Well, the applications are starting to come in and we are working closely with our partner, NCUD as they work with the homeowners who are being evicted from their homes. We have two homeowners who have qualified through the city for the program, both of which have Bank of America loans.
The real question here is whether the lenders are going to make the right financial decision. The City has vetted the homeowner to best ensure that they were victims of faulty or predatory loan practices and procedures. The lender, having decided to evict the homeowner has reached a point where they know that their end game is to only get the fair market value of the home, or less depending on the condition after eviction.
The City is willing to put in up to $100,000 to reduce the loan to a level that the homeowner can afford, leaving the lender with a performing loan that is much more likely to stay performing. Having a performing loan and up to $100,000 from the City is a much better solution for the lender than experiencing the cost of eviction and the cost of selling what would then be an REO home. Finally, the lender can get great PR value out of helping to keep someone in their home who wasn't trying to game the system.
Quite frankly, if the banks are not willing to embrace this type of strategy, the next wave or foreclosures is not too far down the road, and as we have already seen, the newt wave will have a high percentage of the high quality A and Alt A loans. As has already been demonstrated, loan modifications DO NOT WORK when the loan to value is 150% or more.
Wednesday, November 18, 2009
Tuesday, May 5, 2009
San Francisco Chronicle Article
Well, for those of you out there that are interested, an article appeared in the San Francisco Chronicle this morning on our plan to help save 10-12 homeowners from foreclosure in Menlo Park. Here's the link:
http://www.sfgate.com/cgi-bin/article/comments/view?f=/c/a/2009/05/05/BUHJ17ED9B.DTL
http://www.sfgate.com/cgi-bin/article/comments/view?f=/c/a/2009/05/05/BUHJ17ED9B.DTL
Wednesday, March 11, 2009
America's Home-Housing Market Stabilization
Efforts by the federal government to free up capital for lending have not been effective at reducing the growing number of homeowner defaults and the escalating number of foreclosures. Current mortgage modifications being offered, and those promised in recent announcements by the White House, do not address the root of the problem. Instead, they typically replace one high leverage situation with another one, resulting in the recurrence of the same problems for many homeowners. The logical solution, and arguably the solution fairest to everyone, is to replace a portion of the debt financing for troubled homeowners with equity financing.
The problem is that many homeowners lack the resources to provide sufficient equity on their own. EARN equity instruments solve this dilemma. These instruments require no monthly payments from the homeowner but require the homeowner to give up a percentage of the future appreciation in the home. In exchange, the homeowner benefits from a smaller mortgage with lower payments. Some versions of the instruments create a “collar” that prevents homeowners from further borrowing against the value of the home. This feature allows homeowners to pre-commit to future financial soundness. Without “deleveraging” the housing market and creating sustainable home financing, it is likely that the wave of foreclosures and the downward spiral in overall home prices will continue since homeowners will remain in or will gravitate back to the same precarious situation they are in today.
EARN instruments are an invaluable resource to help three groups: homeowners currently in default (pre-foreclosure), financially stressed homeowners with performing loans, and potential home buyers who have adequate income but lack the down payment to purchase suitable homes. In all three cases, use of these equity instruments facilitates the introduction of new standards for qualifying homeowners and underwriting home financing. Requirements such as specifying that mortgage payments do not exceed a specified percentage of monthly income are more easily implemented if equity is available beyond each homeowner’s own resources. Combining suitable standards with an equity infusion will make homeownership sustainable both for many existing homeowners and for many new ones.
EARN instruments create powerful opportunities for government solutions to the housing crisis. For instance, governments themselves can finance and temporarily hold the EARN equity instruments. This expenditure will be more effective than many other methods of assistance. Subsidizing loan rates or the underlying lenders does not address the problem of excessive leverage. In addition, EARN instruments will provide a substantial pay back and perhaps even a profit if the government holds onto them until a recovery is in progress. Financing and temporarily holding the EARN instruments is a strategy that is similar to other successful approaches in the past such as the RTC program where the government held problematic assets until markets stabilized and recovered.
At the same time, there is the possibility of creating effective coordination between the federal government, state and local governments, private investors and non-profit entities. Given its massive financial resources, the federal government is a logical entity to finance the bulk of the EARN instruments issued initially. At the same time, a federal initiative that resulted in issuance of a large number of such instruments would facilitate creation of a strong private market for the instruments. Economists and finance experts have known for many years that equity instruments for owner occupied real estate are a tremendous diversification tool for institutional investors. Home equity returns have a very low correlation with stock, bond, commercial real estate, and rental real estate returns. In addition, home equity is a $15 trillion asset class. After inducing the creation of a private market, the government could gradually sell off its own holdings.
At a more granular level, state and local governments as well as some non-profits have great expertise with respect to local housing markets. These entities are capable of ensuring a stable, efficient and fair origination process for EARN instruments and can play a key role in the process even if the federal government ends up holding most of the instruments.
Housing market stabilization through the promulgation of equity instruments represents an even handed and effective method of dealing with the current housing crisis. This approach gives homeowners deserving of help and willing to share a piece of their home price appreciation a unique opportunity not only to stay in their homes but also to do so with financing that is consistent with a new model. The new model replaces excessive debt financing with smaller loans and incremental equity financing from investors or governments. The result is affordable monthly mortgage payments, leaving room for non-housing forms of saving. While much can be learned from the current crisis, two clear lessons for homeowners are to avoid excessive leverage and to diversify savings beyond the four walls of one’s home.
David Shapiro, President and CEO of the EARN Group
Jeff Strnad, Charles A. Beardsley Professor of Law, Stanford University and Advisor to the EARN Group
The problem is that many homeowners lack the resources to provide sufficient equity on their own. EARN equity instruments solve this dilemma. These instruments require no monthly payments from the homeowner but require the homeowner to give up a percentage of the future appreciation in the home. In exchange, the homeowner benefits from a smaller mortgage with lower payments. Some versions of the instruments create a “collar” that prevents homeowners from further borrowing against the value of the home. This feature allows homeowners to pre-commit to future financial soundness. Without “deleveraging” the housing market and creating sustainable home financing, it is likely that the wave of foreclosures and the downward spiral in overall home prices will continue since homeowners will remain in or will gravitate back to the same precarious situation they are in today.
EARN instruments are an invaluable resource to help three groups: homeowners currently in default (pre-foreclosure), financially stressed homeowners with performing loans, and potential home buyers who have adequate income but lack the down payment to purchase suitable homes. In all three cases, use of these equity instruments facilitates the introduction of new standards for qualifying homeowners and underwriting home financing. Requirements such as specifying that mortgage payments do not exceed a specified percentage of monthly income are more easily implemented if equity is available beyond each homeowner’s own resources. Combining suitable standards with an equity infusion will make homeownership sustainable both for many existing homeowners and for many new ones.
EARN instruments create powerful opportunities for government solutions to the housing crisis. For instance, governments themselves can finance and temporarily hold the EARN equity instruments. This expenditure will be more effective than many other methods of assistance. Subsidizing loan rates or the underlying lenders does not address the problem of excessive leverage. In addition, EARN instruments will provide a substantial pay back and perhaps even a profit if the government holds onto them until a recovery is in progress. Financing and temporarily holding the EARN instruments is a strategy that is similar to other successful approaches in the past such as the RTC program where the government held problematic assets until markets stabilized and recovered.
At the same time, there is the possibility of creating effective coordination between the federal government, state and local governments, private investors and non-profit entities. Given its massive financial resources, the federal government is a logical entity to finance the bulk of the EARN instruments issued initially. At the same time, a federal initiative that resulted in issuance of a large number of such instruments would facilitate creation of a strong private market for the instruments. Economists and finance experts have known for many years that equity instruments for owner occupied real estate are a tremendous diversification tool for institutional investors. Home equity returns have a very low correlation with stock, bond, commercial real estate, and rental real estate returns. In addition, home equity is a $15 trillion asset class. After inducing the creation of a private market, the government could gradually sell off its own holdings.
At a more granular level, state and local governments as well as some non-profits have great expertise with respect to local housing markets. These entities are capable of ensuring a stable, efficient and fair origination process for EARN instruments and can play a key role in the process even if the federal government ends up holding most of the instruments.
Housing market stabilization through the promulgation of equity instruments represents an even handed and effective method of dealing with the current housing crisis. This approach gives homeowners deserving of help and willing to share a piece of their home price appreciation a unique opportunity not only to stay in their homes but also to do so with financing that is consistent with a new model. The new model replaces excessive debt financing with smaller loans and incremental equity financing from investors or governments. The result is affordable monthly mortgage payments, leaving room for non-housing forms of saving. While much can be learned from the current crisis, two clear lessons for homeowners are to avoid excessive leverage and to diversify savings beyond the four walls of one’s home.
David Shapiro, President and CEO of the EARN Group
Jeff Strnad, Charles A. Beardsley Professor of Law, Stanford University and Advisor to the EARN Group
Thursday, March 5, 2009
Delinquencies Grow, Home Equity Shrinks
I don't know if it was the left jab or the right hook, but I do know that the resulting blows would have felled Mickey Rourke on a TKO.
According to the Mortgage Bankers Association, quarterly delinquencies for all loans rose to 7.88%, up 2.00% over the previous year. That does not include the number of homes in foreclosure which rose to 3.3% of all loans. Taken in tandem, over 11% of American homeowners were either in default or in foreclosure as of the end of 2008.
As if we needed to punctuate that message, one must remember that these are numbers AFTER the GSE’s put a temporary moratorium on foreclosures.
It becomes increasing apparent with each passing day that we must convert debt to equity or run the risk of this disease spreading to the point where the mediation could kill the patient.
According to the Mortgage Bankers Association, quarterly delinquencies for all loans rose to 7.88%, up 2.00% over the previous year. That does not include the number of homes in foreclosure which rose to 3.3% of all loans. Taken in tandem, over 11% of American homeowners were either in default or in foreclosure as of the end of 2008.
As if we needed to punctuate that message, one must remember that these are numbers AFTER the GSE’s put a temporary moratorium on foreclosures.
It becomes increasing apparent with each passing day that we must convert debt to equity or run the risk of this disease spreading to the point where the mediation could kill the patient.
Saturday, February 28, 2009
DARN-Deleverage America Right Now
The housing and credit crisis has been front page news for well over a year now. The problems have been articulated to the point where mortgage backed securities and home foreclosures are as likely to be discussed amongst a group of friends as the weather. Americans across the country are asking where is all this money going and why isn’t it helping to solve the problem? It is obvious to everyone that our nation needs to find ways to stabilize the real estate markets NOW or risk even greater deterioration in home prices as a result of increased unemployment and other related economic factors.
At the heart of the problem in housing today is one very simple fact…there is too much debt and not enough equity. Millions of homes in our country are worth less than the mortgage balances on the homes. Even though that may not be me or you, if it’s our neighbor and they lose their home, all homes nearby drop in value. The best solution to this problem also happens to be the least taxing to our country, we need to convert debt to equity and deleverage the housing market. Instead of using taxpayer money to modify loan interest rates or extend the term of loans to reduce payments, we HAVE to reduce the debt itself. Loan modifications don’t work because we haven’t solved the underlying problem.
The answer is for the federal government to use its resources to temporarily hold equity in troubled homes through a campaign that EARN calls “America’s Home”. In essence, the federal government would offer to refinance the homes of Americans who qualify for the program. The government would finance a portion of the qualified homes with a private sector equity instrument such as the EARN Certificate that was developed over four years ago. In return for the equity infusion, the homeowner would have a smaller loan with affordable payments and they would share the appreciation of their home as part of the program. The government would temporarily hold these equity instruments until the housing market recovers.
The point of this email is to solicit your help in getting government officials to embrace the “America’s Home” campaign. If this email and the attached document have convinced you that the program is good for America then please forward this email to friends, family, business associates, and PLEASE forward it to all of your elected officials. The link below will direct you to a page on the U.S. Congress website that will give you the names and contact information for ALL of your State and Federal elected officials. It is on the left hand side of the webpage and is called My Elected Officials. http://www.congress.org/congressorg/home/ Also please send this to your Mayor and city council members so that they can also hear your voice.
There are situations where the free market itself cannot resolve the underlying market dynamics that threaten its future. And there are times when the magnitude of those problems is so great that only government has the ability to provide an effective solution. America is at such a place and in such a time. If we don’t act now to stabilize the American housing market our economy will continue to weaken, more jobs will be lost and the downward spiral will actually accelerate.
We must remember that the government is the American people and that we as American people have a right AND an obligation to help frame the destiny of our Country. When the frenzied process of governing and managing the divergent wishes of the American people fails to produce the result necessary to resolve the problem, the people must help to provide the solution and the people must be the voice that our elected officials hear.
The time is now, the opportunity is right here in front of you, and the risk of failure is far too great. The “America’s Home” campaign is good for the American people and for the American economy. We have an opportunity to stop the bleeding and to give people in trouble hope that America can be as good as the people who are willing to fight back and survive adversity. We hope that we can count on your support.
At the heart of the problem in housing today is one very simple fact…there is too much debt and not enough equity. Millions of homes in our country are worth less than the mortgage balances on the homes. Even though that may not be me or you, if it’s our neighbor and they lose their home, all homes nearby drop in value. The best solution to this problem also happens to be the least taxing to our country, we need to convert debt to equity and deleverage the housing market. Instead of using taxpayer money to modify loan interest rates or extend the term of loans to reduce payments, we HAVE to reduce the debt itself. Loan modifications don’t work because we haven’t solved the underlying problem.
The answer is for the federal government to use its resources to temporarily hold equity in troubled homes through a campaign that EARN calls “America’s Home”. In essence, the federal government would offer to refinance the homes of Americans who qualify for the program. The government would finance a portion of the qualified homes with a private sector equity instrument such as the EARN Certificate that was developed over four years ago. In return for the equity infusion, the homeowner would have a smaller loan with affordable payments and they would share the appreciation of their home as part of the program. The government would temporarily hold these equity instruments until the housing market recovers.
The point of this email is to solicit your help in getting government officials to embrace the “America’s Home” campaign. If this email and the attached document have convinced you that the program is good for America then please forward this email to friends, family, business associates, and PLEASE forward it to all of your elected officials. The link below will direct you to a page on the U.S. Congress website that will give you the names and contact information for ALL of your State and Federal elected officials. It is on the left hand side of the webpage and is called My Elected Officials. http://www.congress.org/congressorg/home/ Also please send this to your Mayor and city council members so that they can also hear your voice.
There are situations where the free market itself cannot resolve the underlying market dynamics that threaten its future. And there are times when the magnitude of those problems is so great that only government has the ability to provide an effective solution. America is at such a place and in such a time. If we don’t act now to stabilize the American housing market our economy will continue to weaken, more jobs will be lost and the downward spiral will actually accelerate.
We must remember that the government is the American people and that we as American people have a right AND an obligation to help frame the destiny of our Country. When the frenzied process of governing and managing the divergent wishes of the American people fails to produce the result necessary to resolve the problem, the people must help to provide the solution and the people must be the voice that our elected officials hear.
The time is now, the opportunity is right here in front of you, and the risk of failure is far too great. The “America’s Home” campaign is good for the American people and for the American economy. We have an opportunity to stop the bleeding and to give people in trouble hope that America can be as good as the people who are willing to fight back and survive adversity. We hope that we can count on your support.
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