HUD Announces New Mortgage Buying Regulations

For more information about the effect of hedge funds buying mortgages, see Realtor.com and Hedge Fund Photo by Ken Tannenbaum/iStock via Realtor.com

This post originally appeared on the Hermit Haus Redevelopment website on 2016-07-01.

The Department of Housing and Urban Development (HUD) wants to reduce the number of delinquent mortgages sold to hedge funds and other major corporations, according to Bloomberg. To accomplish this objective, HUD has implemented new regulations that favor local governments and nonprofits. The goal is to help delinquent borrowers stay in their houses. The assumptions are:

• Private investors "rush" to foreclose to convert the properties to rentals or other more liquid assets.
• Nonprofits and local governments will be less likely to foreclose and more likely to keep current owners in their houses.

The "private investors" involved are usually not people (except under the erroneous definition of the "Citizens United" ruling). They are too-big-to-care banks and hedge funds that buy hundreds or thousands of troubled mortgages at a time. I know several private note buyers who operate legitimately and ethically. I would not want to tar them with the same brush as the corporate raiders.

People like us at Hermit Haus try help these distressed homeowners salvage what's left of their credit by buying their houses (sometime subject to the existing mortgage, sometimes not) before the house goes to foreclosure. We occasionally buy at foreclosure auctions, but by then the damage has been done, and it's down to the numbers.

Nonprofits and possibly local governments will probably be less likely to foreclose than the hedge funds. One question is can these institutions raise the money they need to accomplish HUD's goal. If they can't, the delinquent mortgages will be offered to the corporations a couple of months down the road. It would be good if they could take possession of title and use the houses to provide low- or moderate-income housing. The latter could bring needed capital into financially distressed areas.

The other question is what will keeping distressed buyers in their houses accomplish? Putting on my Nostradamus hat, I foresee four possibilities, depending on the reasons for the homeowners' distress:

• People who suffer from payment shock—having payments that go up because of the increased price of taxes, insurance, or interest (in adjustable rate mortgages) beyond their capability to pay—may be able to renegotiate their principle or interest rates to bring their payments down to something they can afford. I believe this will be good for the homeowners and the economy as a whole.
Heart makes this business rewarding. Money only makes it possible. We try to help good people in bad situations.
• People who get into trouble because of job loss or a healthcare crisis (which often results in the loss of a job and medical insurance) may be able to stay in their houses for a while longer, maybe even permanently as a result of a governmental or charitable purchase. Whether or not they would be able to afford to maintain their properties in a livable condition remains to be seen. Many of the houses we purchase are "unlivable" because the owners couldn't afford or perform upkeep. This results in people living in some truly horrid conditions. I've seen toilets that haven't worked in years. (You can't un-see that!) Whether or not this outcome would really be beneficial to the people involved and the economy depends on the actions of the charities and local governments. Will they be able step up to the additional costs of upkeep of an individual's home? In the case of local governments, will their constituents even allow them to do so?
• People who make bad financial decisions will continue to make them. Additional bad decisions may or may not lead to an eventual foreclosure. I talked to one person facing foreclosure who believed it would be possible to win a third set of concessions from their lender. It wasn't. In this case, the concessions only deferred the inevitable, and the person was well and truly surprised when the lender auctioned off their home.
• People who are gaming the system will continue to exploit that system. I've often said—so often that Sue Ann is tired of hearing it—that human beings can't invent a system that other human beings can't corrupt.

Now for the question many of you have been waiting for: how will these changes affect investors like Hermit Haus? I don't believe the will have any significant effect. Our business model is to intervene before foreclosure or to pick up the pieces afterward. We buy houses, not mortgages. When we buy houses from people facing foreclosure, we try to find creative ways to help them start over; we don't just put them on the street.

The truth remains, that if you can't afford your house, if you can't afford the upkeep on your house, if you're facing foreclosure or bankruptcy, we are likely to be your best option. Call us. We'll try to help.

Why I Want To Stop All Foreclosures

I want to stop all foreclosures.

This post originally appeared on the Hermit Haus Redevelopment website on 2015-11-10.

Growing up in a real estate household, I was an early bloomer. I bought my first house at 19. It was a 2-1, built in the 1940s. Being so young, I didn’t have enough credit to get traditional financing, so I bought it with a Contract for Deed—a vehicle that is now illegal in Texas because of abuses by unscrupulous lenders.

Everything was going great until one day I did what many people do. I lost my job and couldn’t make the payments on my little house. I tried to make partial payments, and the contract holder accepted the first two. When I found work again, he refused to accept anymore payments and foreclosed on the house.

Luckily, I had an “unfair” advantage. My mom was a Realtor®, and she knew a good real estate lawyer. The contract holder was surprised to see me in court and even more surprised to see I had a lawyer. Most of the people in my situation apparently just walked away from the house.

The judge (justice of the peace, actually) ruled in my favor because I had the money to catch up the back payments plus interest. My lawyer didn’t even have to speak. The contract holder protested, “I don’t want the money. I want the house back! It’s worth more now than when I sold it to him.” The JP picked up his gavel to say something else, but the contract holder’s wife pushed him away from the bench, telling her husband, “Shut up, Harry. We lost.”

Even though almost 40 years have past and Contract for Deeds are now illegal in Texas—as are lease purchase options of any substantial duration… Even though we had the Crash of 2008 and the resultant Dodd-Frank legislation is in place…predatory lending still goes on.

While I’ve been working to save the credit of the homeowners I’ve seen banks do everything in their power—from repeatedly “losing” paperwork to intentionally dragging out the process for months—to force houses into foreclosure. It still makes me as angry as it did the time I almost lost my own house. I understand the home owners’ frustration and sense of powerlessness. I really want to help in the only way I can, by trying to salvage what’s left of their credit. I have more than one tool at my disposal to help, and I feel really frustrated every time I see a big bank take a fellow human being’s house away.

That’s why I work so hard to stop every foreclosure I can.

Don’t go through a foreclosure yourself without at least looking at the options. And don’t let anyone you know go through an unnecessary foreclosure. Learn how you can stop foreclosure by downloading our free booklet.

The Saddest Sentence in the English Language

This is how foreclosure feels. First there’s the dread of the inexorably rising debt as the event draws near. Then your house gets swept away in an impersonal flood of legal procedure. Photo by Carsten Knoche

This post originally appeared on the Hermit Haus blog on 2015-11-04.

Foreclosure is a financial tsunami.  It sweeps away years of good credit practices into a black hole of future agony.  For years, up to a decade, after a foreclosure,  foreclosed persons can’t escape the enormous gravitic pull of the black hole as it stretches pulls, stretches, and tears at them, trying to suck them down into a pit of financial oblivion.

Losing a house to foreclosure is just the start of a decade-long nightmare that makes Freddy Kruger look cuddly.

• It will be years before they can buy another car or truck, except at a “note lot” that specializes in taking advantage of people with poor credit—often by requiring them to come up with an astronomical down payment that covers the seller’s total investment in the vehicle.
• They won’t be able to buy another house, and since most apartment communities use credit score to qualify prospective tenants, they may not even be able to get a nice apartment.
• The foreclosing bank can file a 1099 showing the unpaid balance of the mortgage plus fees and additional interest as income, which causes the IRS to come after them for unpaid taxes on that income.
• Even in states that don’t allow creditors to garnish wages, the IRS can.

It’s a process that can be avoided. One of our primary goals at Hermit Haus Redevelopment is to help distressed homeowners avoid foreclosure. We have several tools to chip shore up against foreclosure in our tool box (buying the house for cash money is only one of them). And, of course, we make money doing it.  If we didn’t make money, we couldn’t continue to help more people.  And our whole reason for existing is to help as many people as we can.

But people have to let us help.  And that brings us to the saddest sentence in the English language.

Are you ready for it? Here it is:

“No, I trust my bank.”

Carol and I had been working to get a family to allow us to help them avoid a foreclosure.  Last Thursday, the homeowner said, “No, I trust my bank.  They said they would help us with the loan.”  Yesterday, the house sold at foreclosure auction.  The bank’s opening bid was higher than the after repair value of the house.  They really wanted it.

Please don’t trust the bank.  And please don’t let anyone you know suffer through the financial nightmare that is foreclosure.  Call us.  Call our competition!  Please, call someone who can help.