2nd Wave of Mortgage Defaults and 3rd Wave!

Below is great article I read that talks about “The Second Wave of Mortgage Defaults.” It is great story, one I have been telling my credit workshop students and home buyer workshop students. What it doesn’t mention the 3rd wave of defaults from Job Loss! We have not seen anything yet!

Carlos Samaniego

The Second Wave of Mortgage Defaults
By Jim Nelson
Baltimore, Maryland

Our economy is about to relapse into the disease that sent us into the Great Depression: Part Deux. Subprime loans caused the initial illness. Option-ARMs will cause the relapse.

In the first half of the past decade, subprime loans were king. They were cheap and easy to get approved. Along with the subprime boom came subprime adjustable-rate mortgages (ARMs), which were equally easy to afford…for a while.

Of course, the “A” and the “R” in ARM meant that the interest rate borrowers pay changes, or resets. The majority of these resets occurred between the summer of 2007 and the summer of 2008.

This period saw a massive amount of mortgage interest rate hikes, which caused millions of foreclosures. Things spiraled down from there, eventually freezing nearly all credit and causing the panic of 2008.

Of course, that’s the 50-cent version of recent history. There were plenty of other financial calamities that went along with this, including the bundling of mortgage-backed securities and risky derivative products.

If you believe the Obama White House and the glass-half-full press corps, you’d think this mess is now behind us. We are, after all, in a recovery…right?

Unfortunately, no one is talking about the second wave of ARM resets and foreclosures…

You see, this second wave will come crashing even harder than the first. It’s made up of a type of mortgage called “Option ARMs.” These give borrowers the option of how much they want to pay during the first five or 10 years of repayment:

1) The full amortized rate, including interest and principal.
2) Interest only, or…
3) A token payment, well below the amount needed to cover the interest on the loan.

This third option causes the mortgage balance to INCREASE instead of decrease. And usually, the borrower can continue to make minimum payments until the mortgage balance increases to 125% of the original amount. That’s when the trouble begins…especially if the interest rate increases at the same time.

This is the exact situation in which many homeowners now find themselves.

Obviously, these option ARMs were supposed to be reserved for customers with better credit than those who took out subprime mortgages. But apparently, they were handed out to almost anyone who wanted them.

According to Whitney Tilson and Glenn Tongue of T2 Partners, who are experts on this subject, about 80% of option ARMs are negatively amortizing. Meaning these so-called top-tier borrowers are heading further into the hole. Once their rates reset, they could be in serious trouble.

And that could be happening very soon:

Subprime ARM Resets

The chart above shows the two peaks in the mortgage-reset wave. The first peak is comprised of subprime ARM resets. And the second is mostly constructed of option ARM resets. We appear to be in the eye of the storm.

That fact alone shook our nerves when we first discovered it. But it was a different chart in Tilson and Tongue’s most recent presentation that really got us startled… It’s also the reason I’m predicting the dollar spike in 2010.

Instead of resetting as expected after the first five years, many option ARMs are so negatively amortized that they are hitting their automatic reset cap.

That means they are resetting early…like right now.

Early Option ARM Resets

As you can see from the second chart, the expected reset peak was to occur in 2011. But the real peak is happening now. You can also see that the amount of mortgages resetting is spread over a longer period of time than originally thought, but is peaking much earlier. Unfortunately, it’s not the peaks that matter.

You see, those are just resets. But with unemployment reaching quarter- century highs every month, and the massive number of homeowners about to receive mortgage bills for two to three times what they are used to paying, we find ourselves in an even scarier environment than this time last year.

It takes anywhere between 3-12 months for most homeowners to actually go into foreclosure. Therefore, the wave of Option-ARMs that are now resetting could cause a major wave of foreclosures over the next 6 to 18 months.

It’s tough to say exactly when the storm will come. But my guess is the second half of 2010.

This second wave of foreclosures will not be good news for the economy or the stock market…At least that’s my guess.


Jim Nelson,
for The Daily Reckoning

Only 5 modifications had a Principal Reduction – Obama Plan Not Working

That is right only 5 of 1,711 permanent modifications as of Sept 1 of this year had a principal reduction! That is what I have been telling my clients, that they are being a fed a bill of goods, with all these companies advertising how they are doing principal reductions!  Here is quote from a front page article on Huffington Post about how the Obama plan has completed failed!

Only five of the 1,711 permanent modifications as of Sept. 1 involved a principal reduction — in fact, most homeowners with a permanent fix ended up owing even more on their mortgage than they did before the modification.

For those who were already “underwater” on their mortgages, meaning they owed more on their mortgage than the house is worth, the move pushed them even further below the surface.

recent Fed study confirmed that the Obama administration’s plan could actually make matters worse for taxpayers when it comes to helping those homeowners underwater.

To read rest of story go to:   http://www.huffingtonpost.com/2009/11/12/the-economist-the-obama-a_n_355022.html

If you like to speak with us about plans on how to deal with mortgage, give us call (909)512-6418

Your friend,

Carlos Samaniego,CMPS

Loan Modification- What I would tell mom to do?

Everyday I get call’s from homeowners who do not know what to do? They are behind on their mortgages, owe more than what the house is worth, lost their job, you name it, I heard it.

Because of so many people trying to take advantage of stress out homeowners, from realtors, lenders, lawyers, investors, scam artist, who do you trust?

I say trust yourself and your instinct! If it sounds to good to be true…..well you know the rest!

Let me tell you what I would do if you are considering loan modification or behind on your payments?

I will tell you exactly what I would tell my mom if she was in this situation.

1. “Mom, first thing thing to know is that the Governor Arnold “The Terminator” Schwarzanegar made it illegal for anyone to charge upfront to do your loan modification, even lawyers! So if anyone tell’s you they can keep you in your house just pay them “X” amount of money! Hang up the phone! Period. End of discussion.”

2. “Mom, I know you do not want to do this, but let’s call the lender, let them know what is going on and ask for help?” Yes, your lender will try to help you right or at least point you in right direction.

3. Go to website http://www.makinghomeaffordable.gov/ and read about loan modifications and call 1-888-995-HOPE and get free help!

4. You need to understand right now, if you do not have an income, lost your job, or make very little money, you are not going to qualify for loan modification. The lender is not going to let you live in home with $300K plus mortgage if you are make $1200 a month(example).  If just doesn’t make sense to you it’s not going to make sense to the bank.

5. Once you have spoken to Lender and HOPE program, have a serious discuss with spouse and family does it make sense to stay in this home. Do you 100K more than it’s worth, do you need a bigger home? Is your neighbor in bad shape? Ask all these questions.  Great article in USA today that has this discuss read now click here

6. If you are already behind on your payments in foreclosures, contact your family attorney now that specializes in real estate and  ask them to review your paperwork to find out what are the ramifications for you both legal, and financially.

If you do not have a family attorney or cannot afford attorney. Seriously consider getting a Pre-Paid Legal membership so you have unlimited access to law firm to help answer questions and review your paperwork.

You can watch a video about the Pre-Paid Legal Membership Here and sign up right online cost is only $26 a month!

Fulls disclosure: We do earn a referal fee for referring you to Pre-Paid Legal. However, it has to be the best value in this time of need for homeowners. And yes our entire family owns a membership. If you do want want us to earn a referral fee just look for a local rep in your area.

If you have any questions on the memership call our offices (909)512-6418 we be happy to answer any questions you may have in regards to membership.

Lastly, in all honesty is that this shall pass and good times are ahead.

The reason I am passionate about this we our family went through the short sale process when we decided to sell our home, I understand the stress and worry that your family is going through and what ever your believe is, God will get you through this challenging time in your life!

Your friend,

Carlos Samaniego

Loan Modifications Killed By Terminator!

That is right the Terminator strikes back in Sacramento! Sign’s 9 new law’s in legistition that is effective immediate! Bye, Bye, Loan modification companies and even attornies that get paid up front to do loan modifications!

I hope you enjoy this article. Tell me what you think? Comment below
Carlos Samaniego

P.S. If you like legal help that won’t cost you fortune, that can help you out to get help with answer to your short sales, or foreclosure
questions, email me Carlos@CarlosSamaniego.com I can lead you in right direction

Schwarzenegger Institutes Nine New Mortgage Laws 

By: Carrie Bay

Gov. Arnold Schwarzenegger signed nine housing bills into law this week. One in particular, Senate Bill 94, consumer advocacy groups are calling a clear victory for California’s many troubled homeowners facing foreclosure.

The bill, sponsored by Sen. Ron Calderon (D-Montebello) aims to reduce fraud against desperate borrowers looking to save their homes. It bans all foreclosure consultants, including loan modification firms and attorneys who specialize in loan mods, from asking for any fees or compensation before fully completing the services contracted, whether the mod is successful or denied by the servicer.

Because it was labeled an “urgency measure,” the bill is effective immediately. It remains in effect until January 1, 2013. One local paper in Sacramento said the government’s swift action on the issue follows a colossal number of complaints made to the state’s Department of Real Estate by borrowers who said they paid up to $4,000 upfront to firms that abandoned them.

According to the Del Mar-based American Mitigation Law Group, the new law will force many loan modification companies to close their doors, while many others will scramble to come into compliance.

Assembly Bill (AB) 260, by Assemblyman Ted Lieu (D-Torrance), takes effect January 1, 2010, and caps yield spread premiums so mortgage brokers can’t “steer” borrowers into high-risk, high-interest loans. It also outlaws negative-amortization mortgages and limits prepayment penalties to no more than 2 percent of the loan balance.

The governor vetoed similar legislation last year at the urging of several industry trade groups, but Lieu successfully argued this go-around that the measure was now more important than ever to stem the tide of foreclosures in California.

According to Walnut Creek, California’s PMI Mortgage Insurance, a third bill – SB 291 – could provide regulatory relief to residential mortgage insurers in the state, and go a long way to support the market’s housing recovery.

The measure, which takes effect in California January 1, 2010, is similar to legislation enacted by Arizona last month and North Carolina in July 2009. It gives the state’s insurance commissioner added flexibility in assessing the strength of mortgage guaranty insurers, with discretion to permit such companies to continue to transact new business if capital falls below government-prescribed levels. Prior law required mortgage insurers to automatically cease conducting new business if they failed to meet the mandated capital levels.

Other mortgage-related bills signed by Schwarzenegger:

– SB 36, by Calderon, establishes standardized licensing requirements for all residential loan originators.

– SB 237, by Calderon, creates a registration program for appraisal management companies (AMCs).

– SB 239, by Sen. Fran Pavley (D-Agoura Hills), makes it a felony to commit fraud on a mortgage loan application, punishable by up to a year of jail time.

– AB 329, by Assemblyman Mike Feuer (D-Los Angeles), requires lenders to provide seniors with “a clear and informative” written disclosure of the risks and suitability of reverse mortgages.

– AB 957, by Assemblywoman Cathleen Galgiani (D-Livingston), allows buyers of foreclosed homes to choose local escrow officers, rather than being forced to use the company chosen by the seller.

– AB 1160, by Assemblyman Paul Fong (D-Cupertino), requires that mortgage loan documents be translated into the same language used in verbal negotiations.

Oscar saves $1000’s by calling his mortgage company!

This was what a good day is like. I got this email below from Oscar Jimenez. It felt great helping somone out again!
Good Morning Carlos,
Thanks for taking the time to take my phone call on Monday.  You gave them the knowledge and realistic advise I needed to call my Mortgage service company (Chase).  During my call with Chase I was honest and upfront with my current financial situation, surprisingly they were helpful and understanding.  They recognized times were tough for many people and understood I wanted to keep my house.  They took all my financial information and pre-approved me for a payment $1100.00 lower than what I was paying.  They will send me a packet in the mail within the next couple of days so I can send copies of my 08 taxes, pay check stubs, etc.  Once all the paperwork is gathered, they will send it on to the investor for final approval.  If all goes well, my new payment will be $2,747.00 including prop taxes and insurance.  My old payment including prop tax and ins was $3,859.00.   Since I was 2 months behind on my mortgage payment they will re-work the amount due in to my new/revised loan and set me on a payment plant beginning the 1st of august.  I was told to make sure I make my payment on time, for the first 3 months.  If I didn’t make my payment on time, I would be disqualified from the Homeownership Preservation modification.

I want to thank you again for your time, and your advise on hiring a Load modification company, you don’t need to pay anyone to do this.  In my case it took knowledge to sit down and call Chase and work things out with them.

Thanks again Carlos.
Oscar Jimenez