Added by on September 1, 2010

Upside Down? Consumer Default Mortgage Hotline May Have Solution

Difficult times often inspire creativity and resourcefulness. That’s the case for real estate finance expert, author, and speaker, Marian Anthony. He recently wrote the book, “Short Sale Rush—A How-To Guide for Nonperforming Assets” and founded a consumer hotline when he saw the need for information to help struggling homeowners make educated decisions.
“I started a default hotline for a consumer advocacy agency to share with people the available alternatives and also point out the deceptive practices that are being done by predatory organizations,” says Anthony.
The goal is to keep people updated on all the new laws and alternatives that are available to homeowners who are struggling to make their mortgage payments. “So many people take this emotionally. They don’t understand how to get out of this. They think that their lives are going to be ruined. They think that they’re going to be evicted,” says Anthony.
While fearful emotions are running high, Anthony says another emotion is causing a bigger problem. He found that many people who just want out of a “debt trap” are willing to walk away from their properties. “Some people intentionally wanted to default which became an ethical call from my position as the founder,” says Anthony.
“Americans are realizing that a lot of the housing and mortgage lending practices were actually a ponzi scheme. People with low-financial literacy were targeted for a disproportionate amount of subprime loans. A lot of people are very angry at this so they no longer feel the moral obligation and they’re doing what’s called an ‘intentional default’ or a ‘strategic default’ and they’re making it more of a business decision to walk away from their house,” explains Anthony.
But he says as more people strategically default the problem worsens for the economy. “Walking away from your house contributes to the problem and that’s a rob-Peter-to-pay-Paul type of mentality considering that there are three main elements. There’s the bank, the people borrowing the money, and the people who actually put their money into mortgage-backed securities. Unfortunately, a majority of the people investing in mortgage-backed securities include pension funds for teachers and firefighters, retirement funds, and 401(k)s. So, it’s like we’re borrowing our own money but yet we’re not repaying ourselves. So a lot of people’s retirement savings have been greatly affected,” says Anthony.
Anthony says there’s a better solution than walking away. “What I encourage, which I see is a huge solution, is utilizing a rule around a rule which is Section 702 of the [2009] Helping Families Save Their Homes Act. You take [people] who want to abandon their house because they can’t pay for it. You introduce a buyer (either first-time homebuyer, FHA or VA—there’s tons of people who want to buy but they can’t get into this market because it’s so difficult). They take possession of these abandoned houses and they pay fair market rent to a third-party property manager (real estate agent or asset manager) and that money is now dedicated to the note holder—the person who actually lent the money,” explains Anthony.
More people are becoming interested in strategies like this one because they can help out all involved. Instead of having an abandoned property depreciate due to vandalism and lack of care, a tenant pays fair market rent until a short sale is completed. “Now you have a new owner taking possession and care of the asset which holds up the community value—saves people millions of dollars,” says Anthony.
The key to making the right decision about a short sale, foreclosure, or the need for a loan modification is education. Here are a few things to consider:
1. If there is a second mortgage on the home, determine if it is a recourse loan.
2. Recognize that walking away causes a bigger problem for everyone.
3. Validate that it is a hardship and not just someone who is trying to modify a loan because the value of the home went down. “Is that really fair?” asks Anthony.
4. Understand tax implications and what may be required if they have to file bankruptcy to extinguish a judgment from a foreclosure or from a second mortgage that was a recourse [loan]. Ultimately doing the short sale correctly shows “settled and satisfied” on all your mortgage trade lines. “So if I do a short sale, I have to get my second to do a re-conveyance for a lesser payoff (so you get a reduced payoff) and if you don’t negotiate that properly you will have that judgment against you,” says Anthony.
5. Think about using Section 702 to bring in money while the short sale is being completed.

Weigh your options carefully so a logical and practical decision can be made. For more information about the hotline, click here.

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