The Tower Report
Stop Foreclosure And Keep Your Home Or Just Walk Away
A Guide for Distressed Homeowners on How to STOP or Stall Foreclosure!
By J Collin Towers
Smashwords Edition Copyright ©2010 by J. Collin Towers
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Disclaimer:
The author specifically invokes the First Amendment Rights of freedom of speech and of the press without prejudice. The author wrote and published this eBook for informational purposes only, under the rights guaranteed by the First Amendment of the Constitution for the United States of America.
This information contained in this eBook should not in any way be used as a substitute for the advice of a licensed attorney, real estate broker or qualified home counselor. Consult with a qualified legal professional to begin any bankruptcy, stop foreclosure program, short-sale, loan modification process, or “show-me-the-note” strategy program of any kind. This eBook is not intended as legal, investment, or accounting advice. The purchaser and/or reader of this eBook assume all responsibility for the use of this information.
This eBook provides general and extensive STOP foreclosure information to help readers (distressed homeowners) understand the foreclosure process and curing procedures that are currently available to them. Through this eBook the author does not provide legal services or legal advice. The author is not a law firm and is not acting as the reader’s attorney. Therefore, any use of the information provided by this eBook DOES NOT create, or constitute a solicitor-client relationship between the author, any employee of, or other person associated with the author, and clients.
The author has made every effort to assure the information provided in this eBook is accurate, useful and up-to-date. Every attempt has been made to verify the information provided in this eBook. Notwithstanding, the author recommends that readers consult a professional to interpret, and apply the information provided to their specific situation.
Readers agree that by using the information in this eBook, under no circumstances will the author, or its affiliates be responsible for (1) any information provided, or omitted; (2) reader’s reliance on any such information, whether or not the information is correct, current or complete; (3) any consequences of any action readers, or any other person takes or fails to take, whether or not based on information provided by, or as a result of reading this eBook.
The author specifies that there is no guarantee, warranty, or implied warranty, with respect to the information contained hereinto, and that the author is not responsible for any loss, injury, or claim, liability, or damage (“damages”) related to the reader’s use of the information contained in this eBook, and provided to all readers.
The author, publisher, and/or seller is not liable or responsible for any of the information and/or the results and interpretation (whether misused or not) of the use of the information within. The reader assumes sole-responsibility for the use of the information, nationally and internationally. Text, logic, and author’s opinions are copyright protected. ALL rights are explicitly reserved without prejudice, and no part of this eBook may be reproduced except by written consent of the author.
Dedication
This eBook is dedicated with unconditional love to my daughter, Kerri Ann Towers and my granddaughter, Sykora Euteva Towers.
Many thanks to Chase Beery, Anne Younger, Darrell Moore and Jordan Fink for their never-ending help and support.
Table of Contents:
PART ONE Understanding the Problem
Chapter 1: Just the Facts
Chapter 2: No Recovery in Sight
Chapter 3: Banks in Trouble—Many Collapsing
Chapter 4: Psychological and Other Health Problems with the Housing Crisis
PART TWO Solving the Problem—Know Your Rights
Chapter 5: Refinancing Your Mortgage
Chapter 6: Foreclosure—the Dreaded F-Word
Chapter 7: More Solutions and Options
Chapter 8: Walking Away—The Strategic Default Trend
Chapter 9: Bankruptcy to Stop Foreclosure
Chapter 10: Mortgage Loan Modifications
Chapter 11: The Home Affordable Modification Program
Chapter 12: The Downside of Loan Modifications
Chapter 13: New Programs from the Mortgage Industry
Chapter 14: The Short Sale
Chapter 15: Forensic Loan Auditing
Chapter 16: Produce the Note Strategy
Chapter 17: The Financial Hardship letter
Chapter 18: Foreclosure Scams—Mortgage Fraud
PART THREE Other Helpful Information You Should Know
Chapter 19: Lower Your Property Taxes
Chapter 20: Credit Card Debt Negotiation and Settlement
Chapter 21: Misstatements about Home Ownership
Chapter 22: Other Scams to Watch Out For
Chapter 23: Making Money from Home
Chapter 24: In Closing
PART FOUR Resource Section
The Wolves are at Your Door
The wolves are truly at the door for millions of homeowners just like you—hardworking people, who just want their piece of the American dream. People facing an uncertain future and a potentially devastating financial and physical loss because of foreclosure.
Let me ask you this:
• Have you just lost your job?
• Have your hours been cut back?
• Do you find yourself in a personal financial crisis?
• Are you struggling to pay your bills?”
Then how are you going to continue making your house payment? What are you going to say to your lender? What are you going to do if the lender sends you an eviction notice and starts the foreclosure process on your home? Are you going to just ignore everything, refuse to open up the letters and bury your head in the sand? Or will you find out what options and solutions are available to you—what government programs are available to help you solve your problem? And with so much information bombarding you on the TV, in the newspaper, on the Internet, who should you believe will give you the right information to STOP the foreclosure process?
You may have heard all the horror stories about loan modification fraud and stop foreclosure scams. They ask for your money up front, they keep your money and they never do anything to help you keep your home. So, what should you do? What are your available options? Options and alternatives that will STOP foreclosure and solve your problem.
Okay key the Announcer: “Are you like millions of Americans who are watching their primary investment erode, along with hopes for a college education for their kids, retirement, and financial security? Have you watched your home become devalue in a glutted real estate market and slow economy? Are you on the brink of financial ruin? Have you run out of time? So what are you going to do?”
There is Hope
This report can help. It contains the latest updates and facts with over 40 solutions, alternatives and strategies to prevent or STOP foreclosure. To help you solve your problem.
So what do you do? What are your options to solve your problem?
There are plenty of “experts” selling solutions:
• Mortgage insurance plans
• Mortgage modification plans
• Stop foreclosure schemes
• Loan consolidation schemes
• Government bail-out options
But how do you navigate all those plans, schemes, and options? How do you avoid making a bad situation worse? How do you make informed decisions affecting your future financial security?
I know it is scary. The property values in your neighborhood are going down, so you can’t sell your house for a profit. The dream home that you bought in the middle of the housing bubble has dropped in value by as much as 60% and could fall much more in time. You are not alone. This is happening right in your town, your county, your state—all across the country. Too many overvalued homes are on the market, and there are just not enough buyers. So, do you keep making the payments and wait it out for the housing market to rebound? Keep reading—or do you drop the keys in the mail and walk away?
So, let me ask you again:
• Are you having trouble making your house payment?
• Are you already in default?
• Are you waiting for the foreclosure notice to come in the mail?
• Are you are already in foreclosure?
• Are you thinking of filing bankruptcy?
• Are you underwater on your mortgage and thinking about a strategic default?
If so, then hang on and take a few minutes to read this report for foreclosure help.
In this report, you will learn different techniques and strategies on how to:
• STOP, stall or avoid foreclosure using over 40 options, alternative and methods
• Lower your house payment
• Lower your interest rate
• Negotiate with your bank to keep your home and get what you want
• Stay in your home rent free for months, maybe years
• Walk away with dignity and without financial obligations
Learn about new methods to fight back against the banks, like the “show me the note” strategy and others. Learn about government programs. Are they working? Are they the best way to go? Maybe your best option is to just walk away!
Let me repeat: This report includes over 40 options, alternatives and strategies that can help you to get rid of your foreclosure. Don’t give up. There are many distressed homeowners just like you—stuck in this unprecedented foreclosure crisis, that have been helped immensely by using the information contained in this report.
Been There—Done That—Got the Tee Shirt
Let me introduce myself: my name is J Collin Towers, and I have been where you are now. My home underwent foreclosure during a messy divorce. It was not a pretty picture, not very much fun. I had no idea what to do, who to turn to, how to survive. Unfortunately, my home was auctioned off on the courthouse steps for pennies on the dollar and I was forced to move out.
Since that time, I have educated myself, and compiled all the best advice to help others avoid the same traps and pitfalls I faced. It is from my experience and subsequent research that I have written this report, to educate you with the facts and then show you the many options and alternatives available to you during this foreclosure crisis, options and alternatives that I didn’t know I had. So, I wrote this report, to help you NOT make the same mistakes I made.
There are many factors influencing the global marketplace that are completely out of your control. These factors can affect your local economy and force many businesses to shut down. This results in thousands of people losing their jobs or working reduced hours. In the mean time, the daily living expenses keep rising. During this current recession, millions of people have already lost their homes or are now facing foreclosure. So you can see, you are not alone.
The past two years have dealt a punishing blow to the personal wealth of millions of middleclass homeowners just like you and me. Amid rising foreclosures and plummeting home values, the equity in Americans’ homes have decreased by $7 trillion—they have gone from $20 trillion to $13 trillion in equity, just from spring 2006 to spring 2010. Yes, that is right –there are approximately 75 million homeowners in America, and each and every one of them has lost over $93,000 in equity. This was the equity millions of homeowners, just like you, have lost—equity they were counting on; to send their kids to college, to save for retirement, or to have as a nest egg for emergencies. Does this sound familiar? Does this sound like you?
The housing market that pushed the whole economy towards economic calamity is still in full swing—with many experts believing the worst is yet to come. The first wave of defaults and foreclosures was large, but only half the size of the next wave. The second wave of mortgage defaults and foreclosures will soon hit the economy, starting this year. (See chapter 2) Not only will we have more failure in prime loans and option-ARM (adjustable rate mortgage) loans, but also we are faced with a new crop of subprime and ALT-A loans put into motion by Fannie Mae, Freddie Mac, Ginnie Mae, and the FHA. Many homeowners across the country are increasingly faltering in their home mortgage payments to their lender/servicers. So you can take a little comfort in realizing that you are not alone.
From my personal experience, I know that even in the best of times; foreclosure is a financially and physically traumatic event. These are definitely not the best of times as the economy continues to weaken, leading to layoffs and business closures which will further reduce family incomes. If you watch the financial shows on cable TV, their solution to foreclosure is simply to just ignore it. The denial is very widespread, with not only homeowners but also with lenders who are sitting on and servicing all these real estate portfolios. The American people still do not understand how grave this situation is.
I am certain that this report will help you—give you the facts, statistics, options, alternatives and strategies you are looking for. Start off reading Part One, so you will have a better understanding of where we are now and where we are headed. This knowledge and information will help you make the best choices and design the best strategy for you and your family.
I do know this—do not stick your head in the sand and ignore this problem. Foreclosure will not go away by itself. It is time to educate yourself by reading this report, learning all you can about “the problem” and then learning about your options. Then take action. Do not give up, no matter what roadblocks you face.
The economy is in a recession and I believe we will soon be facing Economic Depression 2.0. With this recession comes the struggle to keep up with one’s monthly bills, especially the house payment. The current mortgage crisis is slowing any economic recovery; as more and more homeowners are falling behind on their mortgage payments; further jeopardizing the banks; who can no longer finance the businesses; that cut back on the jobs; which pay the mortgages.
Do you see how it all fits together?
Repossessions and the foreclosure crisis represent the biggest threats to a sustained recovery in the US housing market and the wider economy since the Great Depression. This might send the nation into a long, dragging recessionary spiral that could last longer than the Great Depression. The number of homeowners in default or at risk of foreclosure is also having a lingering effect on the broader economy. You can see that the time to act is NOW.
Get ready to learn different options and strategies that you can use to save your home from being taken from you. Take the phone off the hook or turn off your cell phone, grab a pen and paper, take notes while you read and scroll through this report. Even though I would like you to, you do not have to start at the beginning and read every page. Go to the chapters that you think will offer you the most help and rest assured that you will find the solutions to STOP your foreclosure. You will find the answers to your questions.
Thanks for purchasing THE TOWER REPORT, Stop Foreclosure and Keep Your House, or Just Walk Away…and good luck in keeping those wolves at bay.
Understanding The Problem
Before you can solve the PROBLEM homeowners like you are facing you need to understand the PROBLEM. Part One shows where we came from, where we are now, and where we are headed.
If you do not understand the PROBLEM there is simply no way to solve the PROBLEM. There is no way to protect yourself if you do not understand what is going on. Remember applied knowledge equals power.
Part Two is about solving the PROBLEM, knowing your rights, and learning about the most current and up-to-date options, alternatives, strategies and tools you can use to solve the PROBLEM, to STOP foreclosure and protect you and your family.
Information is Key One—How you deal with it is Key Two
The information contained in this report will not be found in the local media or on cable talk shows. These outlets are not letting Americans find out the real truth of what is happening to our great nation, and how bad the real estate crisis is.
“I have compiled this report to elevate knowledge—not to elevate fear!”
Chapters 1-4 will give you background information, up-to-date statistics and data required to understand where the foreclosure crisis currently stands, what the bankers are doing, and what thousands of homeowners are facing.
Chapters 5-18 will give you the different programs, options, alternatives and strategies available, which you can use NOW to solve the PROBLEM that thousands, maybe millions of homeowners, just like you, are facing. Now is the time to take action.
Chapters 19-24 will give other alternatives and strategies to not only save money but ways to make money. These are topics you should know and utilize to put your financial house back together.
Just the Facts Please
Real Estate Figures and Statistics
This chapter teaches you the basic facts about the current real estate and mortgage-lending crisis. We will explore real facts and figures, and learn where we are and where we are headed with the foreclosure crisis. This information is not meant to depress or scare you, but to give you the background special information, latest news and statistics on how serious this situation is to help you to choose the best option and strategy for your particular case.
Between now and the next two years, 70% of all Americans will either:
1) Lose their jobs
2) Have their hours cut back
3) Have a decrease in pay.
Over 60% of Americans now live paycheck to paycheck. One out of every 400 houses in the US is under the threat of foreclosure. Around 4.3 million homeowners—about 8% of all Americans with a mortgage—are at risk of losing their homes. Foreclosures are predicted by Realty Trac Inc. to rise between 3 and 3.5 million in 2010, surpassing the record of 2.82 million in 2009. Now if that did not take your breath away it should of.
FACT: The daily pace of foreclosures is now occurring at 10X the number during the Great Depression.
According to Realty Trac, foreclosures, scheduled auctions, bank repossessions, and default notices were reported for more than 315,000 homes in January 2010 alone. About 1.7 million homeowners received a foreclosure-related warning between January and June. That translates to one in 78 American homes. Were you one of them?
And according to the Mortgage Monitor Report, there are currently more than 7.3 million loans currently in some state of delinquency or real estate owned (REO). The Center for Responsible Lending states that 6.5 million households are either in default or at least one payment behind on their mortgages. Combined with unemployment rates hovering around 10% (though real unemployment is at more like 16-17% and 30% for people earning less than $30,000 a year), many homeowners are justifiably concerned about getting out of default and doing everything they can to keep the homes they have purchased. They need to read this report to find out how.
More than one out of ten homeowners had missed at least one mortgage payment between January and March of this year. That is a record high and up from 9.5% in the fourth quarter of last year. A jump in the number of borrowers who have missed three months of payments drove the increase.
US home foreclosures reached a record for the second consecutive month in May, with increases in every state, as lenders stepped up property seizures, according to RealtyTrac Inc. Foreclosure filings, including default and auction notices, rose about 1% to 322,920. One out of every 398 US households received a filing. And the government keeps telling us we are in a recovery.
This has become a crisis of epic proportions. It is unconscionable that millions of Americans are on the verge of losing their homes. It is an outrage that financial institutions had reaped billions in taxpayer-funded bailouts, yet had repaid that generosity by refusing to lend to homeowners in trouble. President Obama should declare the foreclosure crisis a national emergency. States don’t get their revenues from property taxes, so they have no vested interest in helping and local governments who rely on property taxes don’t have the resources to help distressed homeowners. So what can a homeowner do? Hang in there and keep reading, soon you will get to the options and strategies.
The $700 billion bailout program for the financial industry has so far done little to boost bank lending, aid small businesses or reduce home foreclosures. In point of fact, it is harder than ever to qualify for a small business loan, causing even more small businesses to go belly up, snowballing into a recession. And most banks use the business owner’s home or business real estate to secure business loans.
Foreclosures Getting Worse
Foreclosures may reach as many a 7 million mortgages, and an additional 5 million are at risk of default because borrowers owe more than the property is worth. This is according to Laurie Goodman, senior managing director at Amherst Securities Group in New York, in a February 2010 interview.
Looking ahead, our nation’s foreclosure problems are going to get much worse before they get better. There are thousands of delinquent home loans piling up on lender’s desks. A high percentage of these delinquent homeowners will default on their mortgage loans. This will prompt lenders to file for foreclosure. So the flood of potential foreclosure filings is swelling among the major financial institutions across the nation.
So How Bad Is It?
Will we see the start of another housing collapse before the end of 2010? The truth is that there are many troubling signs in the housing numbers. The massive tax credit that the government was offering to home buyers helped prop up the housing market for quite a while, but now that the tax credit has expired, many real estate professionals are bracing for the worst. The reality is that foreclosures continue to set all-time records, the mortgage industry is a complete mess and another massive wave of adjustable rate mortgages is scheduled to reset in 2011. The record high rate of mortgage delinquencies and foreclosures remain the banking industry’s biggest obstacle towards financial recovery. The horrific statistics for the first quarter on mortgage defaults provides little reason to believe that the housing crisis will end anytime soon. It is going to get worse before it gets bad. How are you feeling now?
Check Out These Facts:
• The delinquency rate for all mortgages on one to four residential units was 10%
• 7 million homeowners are presently behind in their payments to some degree
• 7 to 13 million people will be evicted or just leave their homes in 2010
• Over 300,000 people are losing their homes every month (322,920 in May 2010)
• 4.6% of all homes are in the process of foreclosure
• 15% of all American homes with a mortgage are either in default or in the foreclosure process
• 9,000 people each day receive a foreclosure notice
• 21.4% of all prime loans are underwater
• Almost 25% of homeowners owe mortgage debt exceeding the value of their home
• 1 in every 4 home debtors is underwater (more than 24% of all homes with mortgages in the U, S, were underwater as of the end of 2009)—That means approximately 11 to 14 million home buyers owe more than their house is worth—See Chapter 8
• 2.3 million more home debtors are projected to soon be underwater
• 21.5% home owners with a mortgage are upside down
• 17 million households will have negative equity by the end of 2010
• Subprime loans will reset between 2010 and 2011—50% will go bad—See below
• Homes will drop another 20% in value—commercial properties will drop 70%
• Vacation homes will suffer the most loses (Especially homes on the Gulf Coast)
• 1 in 10 homes with a mortgage today will be lost to foreclosure in the next 24 months
• 1 in 6 FHA loans in the past 12 months is delinquent
• Over 3.5 million new foreclosures will happen this year
• Already one out of every 45 Americans have lost homes to foreclosure
• Foreclosure activity shows signs of spreading into previously insulated areas
• Of the 57 million US homeowners, 6 million are in the distressed category
• Homeowners age 50 and older represent 30% of all delinquencies and foreclosures
• The Gulf Coast’s foreclosure rate has gone exponential
Banks and mortgage investors are now sitting on an estimated inventory of 550,000 homes that have been repossessed through foreclosure and need to be sold.
The nation’s foreclosure crisis is worsening every month, despite federal efforts to help Americans save their homes, according to the State Foreclosure Prevention Working Group. “Programs to help prevent foreclosure are jammed up, while 60% of delinquent borrowers aren’t getting any help. Servicers must do more,” said McKenna of the Group.
Not Looking Good
There is over $10.2 trillion in mortgage debt outstanding in the consumer mortgage market. Over 14% of mortgages in the US are either in foreclosure or 30 days late. If you do the math, this equates to 51 million active mortgages times 14% equals 7,140,000 mortgages in default or 30 plus days late. How can this be?
Many government programs are failing because thousands of homeowners have no ability to pay their mortgage. And then you have a growing number of Americans who can pay their mortgage but are deciding to just stop paying.
Most of the problem is with the overall economy. Even though strategic defaults (walking away) are growing, 4 out of 5 foreclosures occur because homeowners cannot pay their mortgage. We have millions receiving unemployment benefits and over 40 million receiving food assistance. Until we see this trend reversed and employment growing in a healthy way without government assistance, we can rest assured that any talk of a housing recovery is merely an elaborate trick.
FACT: 19 million homes in America stand vacant with our national debt at approximately $12 trillion and growing. Can you say “Tax Increase”?
The Housing Bubble
A housing bubble came to exist because unregulated investment banks were able to borrow and create money, which they in turn invested by making money available to mortgage lenders who used ethically challenged mortgage brokers to enable almost anyone who could breath and fog a mirror to buy a home. These lenders and investment bankers knew that millions of homeowners would not be able to keep their home, once payments reset on subprime and option ARM loans. This literally created a historic mania and the foreclosure crisis began.
Understand that lenders knew full well that they were putting people into loans they would not be able to afford over time. This is a violation of the law. These lenders gained millions in fees and interest and then passed the risk up to the next player in a chain, which extended through rating agencies all the way up to Wall Street investment banks. These investment banks packaged together and sold loans as securities to pension funds and insurance companies. More than $1.6 trillion in existing mortgages were packaged into mortgage-backed securities by Wall Street. Now some $425 billion worth are extremely late on their payments, and therefore likely to go into foreclosure.
Home Prices are Falling
Home prices have stabilized in some major cities, but are still down 35% nationally from the peak of the housing bubble in 2006. Let repeat—household’s wealth has shrunk by $12 trillion since 2007. The subsequent collapse has wiped out $7 trillion of homeowners’ equity as 65% of homes lost value in 2009. Only 7% of homes retained their actual value. “Another 20% decline in housing prices is possible”, said David Rosenberg, a chief economist in Toronto.
Using the S&P/Case-Shiller index as a guide, homes across the country could soon lose half of their value. If the index gets back to the 1999-2000 level, that relates to another 50% down in home prices.
The median sale price for foreclosures continued on a steady decline that barely has budged in more than a year. The index has been dropping for a record 33 months since home prices peaked in the middle of 2006.
Economic issues like unemployment (which is rising) or reduced income are the main catalysts for foreclosures. And consumer debt rose from an average of less than 80% of disposable income in 1990 to 129% in 2008. The effects of deflated assets, tighter credit, and costlier energy on the economy are already apparent. Fewer people are buying homes, and the ones they buy are smaller and less opulent. In 2008, the median size of a new home shrank for the first time in 13 years. I think this should be a good sign. Americans need to start cutting back.
FACT: If you lost 1/3rd of the value of your home, it will take you about 15 years to recover if appreciation follows historical patterns.
According to Zillow.com, a real estate appraisal website, over 20 million homeowners are planning to sell their homes once prices stabilize and improve. When will that be?
Many analysts have been forecasting home prices will dip again as more of these foreclosed homes go up for sale at deeply discounted prices. Economists at Zillow are now predicting that home prices are likely to fall another 8% from here, with the market bottoming in the third or fourth quarter. They estimate that as many as 21% of all US homeowners are in negative equity, owing more on their mortgage than the current market value of their homes. I think they are being a little conservative here…
According to Fiserv, the average home price in the US will fall another 8% by September 2011. And that’s after plunging more than 27% in the past three years. The average price for all homeowners in Nevada has fallen by more than 40% from its peak. Could this be the tip of the iceberg?
FACT: Moody’s is currently forecasting an 8% home price decline for 2010. They are also forecasting that home prices will not return to their pre-recession levels until 2030. Wow—20 years from now!
With over 4.5 million mortgage loans either in foreclosure or clearly headed in that direction, when this additional inventory hits the market, it will provide numerous choices for buyers and persuade sellers to drop their listing prices. Hundreds of thousands of Americans will find it almost impossible to sell their homes without paying off the banks for underwater home loans.
FACT: More waves of foreclosures will keep downward pressure on home prices in parts of the US over the next several years. As the value of home prices continues to decline, there will be more foreclosures. Kind of like an unending cycle!
Housing is being artificially kept from crashing by the banks, which are all holding onto foreclosed properties, by keeping two sets of books. They are only releasing a small amount of inventory, since they do not want to flood the regional market with excess inventory. Hence, home prices will crash even further. And when those distressed properties come back on the market, they’re typically discounted to the tune of about $26,000 below market value. This creates fierce competition; sellers of non-distressed properties often feel compelled to lower prices to match homes across the street, or down the block, or in the neighborhood.
Some of the hardest hit places in the US are California, Texas, Virginia, Illinois, Georgia, Michigan and the city of Detroit. It has been reported that almost 77% of home loans in the US are facing foreclosure. The lowest rates of foreclosure were Indiana, Ohio and Rhode Island.
NOTE: A recent study by Harvard University says the US housing market is the worst in 50 years.
The mortgage market meltdown, the steep rise in foreclosures, the decline of new home construction, falling home prices, and mounting job losses have all converged to make the recovery from the current real estate climate almost impossible. Tell me something I don’t know!
There are 36 million homeowners underwater on their mortgages and they will not be buying homes within the next couple of years. There are 35 million Americans unemployed and/or underemployed who will not be buying homes either. This knocks out 50% of the potential homebuyers. People who are looking to buy houses now are starting to realize that they will be worth half as much in a year or so. So the question to ask yourself—Is now a good time to buy or not?” Based on all of my research I think renting is the way to go.
New Home Sales Are Down
Mortgage applications for new home sales have indicated an incredible fall following the April expirations of the buyer credit program. The sale of new homes in May 2010 fell to their lowest level ever recorded, and these records go back fifty years. The US Commerce Department said new home sales fell by a stunning 32.7% to a seasonally adjusted annual rate of 300,000. The normal level for new homes sales is an annual rate of around 800,000. New homes have never sold this slowly since the Commerce Department began tracking this data back in 1963. Sales were expected to be off as the government program to prop up the market expired, but the results were far worse than what was projected.
NOTE: Internet searches for new homes on real estate websites are down 20% compared to the same time period in 2009.
According to the Mortgage Bankers Association, mortgage applications for home purchases have fallen to a thirteen year low. Year-over-year, sales fell by 18.3%. The median price of a US single-family home was $173,100 in April 2010, down 25% from its peak in July 2006; this is according to the National Associations of Realtors.
Widespread foreclosures will dampen new construction for months as the market works to slough off excess supply. There are many vacant homes now available and so many places for Americans to live, so there are more substitutes for a brand new house.
Negative Equity
According to federal reports, house prices in many areas of the country are down by about 30% from their peak prices in April 2006. This puts 42% of all borrowers in the country to negative equity levels.
In many neighborhoods across America (like in Phoenix), the home values are dropping faster than they can keep up with their tax valuation of the property. Mortgage purchase applications are down nearly 40% from a month ago, to their lowest level since April 1997.
Home Values Dropping
Home values and prices are expected to continue falling as the economy continues to deteriorate, demand continues to fall, and the real estate bubble deflates, causing further drop in demand for real estate. Look at California—homes that were bought 5 years ago for $300,000 are now on the market for $50,000.
Owning a house is now a frozen investment and not a good hedge against inflation, because in this current market homes are very difficult to sell. In today's market, it usually takes at least 12 to 18 months to sell a house because the transaction involves inspections, mortgage approvals, contracts, broker’s commissions, etc. Considering the large shadow inventory of homes that will soon hit the market and cause a second wave of mortgage defaults, it will be many years until real estate is again a solid investment.
The Shadow Inventory
Currently there are 7 million empty homes overhanging the residential real estate market. Many analysts have calculated that it will take 8.5 years to clear this gigantic inventory of foreclosed, distressed and defaulted homes. This points to even lower prices. The average loan in foreclosure is 18.5 months overdue today, compared with 11 months this time last year.
There is a big shadow of foreclosures still looming, since there are thousands of homeowners who have stopped making their mortgage payments, mainly because they are unemployed. Due to this number, the banks have not gotten around to foreclosing on the homes.
No wonder many housing observers are issuing extreme forecasts that the nation faces a 50% more decline in housing values. So we have not hit bottom yet!
The average number of days for a loan to move from 30 days delinquent to foreclosure sale continues to increase, and is now at an all-time high of 449 days. No fewer than 7.7 million homes and condos are behind on their mortgage payments. Nearly 5 million homeowners are at least 60 days delinquent and heading into foreclosure and 4.6 million households are currently at least 90 days overdue on their mortgages. Over 4 million are going through some form of foreclosure. All of these result in an increase in the shadow foreclosure inventory, which will sooner or later hit the market.
Economists refer to these shadow foreclosures as the “shadow inventory” meaning homes that have yet to hit the market and go up for sale. This shadow inventory reflects the increasing lag between defaults and foreclosures. Counting the homeowners who are currently behind on their mortgages, along with the existing number of foreclosures for sale; at the current pace, it will take over three years to sell all the foreclosures out there in the shadow inventory. This doesn’t include all the borrowers who haven’t fallen behind yet, but are going to because of losing their jobs, or because their option ARM payments are spiking up.
The shadow inventory is equal to half the size of the entire market of homes for sale in America. When banks start listing this inventory, expect home prices to plummet even more. This huge shadow inventory of foreclosures hangs over residential real estate, capable of collapsing it again at any time. And when this shadow inventory hits the market, it will provide numerous choices for buyers, encouraging sellers to lower their prices even further.
According to the Wall Street Journal, it will take 103 months to sell off the entire shadow inventory in the banks’ possession. There are 20 million unsold homes already out there in the marketplace, with 5 million delinquent homeowners, and up to 11 million underwater home debtors ready to add to this number. Also, add to the number of foreclosures all the houses that are likely to enter default as the ARM resets grow exponentially into 2012.
Wow, 103 months is just over 8 ½ years of inventory overhang. Currently banks are holding 1.1 million foreclosures homes—that is a 20% increase over last year, and another 5 million mortgage holders are at least 60 days delinquent. Thousands of these homes are likely to become part of this shadow inventory. Bank seizures, known as REO’s, will rise to a record 3 million homes by the end of 2010.
According to the US Census Bureau, 51 million households have a mortgage and 23 million own their homes free and clear with no mortgage. About 37 million households are rental properties, and vacant dwellings in the US increased to a record 19 million in the first quarter of this year.
Once again, let me tell you what Diana Farrell, a White House economic adviser said—that the government expects between 10 and 12 million additional foreclosures over the next three years; yes, you read that correctly—that is 12 million families pushed out of their homes. Now look at this shadow inventory and watch it explode. These are truly staggering figures. I guess you can now say “Only the Shadow knows for sure.” “Did they have this many foreclosures in the 1930’s?”
UPDATE: New Housing Aid Will Target Hardest Hit States
The $1.5 billion government bail-out plan is part of the new housing rescue measures, directed through the Treasury Department, to reach at-risk mortgage holders in California, Florida, Michigan, Nevada and Arizona.
This plan is expected to save hundreds of thousands of homeowners from foreclosure and may be expanded to help other state’s ailing real estate markets. This innovative program is not intended to aid real estate investors or speculators.
Many housing markets in the targeted states have seen housing deflation average at least 50%, with some experiencing deflation as high as 75%. Housing finance agencies being tied to their local housing markets will play a key role in determining what will work best to aid distressed homeowners.
The program is designed to help homeowners who have lost their jobs, are upside down or owe more on their home than it is worth in today’s marketplace and those that have second mortgages or lines of credit, which make the payments a hardship.
If you live in California, Florida, Michigan, Nevada or Arizona check with your lender to see what the requirements are to see if you qualify.
No Recovery in Sight
This chapter is a sobering look at the current trends and at the crisis that millions of Americans just like you are facing. This chapter projects into the coming year and beyond, based on the current situation.
In 2012 the US government will need to borrow $2 trillion to cover the projected deficit and to refinance old debt. At the same time, skyrocketing unemployment, the growing impoverishment of the nation means tax revenue will decrease over the next five years. So you can see that there is no recovery in sight, even with the tax rates going on up 1/11/11 and that a looming credit crunch awaits us.
At this point in time it should be clear that the Obama administration has no power to reverse the downward spiral in housing. I've lost track, but I believe the so called experts and government officials have been calling we have reached the bottom in housing for what, 2 years now?
Arguments for a recovery in housing that never arrives go something like this: housing has already gone down 20%; it can't possibly go any lower. Then housing goes down another 10%, and the same logically deficient arguments for a housing recovery continue. I think it is time the American public woke up and realized the lies the government has been telling.
The US Housing Market IS in Crisis
Without enough qualified buyers, the housing industry is simply not going to recover. But it isn’t just a lack of qualified buyers that is the problem. The problem is that the US real estate market is a complete and total disaster right now and there is every indication that things are going to get even worse.
Three and a half years into the worst home price decline in living memory, there is still no evidence that a bottom has been reached. Waves of small and mid-size banks are going to continue to fail because the US housing market continues to come apart at the seams. The US government announced that in June 2010, sales of new homes plunged to the lowest level on record. The stark reality is that the housing market is not going to recover soon.
FACT: The real estate market is NOT recovering—not now, not in the next five years! There will be no sustained economic recovery until there is a recovery in housing.
In fact, thousands of more houses will be on the housing market very shortly. Let me repeat—the number of mortgages in the US more than 90 days past due has climbed to over 5%. This is the highest level recorded in the 26 years the data has been collected. As the housing market continues to get increasingly worse, it will put even more pressure on small to mid-size banks.
Why do you need to read about all of this? So you will have more information to make an informed decision on what strategy to use for solving your problem. So keep reading.
The Outlook Looks Bad
The question is—so what does all of this mean? It means that it is going to be very difficult to sell homes. It means that prices are going to continue to come down. It means that there will be continued high unemployment in the construction and real estate industry. It means that every industry that is dependent directly or indirectly on the US housing market is going to continue to feel a lot of pain for a long time to come.
One recent study forecasts that five million houses and condos will go through foreclosure within the next couple of years. When this happens it will be absolutely catastrophic for the banking industry. In addition, over the next four years $1.5 trillion in commercial real estate loans will come due. At this time, over 50% are in deep trouble. Losses could be as high as $700 billion. This fallout will also affect banks big and small as the reality of losses will be devastating.
Two new studies have been released on the US housing market and the outlook is bad. Both studies conclude that persistent waves of foreclosures will put downward pressure on home prices over the next several years and that mortgage modification efforts will delay, but not prevent, home foreclosures. They are projecting that of the 7.7 million households behind on their mortgage payments, 5 million will lose their houses through foreclosure.
Like in the Great Depression, housing construction jobs have disappeared in the depressed housing markets. If this foreclosure crisis continues unattended, it will transform the stream of Republican statewide victories into a tsunami of voter discontent headed directly toward the incumbents in Washington. It will be an interesting November at the polls. I think we should vote all incumbents. What do you think?
So don’t buy this bunk that the media is putting out about going out and buying and spending again to get the economy moving. Now is the time to save as much money as you can, and live as simply as you can. Our unsustainable economic system is headed for waves of future crashes.
Another frightening thing is that the economic effects from the Gulf of México oil leak have barely been felt yet. The ongoing disaster in the Gulf threatens to push that entire region into a devastating depression, probably an evacuation of millions of Americans, and causing economic shockwaves that will be felt from coast to coast. Considering the fact that the housing market is already on the verge of a major crisis, the last thing we needed was a disaster of this magnitude.
So, NO, there is no recovery in sight, and things are not going to get better for the housing industry. Anyone who thinks so is seriously deluded. Got to stop drinking the Kool-Aid.
Let’s Look at January 2010
In January, foreclosure filings rose 15% from a year earlier and exceeded 300,000 for the 11th consecutive month. One in every 400 US homes was sent a default notice, scheduled for a foreclosure auction or repossessed by a bank. Banks repossessed more than 87,000 homes in January. That is a whopping 31% increase over January 2009.
While an all-time record 2.8 million households were foreclosed last year, RealtyTrac expects that number to surge to over 3.5 million this year—a 40% increase. This is not exactly reassuring news, especially coming on top of December’s record 17% plunge in home values.
Only one conclusion makes any sense at all: Despite all of Washington’s rosy claims, the touted “recovery” is not happening. I do not mean to report doom and gloom, but the facts are the facts and you should know the truth so you can make the right choices to get yourself ready to solve your problem.
Many experts are expecting greater than 20% unemployment five years from now. So if you have a job now, treat it like gold. Be the first one to show up in the morning and the last one to go home. Make yourself indispensable in every way. Work on quality, not quantity. Looking for a job? Check out the foreclosure/bankruptcy industries. Talk about job security.
The Mortgage Reset Storm
A mortgage reset is usually part of a balloon mortgage. Generally when people first obtain their mortgage, they have the option to pay much lower interest rates or make interest only payments for the first few years of owning the home. However, at a specific point, either the entire amount of the mortgage becomes due or the mortgage is readjusted and reset with a higher interest rate. This usually dramatically increases the monthly payments. Mortgage resets certainly are contributing to higher foreclosure rates because of many homeowners inability to make larger monthly payments. In simple terms, a mortgage reset is when a mortgage comes due.
In September 2008, the storm of mortgage resets hit $35 billion. That was the exact time the financial crisis hit. When homeowners could not afford to refinance and defaults began, the stock market and the banking industry crashed. For more information on the mortgage crisis visit: http: //en.wikipedia.org/wiki/Subprime_mortgage_crisis
In the summer of 2009, mortgage resets were low, averaging around $15 billion a month. We can call this the eye of the storm. This year the second half of the financial hurricane will hit and by 2011 we will see the largest number of ARM’s expiring climbing to nearly $40 billion a month. This financial hurricane of adjustments for ARM’s will not end until late 2012.
FACT: Estimates suggest that from March 2010 to September 2010, an additional $900 billion in home loans will be reset..
The first half of the mortgage storm was due mostly to subprime defaults. The second half of the storm will hit more solid homeowners. Most of these loans were originated at the top of the bubble, with the highest prices, and therefore likely have the largest losses.
We are about to see the largest bulk of the ARM loans readjust from a fixed teaser rate to a variable rate. Homeowners will go from a 4.25-4.5% interest rate, to an 8-10% interest rate. Can these homeowners weather the storm? Are you one of them? Will your ARM be resetting soon? When this happens foreclosures will skyrocket. Banks will not have payments coming in and many more are going to fail. Many economic experts doubt that the banks have the stability to withstand another bout of significant tailed loan losses and are expressing concern for the future of the economy and its potentials for a recovery.
NOTE: Statistics show that mortgage failures occur most often two to three years after closings.
In America, there are over 40 million people who own more than two homes and 9% of Americans own three. In this current crisis are they going to be able to carry and refinance two or more mortgages? Since home values have gone down, many homeowners are finding out that they owe more than their homes are worth. Will the banks work with them?
Many homeowners across the US are realizing the time for using their home as an ATM is over. Across the country this is crushing retailers and affecting retail real estate. Many shopping centers are in financial trouble. This is all leading to the crash of office, warehouse, and other commercial properties that will also add to the slowing down of the recovery.
The Federal Housing Administration is Broke
The Fed, the Federal Housing Administration (FHA) and the government-sponsored housing agencies have not managed mortgage risk very well. The FHA insures approximately $680 billion of single family home mortgages. The FHA reserve against losses has dropped to $3.6 billion (0.53%) as of September 2009. This was due to losses because of defaulting mortgages. FHA problem loans have risen to 24% of all loans originated in 2007, and taxpayers face $1 trillion in losses on Fannie and Freddie alone in the years to come.
In the past year, the FHA has consumed $9.3 billion of reserves. If this trend continues for the next 12 months, this would put the agency close to $6 billion in the red.
Under the most negative scenarios, home prices would fall another 30%, unemployment would reach 12.5%, and mortgage interest rates would drop 2% to near to 3%. The worst case scenario has the FHA needing an infusion of $1.6 billion in 2011.
The FHA insures loans to buyers who lack the down payment and/or credit scores to qualify for mortgages without the FHA insurance. These home buyers pay higher interest rates with the difference from an uninsured mortgage rate going into the FHA coffers to pay for defaulted loans. The FHA has reportedly tightened credit requirements somewhat in 2009, but still accepts 3.5% down.
FHA insured mortgages seriously delinquent or in foreclosure:
• 20% of FHA insured mortgages issued in 2007.
• 12% of FHA insured mortgages issued in 2008.
• 16% of FHA insured mortgages issued in 2009.
These FHA mortgages are seriously delinquent as they are at least 90 days without making a payment. So far, FHA insured mortgages issued in 2010 are not looking much better.
If the housing market is not near a price bottom, this could be the next big bailout. More than 50% of all FHA insured mortgages issued since 1990 had less than 5% equity at the time of origination. For 2007-2009, the ratio has been between 55% and 60% each year. That means that more than half of all FHA mortgages issued in 2007 and 2008, as well as early 2009, are underwater. A further drop in housing prices would be devastating.
Housing Markets That Will Never Recover
• Providence, RI. Home prices down 27% and unemployment is 13.2%
• Las Vegas, NV. Housing prices are down 51% and unemployment is 13.8%
• Rockford, IL. Housing prices are down 16% and unemployment is 17.9%
• Boise City, ID. Housing prices are down 34% and unemployment is 9.9%
• Toledo, OH. Housing prices are down 30% and unemployment is 13%
• Reno, NV. Housing prices are down 44% and unemployment is 13.3%
• Grand Rapids, MI. Housing prices are down 30% and unemployment is 14.3%
• Fort Meyers, FL. Housing prices are down 65% and unemployment is 14.2%
• Orlando, FL. Housing prices down 49% and unemployment is 15%
• Sacramento, CA. Housing prices down 47% and unemployment is 17.5%
• Palm Coast, FL. Housing prices down 63% and unemployment is 16%
• Lansing, MI. Housing prices are off 38% and unemployment is 11.8%
• Riverside, CA. Housing prices are down 52% and unemployment is at 18%
Home prices have fallen over 50% in Florida with apartment buildings going for as little as $22,000. Many Europeans are flocking to Florida to buy discounted real estate.
More evidence that housing is rolling over: New home sales fell 5.1% in June 2010, and mortgage applications were a disappointment.
The reasons behind the rise in delinquencies and home foreclosures differ, but there are mainly two basic driving factors. First, is the family economic distress that is related with untimely job loss or internal matters, and second is the slowing stride of home values. Low home price appreciation is the most common reason behind the highest rates of mortgage home foreclosures, and strategic defaults in the country.
Banks are in many cases even ignoring missed payments on homes and not preceding with foreclosure. This is very important information for you to know—you will find out why later. Keep reading.
If banks had to value assets at their current worth, the entire banking system would become insolvent overnight, so they choose to purposefully ignore the reality on the ground. This is a good point to be aware of that we will also go more into detail later in this report.
The Federal Reserve (which in reality is a group of 12 banks that charge interest) has bought over $1.25 trillion in mortgage backed securities to keep rates artificially low and this is coming to an end. The Obama administration’s flagship $75 billion foreclosure prevention program has barely dented the problem. It would cost about $745 billion, slightly more than the size of the original 2008 bank bailout, to restore all underwater borrowers to the point where they would be breaking even. About 25% of the 1.24 million homeowners who started the administration’s program over the past 12 months received permanent loan modifications. Over 23% of those enrolled dropped out during the three months trial phase.
Even with the governments Home Affordable Modification Program (HAMP), notice of defaults is still rising because of the high unemployment rate. If you cannot pay your mortgage, does it matter that your payment is $1,000 instead of $2,000? Many families and individuals are simply unable to pay their debt. There isn’t any gimmick to fix that. The only remedy to this is something called a “job”. Many economists expect the resumption of a sagging economy that will boost the unemployment rate to 16% or higher by the first quarter of 2011. This will spur a banking meltdown and once again clobber the housing market, slowing down the broader economic recovery.
Record Unemployment, Record Foreclosures, Record Bankruptcies
In the first quarter of this year, foreclosure filings were 16% higher than the same quarter in 2009, according to RealtyTrac. And March was the highest month since RealtyTrac began issuing reports.