Jeff Kaller

Here's what might actually work……..

Let's have the government do something to fix the housing market. Ideas are flying around Washington. They include tax credits and cheaper mortgages for home buyers as well as leaning on lenders to rewrite mortgage terms for struggling borrowers. But maybe we should ask what, exactly, fixing the housing market means--and prepares ourselves for the limits of what these policies can actually accomplish.

Congress passed a bill last July to help the housing market; in an effort to churn demand and stabilize home prices, the bill created a $7,500 tax break for first-time home buyers. It also created a program to stop foreclosures. Bottom line: only 25 loans have been rewritten.  In December, houses sold for 15% less than they did a year earlier. Says Wellesley College economist Karl Case: "Let's not delude ourselves into thinking we're driving a speedboat when we're driving a tanker."

 Most proposals on the table are designed to boost demand without distorting the market and at the same time restrain supply by keeping people in their homes. The core issue is that there aren't enough people buying houses. Usually when price goes down, demand rises, but in the housing market, falling values make potential buyers fearful, sending them to the sidelines as they wait to see how much cheaper homes will get. If we could restore buyers to the market, the thinking goes, prices would stabilize, delinquent borrowers could sell instead of falling into foreclosure which is undeniably hard to stop, and the value of the mortgage-related securities contaminating our financial system would stop being such a mystery.

 Ideas aimed at kick-starting this process include giving everyone who buys a house a tax credit worth 10% of the purchase price and driving down mortgage rates--perhaps to as low as 4%. Nearly one-fifth of all borrowers owe more than their house is worth. At the same time, some houses are still overvalued. Economists disagree by how much, and the answer changes from region to region. Houses in Cleveland are undoubtedly cheap. They could use some new home buyers there. In some ways, proposals to stimulate the housing market aren't really aimed at bringing in new buyers. Extending tax credits to people selling one home to buy another and letting homeowners use cheap mortgages to refinance won't get rid of excess housing inventory. These policies are meant to do something else: stimulate the economy by delivering money to homeowners. The other core issue is that too many people can no longer afford their mortgage. Maybe they took out an adjustable-rate loan that has reset higher, or they lost a job in the slowing economy. If we could stop the cycle of defaults and foreclosures, the thinking goes, we could prevent deeply discounted, bank-sold homes from flooding the market, keep losses from further impairing mortgage-backed securities and preserve property values. That's how we wind up with ideas like paying mortgage servicers to make loans more affordable and changing the bankruptcy code to allow judges to reduce the amount borrowers owe their mortgage company.

 "We need to recognize the goal is not to keep everyone in their houses for as long as possible," says Edward Glaeser, professor of economics at Harvard University.

 But there are also plenty of people who might be able to keep their homes with a lower interest rate or a longer loan period. "Servicers don't have the right incentives," says Christopher Mayer, professor of real estate at Columbia University's Business School. Cutting them a check in return for a modification of the loan, or trumpeting their legal authority to do so, is meant to prime the mortgage-rewriting pump, as is letting bankruptcy judges revise mortgages.  Part of what drives up the redefault rate, though, are changes that don't lower, or may even increase, a borrower's monthly payments. A targeted tool like loan modification is probably a more useful allocation of resources than a blanket policy like cheaper mortgages. Make Some Owners Renters

 Yet no policy can change the fact that both property prices and home-ownership rates went off the charts. 

Neil

Foreclosure investing can provide reasonably priced property that can be turned over for profit. With some careful research and getting real estate or short sale resources, foreclosure investing can provide great investment opportunity for both the short and long term. Many are afraid of getting involved because they do not possess large sums of money to play around with. The truth is, you do not need to use your own money to make a profit in foreclosure investing, and many find investors to fund their projects.

The idea of playing with someone else’s money may be even more frightening then playing with your own. However, using investors could be a good way to get valuable information. Investment clubs are a great source of information and are recommended if you are new to foreclosure investing. They are made up of local investors who have experience in this kind of business. They can provide substantial answer to questions and tell you if your property is a good idea or not. If you’re actually looking to attract investors then there is no better place. If your idea is good then you should have no problem attracting investors and the money you need. If investors are not keen to jump on board then this could be a sign that your project isn’t such a great deal.

If there are no investment clubs in your area, but you still are keen to attract investors, look in the yellow pages for ads for all types of credit. These are usually money lenders who have investment cash available. Another trick you can try is to find ads with slogans like “We Buy Houses”. These are often cash investors and are a good source to generate your capital. If you’re really determined, look in the legal section of your newspaper for notices of sale. These are auctions featuring foreclosure properties. Go to the auction and speak to the investors. You may find someone faster than you think.

If you are determined to get into foreclosure investing but lack the cash, remember, where there is a will there is a way. Check your local investment clubs, yellow pages and news papers for investors. If your idea is good, someone will want to finance it.--Roy Van

"It used to be you could sit down and we'd explain what happens with 7 or 13 and, if you wanted to save your home you'd always be a 13, which is the only way to pay past arrears. That it prohibits now is the people who don't want the home and want to start over." De Leo says the act presumes everyone abuses the system if they make more than the median income. These filers have to go into a Chapter 13 and it doesn't matter if they ran up the credit card bills, opened a small business that failed or invested in condominium or real-estate deals that have gone bad. "It doesn't matter how you have come to your financial problem but, because of your income level, you're prohibited from filing Chapter 7." Shreveport bankruptcy attorney Kevin Molloy calls the act "one of the most poorly written laws I've ever seen." The law includes a "means test," which determines if filers can qualify for Chapter 7. If they qualify, they can't claim contributions to a retirement fund like a 401[k] as a valid expense, which can result in money left over, which could have been paid to unsecured creditors in a Chapter 13.

In Chapter 13, the deduction to the 401[k] plan can he used as a valid expense, which could mean nothing goes to unsecured creditors and is the supposed point of choosing that option. Also, Molloy says vehicle lenders are big winners because the law eliminated "cramdowns" that would have allowed a filer to pay the value of the vehicle, rather than actual amount owed, if it was bought within 2 1/2 years of filing. "They're taking the wealth that would have gone to credit cards and shifted it to the car lenders."

David Boneno, general counsel of the Louisiana Bankers Association, says his group doesn't see a need to change the act because Louisiana is not experiencing financial distress like other states. Bankruptcies remain low in the state because it hasn't experienced a rapid economic decline or gotten into subprime loans substantially.

Boneno says the means test helps determine if a filer really needs bankruptcy, and the median income level, which changes per state, allows low-income filers to declare Chapter 7 bankruptcy while encouraging those with higher income to go to Chapter 13 reorganization, which would impose a payment plan rather than discharge the debt. De Leo considers the act so oppressive that she says, "I almost think its a war of the classes in an economic war. They've eliminated rich people's ability to file bankruptcy and escape liability."

While some may not sympathize with their plight, she says they have helped grow the economy by investing in property and businesses. "When individuals come in, their No. 1 reason for filing is typically they're behind on their mortgage and want to stop the foreclosure," she says. And the reason they're behind on their mortgages are these ARMs [adjustable-rate mortgages] with payments jumping from $800 to $1,800 a month."

De Leo says many ARM borrowers have appointed her firm to try to renegotiate these loans. They couldn't afford to stay in the house, couldn't get refinancing to avoid the adjusted interest rate and couldn't sell the property in a slowing housing market. When they declare bankruptcy, they typically go to Chapter 13, which means making past-due payments in addition to paying the higher mortgage payments that put them in bankruptcy. Many hoped for relief from Congress' $700 billion rescue plan, but that didn't happen.

"It's a very powerful tool and we've never had that power under the code, but now there's a move to change all of that," Williams says.While Obama hasn't specified whether he supports stripdowns, he does want to help homeowners to stop foreclosures, especially seniors. He has blamed opponent John McCain of siding with the banks and credit card companies in voting for the act. But his Democratic vice presidential candidate, Joe Biden, was its key mover in 2005.

Still, the communication is apparently resonating with voters, particularly those angered by government bailouts of financial institutions that pushed for a bankruptcy code so restrictive that some call it Draconian. She says bankruptcies are still artificially low in Louisiana's Eastern District because of Katrina assistance, but they're steadily climbing, and she says bankruptcies are "flying" in the Western District. The construction boom is fading, and electricians, plumbers and contractors have started declaring bankruptcy, which started in early summer and has gotten worse.

They're facing a humbling process, De Leo says. If they have an ARM or make above the median income, they can only file Chapter 13, keeping them in bankruptcy three to five years. "It's the middle-class, rich people who are getting killed on this," she says. For example, if a filer has a $300,000 mortgage but invests $298,000 in a business, it's considered a personal, not commercial, bankruptcy because most of the debt is not business-related.

Williams agrees the filings generally draw from the middle class, and the act is more oppressive on them. Bankruptcies hit record numbers just prior to the act's passage, dropped off drastically shortly after it took effect in October 2005 and are rising again. Although the act was aimed at reducing them by adding credit counseling, more legal hoops and complexity, and additional costs to file, 1.2 million bankruptcies are anticipated this year nationally. That's up from last year's 800,000 filings, and next year's filings are expected to be even higher. He also says the numbers could be low as more people can't afford to file bankruptcy.

"It doesn't matter how many hoops you create, people are going to end up in bankruptcy one way or another," he says. "In the end, it's a very awesome experience because when people need relief from their creditors, bankruptcy is what the government offers - even with the hoops."A matter of housekeeping

Neil

John Grossi's least problems is to stop his Claremont Home from foreclosure. Unfortunately, Grossi is now struggling to pay the monthly rent on a two bedroom apartment with his Social Security disability income while devoting most of his attention to his 14year-old son, who still lives at home.

While most probably aren't as overwhelming as Grossi's, each foreclosure is accompanied by a tale of woe and nearly all result in the loss of the borrower's hard-earned equity. Creative financing

ForeclosuresMass.com also reports a sharp rise in property foreclosure in Massachusetts, and anecdotal reports at a recent conference focusing on stopping foreclosure noticed a similar spike was being experienced in the Midwest.

The Mortgage Bankers Association reports an increase in the foreclosure inventory rate from the first quarter of this year from the first quarter of last year, but not a spike.

MBA senior economist Mike Fratontoni said he was surprised the rate wasn't even higher, given the recent 4.25 percent rise in interest rates and the hot refinancing market three or four years ago, which simply meant there were a lot more loans made to stop foreclose on later. The expected sharp rise in foreclosures, he said, has been offset by a strong economy.

"We have a perfect storm and its just hard to stop foreclosure other than loaning again to pay the mortgages," said Jeremy Shapiro, president of ForeclosuresMass.com. "We have rising interest rates, a number of creative loans written over the past years and a sharp appreciation and then a cooling off of the housing market."

By creative financing, Shapiro is referring to a number of easy financing gimmicks, especially those loans offered to subprime borrowers - people with a checkered credit history. "People with poor credit now have access to the mortgage market," said Michael Collins, an Ithaca, N.Y., foreclosure consultant. In New Hampshire, a look at foreclosure data from the past 2-1/2 years shows that most foreclosed loans were originated by subprime lenders, with Ameriquest the leader of the pack .

Almost all subprime loans involve an adjustable-rate mortgage, so when interest rates stayed low, borrowers were able to survive that jump. As housing prices leveled off - and in some cases declined - the borrowers found that they owed more than they owned. "When you are upside-down like that, there are very few options to avoid foreclosure," said Shapiro.

Even those who have filed for bankruptcy are having trouble hanging onto to their homes.

Peter Wright, who heads the consumer clinic at the Franklin Pierce Law Center in Concord, said that a number of his Chapter 13 clients couldn't keep up on payment arrangements after bankruptcy filings. A survey conducted by Collins showed that a large percentage of borrowers think that discussing their problem with their lender might spur the lender to foreclose. The foreclosure process is an expensive one compared to stopping foreclosures, and lenders tend to lose money on the deal. If bad came to worst, Gioeli said, the borrower could deed back the property to the mortgage holder. While the borrower would lose the equity put into the house, at least the foreclosure fees wouldn't be added to the debt. As part of the deal, the mortgage holder might be able give back some equity to the borrower if he or she managed to sell the property more then the debt.
Most loans are sold by the originators to various investors. Sometimes these financiers are big institutions that have their own lessening loss department. In the case of federally backed prime loans, the noteholders also have various government guidelines and restrictions that tend to protect the borrower.

Meanwhile services like ForeclosuresNH.com are helping to create an alternative foreclosure market. For a fee, the service lets investors know when a property is in foreclosure. "After the deal goes to auction, the bank tries to recover all of the foreclosure costs and puts it on for market value. The sooner you can get in there, the more equity there is to go around," he said.As housing market cools, foreclosure rate rises

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