Attention Mortgage ServicersÖ Heed these words now, because itís much later than you think.
According to the HOPE NOW Alliance, May was a very UP month.¬† Everything went up in May.
The number of in-house or ‚Äúproprietary‚ÄĚ loan modifications increased by five percent in May as compared with April.¬† HAMP loan modifications increased from 15,167 in April to 17,590 in May.¬† Even short sales were more prevalent, with 38,273 completed in May as compared to only 34,643 in April.
That‚Äôs the good news and it does sound encouraging, I‚Äôd have to say, but there are a couple more things worthy of mention.
Not to be left out of the growth spurt, foreclosure starts too, increased by almost fifteen percent, with 203,590 in May, up from only 177,259 in April.¬† The number of foreclosure sales completed in May also rose to 64,979, compared with only 59,643 in April.¬† And, last but not least‚Ä¶ the number of mortgages delinquent by at least 60 days also went up in May‚Ä¶ going from 2.517 million loans in April to 2.527 million in May.
So, using Hope Now‚Äôs industry-friendly data, which is based on a three-month rolling average, excluding HAMP modifications, there were 45,127 homeowners who received permanent loan modifications in May, up from 42,962 in-house loan modifications in April.
Now, throw in May‚Äôs 17,590 HAMP modifications and you get just under 60,000 total mods for May‚Ä¶ which, when compared to the 203,590 foreclosure starts, and then factor in the increase in seriously delinquent loans, and you quickly conclude that‚Ä¶ well, let‚Äôs see‚Ä¶ either we‚Äôre totally screwed or, if you‚Äôre an eternal optimist, we‚Äôre running in place.
I can‚Äôt decide which answer I like best‚Ä¶ totally screwed or running in place‚Ä¶ hmmm‚Ä¶ decisions, decisions.¬† Oh well, I suppose it‚Äôs really just a case of you saying ‚Äúpotato,‚ÄĚ while I‚Äôm saying‚Ä¶
“Dos disparos mas de tequilla por favor.”
Our nation is facing a home foreclosure crisis. Four million Americans have already lost homes to foreclosure, and forecasts show another 3.6 million foreclosures ahead. Who knows what will happen beyond that, the numbers are likely to go even higher. Housing prices are in many parts of the country are in free fall, and no bottom is in sight. Some are saying prices will fall by an additional 20-30% before we see the market‚Äôs bottom, but no one really knows how bad it will get, or how long it will last.
I wrote that paragraph‚Ä¶ back in March of 2009.¬†
‚ÄúSheila Bair also said that the HAMP program won‚Äôt halt an avalanche of foreclosures, conceding that there are millions of homeowners that are now so far ‚Äėunderwater‚Äô ‚Äď their homes now worth less than their mortgages ‚Äď that they will inevitably lose their homes.‚ÄĚ
That‚Äôs one heck of a statement, isn‚Äôt it?¬† And, former FDIC chair Shiela Bair uttered those exact words during an interview on ABC News‚Ä¶ on February 19, 2009.
And as it turned out, Sheila was absolutely correct in what she said back then‚Ä¶ one might even call her prescient.¬† And, all I can say is that it sure is a good thing that there aren‚Äôt even more homeowners that far underwater today and destined to lose their homes to foreclosure as a result.¬† Yes, we should thank our lucky stars for that.
The Bankruptcy of America‚Ä¶ One City and State at a Time
In a totally unrelated story‚Ä¶ most state 2012-2013 fiscal years began on July 1st, and three California cities have either filed for bankruptcy or are about to, with one Pennsylvania town cutting all employee pay to minimum wage, all in the last couple of weeks.
In California, the first city to announce that it‚Äôs dead flat broke was Stockton, which coincidently was also ground zero for the foreclosure crisis in California, and also coincidently, is the city with the lowest literacy rate in the state, but don‚Äôt pay any attention to any of that because the one thing the experts all say they‚Äôre sure isn‚Äôt causing the city‚Äôs financial troubles is foreclosures.
So, at least we know that‚Äôs not the problem.
It‚Äôs many other things that are causing the city‚Äôs fiscal woes.¬† Things have been around for many years, but have apparently taken the city by complete surprise, like retiree health benefits and pension plan liabilities, and union contracts and‚Ä¶ um‚Ä¶ public drinking water fountains‚Ä¶ damn those fountains.¬† Why do people in Stockton need to drink so much damn water anyway?
Next to hit the skids was San Bernardino, which is known as the jewel of the Inland Empire, the Gateway to Moreno Valley, and another epicenter of the foreclosure world.¬† It‚Äôs also where the McDonald Bros. hamburger stand was located‚Ä¶ the one that Ray Crock purchased back when the Big Mac was just a gleam in his eye, much like Peter Minuit purchased New Amsterdam from the Lenape Tribe in 1626, which he bought so there would be a place to house both hard core pornography and investment bankers here in the New World.
San Bernardino is also a foreclosure mecca, but it‚Äôs not going bankrupt having anything to do with foreclosures either, so get it out of your mind.¬† According to most economists today, the one thing that has had absolutely no negative impact on anything in this country are the eight million homes we‚Äôve lost to-date to foreclosure.¬† And that, I have to tell you, is quite the relief, because I will admit having been concerned that losing eight million homes to foreclosure could potentially, shall we say, crimp our style a tad or two.¬† Lucky for us, that it‚Äôs not the case.
And coincidentally, roughly 3,000 miles away, is yet another bankrupt burg‚Ä¶ the picturesque whistle-stop known as Scranton, Pennsylvania, a city whose boom years came to a close in 1945.
The average firefighter in Scranton went from earning about $56,000 a year to $7.25 an hour.¬† In one day, they went from being middle class to being at the poverty level and qualifying for food stamps.¬† John Judge, president of the International Association of Fire Fighters, Local 60 was quoted recently by Bloomberg as saying‚Ä¶
“I have guys who don’t know how they are going to pay their mortgage. There are kids working at ice cream stands earning more than their fathers, which is ridiculous.”
The City of Scranton‚Äôs business manager said that as of last week, he had about $133,000 in the bank, but roughly $3.4 million in bills‚Ä¶ and I absolutely hate it when that happens.
Scranton’s mayor and city council are apparently deadlocked in a debate over how they should raise money in a place with 50 years of declining population.¬† The mayor, I‚Äôm told by my sources, favors bake sales, while the city council is partial to raffles and ‚ÄúDunk-the-Mayor‚ÄĚ booths at the summer fair.
Raising taxes as a way to make up the monetary shortfall was taken off the table last week when it was realized that only 14 people in Scranton were now earning enough money to have to pay any taxes, and half of those were under 18 and needed the money for pot, beer and X.
At this point, the negotiations are reportedly at an impasse, and the mayor has stated that if an agreement cannot be reached soon, he is going to signal the fire chief to evacuate the town with the last person to leave told to turn out all of the lights and bring the town flag.¬† The plan is for everyone to reconnect in a high school football field in Harrisburg four hours later.
Scranton‚Äôs spokesperson has admitted that more recently the city was totally slammed by the real estate slump and the ‚ÄúGreat Recession‚ÄĚ that followed.
Now, it‚Äôs been quite a few years since I had to stop for gas in Scranton, but I‚Äôve heard that since the housing bubble popped, home prices in the area have been cut almost in half.¬† People are underwater and they‚Äôre frustrated.¬† I‚Äôve heard that some have even been forced to use Visa cards to pay-off their mortgages in order to avoid foreclosure.
(Okay, I‚Äôm just kidding Scranton-ites.¬† You know I love you, right?¬† I‚Äôm just a kidder.¬† I kid‚Ä¶ ask anyone.¬† Don‚Äôt send me angry letters.)
The point is, and I‚Äôve written about what I‚Äôm about to say on quite a few occasions, this is just the beginning.¬† Watch, as over the next year, cities all across the country all of a sudden are surprised to find they‚Äôve gone broke.¬† They‚Äôre going to be popping like popcorn.¬† And after that gets a full head of steam, would anyone like to take a guess at what will happen next‚Ä¶ you know, after American cities start going down like Paris Hilton at a TMZ Celebrity Slut-a-Thon?
Okay, now let‚Äôs not always see the same hands‚Ä¶ yes, that‚Äôs right!¬† After the cities, it‚Äôll be time for the states to start falling off their own stately fiscal cliffs.¬† I‚Äôm taking California and Illinois with either Connecticut or New Jersey for the trifecta box.
And in case any of this isn‚Äôt connecting dots, when cities and states go bankrupt, a lot more happens in this country than the trash being picked up less frequently.¬† You see, states often have contracts to buy goods or services from large companies and when the state stops buying, people find themselves out of work.¬† And when quite a few states and cities fall to hard times, unemployment goes up‚Ä¶ which leads to what?
Anyone?¬† Anyone?¬† Bueller?¬† Bueller?
More foreclosures!¬† Ladies and gentlemen we have a BINGO!
And what else to states do to make up for their shortfalls‚Ä¶ why, they raise taxes and cut services, which only means less spending and even more unemployment.¬† And that creates even more foreclosures!¬† Yay‚Ä¶ Woohoo!¬† Isn‚Äôt this fun, racing to the bottom?
Is this the sort of thing that might happen or might not?¬† No.¬† It‚Äôs a sure thing.
Call it three years‚Ä¶ for examples sake.
So‚Ä¶ foreclosures are going to rise for quite sometime, just to keep everyone from jumping off a nearby bridge, let‚Äôs safely say that it‚Äôs at least three more years‚Ä¶ cough, cough.
The only thing is, and this question is for the servicers reading this‚Ä¶ what‚Äôs going to be different about foreclosures going forward as compared with what we‚Äôve seen to-date?
Okay, I‚Äôll give you a clue‚Ä¶ three words‚Ä¶ first word:¬† Not public, so __________.
Second word: Not wrong, so ________.
Third word: Bruce Willis movies are usually found in this section: __________.
The Pendulum Swingeth‚Ä¶
About three years ago, I spoke at a conference held by the American Bar Association in Park City, Utah.¬† I was there to speak about the foreclosure crisis, loan modifications and, of course, homeowners, who at the time were being treated in practically the same way that Tutsis were treated by Hutus in 1994.¬† In the audience were at least a couple hundred banking lawyers.
It was February of 2010, and we were still in the last legs of our first faux-recovery of the housing market, the one fueled by the tax incentives and the Fed‚Äôs buying of $1.5 trillion in mortgage-backed securities.¬† I‚Äôm sure most of those in the audience that day thought I was mostly entertaining‚Ä¶ funny, even.¬† But I‚Äôm sure very few took what I said to heart.
What I said that day, however, was that our housing markets would most assuredly continue their free fall and that foreclosures, as a result, had nowhere to go but up‚Ä¶ and up‚Ä¶ and up.¬† I also explained that it was not the fault of homeowners that they would increasingly be falling into foreclosure, that it was not a case of mass-irresponsibility on the part of borrowers.¬† Rather, as I told the audience, it was the result of the credit markets being entirely broken and home values falling fast as a result.¬† Negative equity, I asserted, would be the primary driver of foreclosures.
I also explained that the way homeowners were being handled in the loan modification process, servicers were pushing the pendulum too far in one direction, and that it would eventually swing back the other way with even greater force‚Ä¶ and knock them off their feet.
In fact, at the end of history‚Äôs similar stories, the people either storm the Bastille or shoot the Romanovs as we all wonder what happened to Anastasia.
In other words, the people will always win‚Ä¶ eventually.¬† And the freer the society, the sooner they will win.¬† In our society, and in this particular instance, it appears to take about four years.
But, mortgage servicers, it has already happened‚Ä¶ the people have pushed back, you just don‚Äôt know it yet, or perhaps you do, I‚Äôm not entirely sure.
What Can Brown Do for You?
California‚Äôs Governor Brown Signs the State‚Äôs Homeowner Bill of Rights
After three years of coming up short when trying to pass a law to protect homeowners in the foreclosure process, this year things went swimmingly from the homeowner‚Äôs perspective anyway.
Mortgage servicers, it should go without saying, are not at all happy about the development, but it‚Äôs the mortgage servicers that are the creators of California‚Äôs Homeowner Bill of Rights.¬† California‚Äôs homeowners should be thanking servicers because they, in point of fact, couldn‚Äôt have done it without the servicers.
Servicers could have let the bill pass that was proposed three years ago‚Ä¶ it was milk-toast compared with this year‚Äôs version‚Ä¶ but the mortgage banking industry fought it like the devil until it was dead.¬† Likewise, servicers could have let the next year‚Äôs version pass into law, but their industry lobbyists made fast work of that one too.
And today‚Äôs servicer should be relieved that it was this year‚Äôs version that passed, because had AG Harris‚Äô Bill of Rights 2012 died at the hands of banking industry lobbyists, it‚Äôs pretty clear that next years‚Äô entrant might very well have transformed commercial banks into public utilities‚Ä¶ and been completely impossible to stop.
It couldn‚Äôt have been homeowners who created the new Bill of Rights, homeowners have never even heard of ‚Äúdual tracking,‚ÄĚ or a ‚Äúprivate right of action,‚ÄĚ or uttered the phrase ‚Äúsingle point of contact.‚ÄĚ¬† No, this was a creation of the servicing industry. ¬†Just as I‚Äôd warned most of the servicers three years ago while speaking at the American Bar Association conference, servicers treatment of, and total disregard for homeowners applying for loan modifications pushed the pendulum so far in one direction that when it could no longer be held in place, it whipped across and back and knocked the servicers into the nickel seats.
Normally, the bills wouldn‚Äôt have gone to the governor‚Äôs desk for signature until October, but after reading about an industry lobbyist group, called something like United Trustees, continuing to lobby to kill the bill even after the legislature had passed it, I wasn‚Äôt surprised in the least to see Kamala Harris getting his signature before the summer recess even began.
Thanks banking industry lobbyists!
So, now all that remains to be seen is which geniuses of the mortgage servicing industry are rock-hammer-stupid enough to remain on their chosen adversarial and combative path, and which are bright enough to heed this warning and learn to thrive in the brave new world.
Private Right of Action in Action‚Ä¶
The aspect of the new Bill of Rights that I‚Äôm sure has had servicer management in behind closed doors meetings ever since Governor Jerry Brown put his John Hancock on the piece of legislation is the ‚Äúprivate right of action,‚ÄĚ which is legalese for: ‚ÄúBetch, I will sue your ass until the cows come home if you even think about dual tracking me.‚ÄĚ
Here‚Äôs an easy way to remember this aspect of the new laws‚Ä¶ just think of it like a new and infinitely more litigious version of HAMP.¬† Most of the time it won‚Äôt modify your loan either, but now when it doesn‚Äôt there‚Äôs a pretty good chance you can sue your servicer.
Will you win?¬† I have no idea, and I’m not even sure it’s important one way or the other because it seems a certainty that it will be much easier to throw a monkey wrench into things after January 1, 2013 when the new laws take effect… and that sort of thing can be done with purpose.
To listen to a mortgage servicer describe it, you‚Äôd think the world as we know it was coming to an end, and I guess that‚Äôs true in some ways… although a tad on the drama queen side of descriptions… if you ask me.
One banker said to me, ‚ÄúIt‚Äôs going to slow down foreclosures.‚ÄĚ
And I replied, ‚ÄúYeah, so what? ¬†You weren‚Äôt foreclosing all that quickly anyway.‚ÄĚ
The lobbying efforts, I have to say, were comical in their redundency. ¬†I mean, how many times did the industry think they could repeat the same mindless threats that loans will be more costly and that no one will want to lend in this state again if anything messes with the status quo. ¬†That’s actually my favorite part of this whole thing… IT PASSED…
SO NOW WE GET TO SEE IF YOUR THREATS WERE REAL OR IF YOU WERE FULL OF BEANS, AS I POINTED OUT A HUNDRED TIMES. ¬†Anyone want to bet who ends up proven right about this one? ¬†How about you, Mr. Pollard at the FHFA? ¬†Didn’t think so. ¬†Well, don’t worry, I’ll write alll about how things go from here and I’ll be sure to send you a link so you don’t miss a single story of what an assface you’ve been proven to be.
It’s not going to make loans more expensive, assuming the financial services industry hasn’t actually become an illegal cabal in violation of every pricing fixing satute ever written. ¬†And besides, I’ve heard ¬†of loans during the bubble costing enough to pay off a new entry-level Mercedes, so how much could they go up anyway? ¬†Besides, no one in this country can tell what a loan costs anyway, so who would ever know their cost went up?
And as far as no one ¬†lending in California because of this new law… oh, just shut up… that’s too childish to even consider. ¬†For one thing, none of you is lending now… the federal government is the only lender today, for all intents and purposes, and that’s not going to change this decade. ¬†After that, well… this bill won’t matter, and even if it does, we’ll repeal it then. ¬†There… handled, as far as your scary lending stories are concerned.
The biggest change that servicers are feeling is the one that can‚Äôt be seen or even easily written down.¬† I imagine it‚Äôs similar to how homeowners felt when they discovered that their government didn‚Äôt give a Fudgsicle¬ģ whether they lost their house‚Ä¶ or why they lost their house.¬† Servicers have to know that there‚Äôs a new sheriff in town and her name is Lady Liberty‚Ä¶
“Keep, ancient lands, your storied pomp!” cries she, with silent lips.
Give me your tired, your poor, your huddled masses yearning to breathe free. ¬†
The wretched refuse of your teeming shore.‚Ä®
Send these, the homeless, tempest-tost to me. ¬†
I lift my lamp beside the golden door!”
The people have awoken and they are only just beginning to speak through California‚Äôs Attorney General, Kamala Harris and her Homeowner Bill of Rights.
It‚Äôs really kind of a great thing to see the underdog regain even a modicum of level ground.¬† No one wants to watch a one-sided match for too long.¬† Eventually, everyone starts rooting for the Cubs.
Of course, there is a profitable way out, servicers.¬† I have the answer to this spreading virus that threatens to destabilize your collective collections mentality.¬† Change.¬† You can do it, there‚Äôs always been more than one way to skin this cat. ¬†In fact, you already do it when you deal with your commercial customers.
I think you refer to it as relationship management, isn‚Äôt that right? ¬†Don‚Äôt collect‚Ä¶ consult.¬† Stop treating homeowners like they’re deadbeats and start treating them as the new law demands‚Ä¶ like deadbeats who can sue you.
(Okay, that was a joke homeowners, don‚Äôt get all agitated.)
Treat them like customers who, like the rest of the world, are caught up in a global recession so debilitating that no one dare to discuss it until after November.¬† Communicate effectively, educate, be reasonaby transparent… don’t lie… and no one will want to sue you. ¬†It may sound foregin to many in the industry at first, but it’s actually how most businesses have been avoiding bankruptcy and/or prison sentences for hundreds of years.
There‚Äôs more to it than that, of course.¬† And I can unquestionably be of help. ¬†But this is not the place, nor the time. ¬†And, I think I’ve said enough for now. ¬†So, noodle on that for a bit. ¬†Think between the lines.
And, for God’s sake, stop fighting it… how many stories can your PR people plant in the press? ¬†No one cares, it’s a done deal… and you’re starting to look like you’re in a panic. ¬†It was destined to happen eventually, and it’s obviously WAY later in this game than you think.
Just remember… communication‚Äôs hard.¬† And some are better at it than others.
Until next time‚Ä¶
ENJOY YOURSELF (It‚Äôs Later Than You Think)
You work and turn, foreclosure‚Äôs gears, you always end on top.
Never let up for a minute, the numbers never stop.
Someday you think, it‚Äôll all be done, there‚Äôll be just a small fraction
But you have overlooked the people‚Äôs private right of action.
Enjoy yourself, it’s later than you think.
Enjoy yourself, while your poop doesn‚Äôt stink.
Your time has passed, and you‚Äôre right on the brink.
Enjoy yourself, enjoy yourself, it’s much later than you think.
You‚Äôre dual tracking that family, forget the NPV.
You‚Äôve got no reservations ‚Äėcause, no one can disagree.
Next year however, things will change, your names no more in lights.
‚ÄėCause homeowners from coast to coast, will have their Bill of Rights.
Enjoy yourself, it’s later than you think.
Enjoy yourself, why bother to re-think?
The time will come, soon you‚Äôll need a stiff drink.
Enjoy yourself, enjoy yourself, ‚Äėcause it’s later than you think.
With single points of contact and, no robo-signing docs,
Break the new laws and watch it hit, the prices of your stocks.
Forget about your lobbying, because it‚Äôs way too late.
You‚Äôve entered the next phase of what we call foreclosure-gate.
Enjoy yourself, it’s later than you think.
Enjoy yourself, you could end up in the clink.
In New York they say, forging could be crimin-al.
Enjoy yourself, enjoy yourself, what a damper on morale.
You‚Äôll always be in court next year, when you fail to comply.
You‚Äôll realize in a hurry, that you‚Äôd better modify.
Forget about foreclosing, and the selling by trustee.
‚ÄėCause from now on you‚Äôll often find that judges disagree.
So, enjoy yourself, it’s later than you think.
Enjoy yourself, your egos will soon shrink.
We‚Äôll all soon see, your armor has a chink.
Enjoy yourself, enjoy yourself, it’s later‚Ä¶ much later‚Ä¶ than you think.