ago, I was shocked to hear President Obama, while talking about mortgage loan modifications made the statement “If you have to pay, walk away.”

While I couldn’t agree more that fraudulent operators who deceive homeowners should and must be stopped, there are many legitimate loan modification companies in California and across the country; companies who are each successfully modifying hundreds of mortgages a month and thus making it possible for people to keep their homes. Their work benefits not only the homeowners themselves, but also our society as a whole.

The fact is, to-date these companies are the only organizations who can claim success in this area. The government programs, such as the Hope for Homeowners program initiated by President Bush, have failed. The banks have most definitely failed homeowners and our nation at every turn. Only the legitimate, private sector loan modification companies have a track record of significant success.

So they charge a fee? Of course they do. Charging for services is not a bad thing. Charging and not delivering is a problem. The President’s characterization of loan modification companies as being bad because they charge a fee is not only unfair, it’s causing irreparable damage to the only industry that’s helping to stem the tide of foreclosures in this country.

You need to know that very soon, it will be too late. All of the legitimate and reputable loan modification companies will be gone and homeowners will be left with only two options: Qualifying for President Obama’s loan modification program. Or attempting to negotiate with their bank directly. Neither is a good option for millions of homeowners, especially in hard hit states like California.

The President’s plan only applies to mortgages securitized by Fannie Mae and Freddie Mac, but the data shows that in 2005 & 2006, a full 65% of mortgages were not securitized by Fannie or Freddie. And these are the loans most at risk of foreclosure. Even the administration readily admits that the Affordability and Stability Plan won’t help millions of distressed homeowners.

You should also know that I’ve seen a great written about the potential for homeowners to negotiate directly with their lenders and I have to tell you that as answers go… this has already proven itself to be a particularly ineffective path. Among other things, just imagine a distressed homeowner calling a bank in an attempt to negotiate with a major financial institution and the picture should begin to emerge. Banks are debt collectors by nature, obviously much more concerned with their profits than a homeowner’s hardship.

The overriding point is that, as a result of the media’s attention to the fraudulent loan modification scams, and compounded by the President’s statement and very clear messaging found on the Treasury’s Website, legitimate loan modification companies will soon be gone, and there is nothing in place to replace the valuable work they do on behalf of homeowners to reduce the number of foreclosures.

The California Department of Real Estate has weighed in with what they refer to as an “advance fee agreement,” which states that a loan modification company cannot charge more than 30% of its fee up front, which might not be too bad, except that it also says that once the consumer’s mortgage has been modified, the balance is only payable by the consumer if the consumer is “satisfied,” and there is no objective definition of that satisfaction. This effectively puts all legitimate loan modification companies operating under DRE rules out of business, as no reasonable company could operate under such conditions.

Today’s homeowners are becoming increasingly problematic. There is a growing attitude of entitlement that is resulting from the media’s reporting of bank improprieties, AIG bonuses, and the like. Just this morning, one CEO of a highly effective loan modification company in Irvine, CA, was reported to have said that just today, two homeowners that received significant modifications as a result of his firm’s services turned them down because they said they weren’t good enough. One was offered a reduction to a 0% interest rate and the other to a 3% rate.

Having watched this crisis for the last two years, it has become painfully obvious to me, that both the state and federal government have no idea how to handle the foreclosure crisis in this country. Neither appears to understand how to differentiate between a fraudulent loan modification company and a reputable one, and therefore have chosen to brand them all with the same brush… “If you have to pay, walk away.”

I implore you to look at this issue more carefully. The number of foreclosures is rising each month and until something is done to slow this progression, our economic recession will only deepen, people will become more disillusioned and angry, and political support to do the things needed to right our economy, already scarce, will become nonexistent.

Last week the CEO of a property preservation company headquartered in Tustin, CA was interviewed by a columnist on ML-Implode.com. His company reconditions foreclosed homes on behalf of banks so they can be put back on the market. He said that increasingly, homeowners are damaging or destroying their homes before they leave them. A 61 year-old man in upstate New York recently rented a bulldozer and reduced his foreclosed home to rubble just two days before a forced sale was to take place. The level of homeowner unrest is rising fast and I fear will soon deteriorate until it becomes unmanageable.

It seems unquestionable that we need to develop real world solutions to the foreclosure crisis, solutions that protect homeowners, while providing them with the choice of hiring a professional and reputable loan modification company to work with their bank to prevent foreclosure of their home.

Calling the government does not even approach being a total solution, let alone the fact that no government program is even in place today. And calling one’s bank directly is an absurd proposition, as even Rep. Waters found out on ABC’s Nightline over a month ago when she tried it herself and found it more than difficult. Dozens of homeowners have reported trying to work with their bank for months at a time to no avail.

“If you have to pay, walk away,” was clearly not a well thought out statement for President Obama to have made. The fact that some loan modification companies have proven themselves to be scams is reason to regulate the industry to prevent scams from operating. It is not justification to put the entire industry out of business, especially when there is nothing to take its place.

Loan modifications don’t spend taxpayer dollars. How can we be eliminating the porential for this type of solution, as we watch untold billions get pumped into banks and numerous others?

Consider that there have been countless securities scams over the years, Bernie Maddof’s certainly comes to mind, but I don’t remember hearing a president tell the American public “If you have to pay, walk away,” about licensed securities dealers as a whole. No one tries to put the securities industry out of business because some operators are shown to be scams.

The people being harmed, both the distressed homeowners and the reputable loan modification companies that are helping people remain in their homes have no lobby. No one represents them, and they are the ones being harmed and the ones helping.

The government’s response to the foreclosure crisis is fast becoming a real travesty, and one for which we will all pay the price for years to come.

Please feel free to contact me at anytime…

(Your Name)

(Your Address)

(Your Phone Number)

Mandelman out.