(Editor's Note; The 11/25/09 ruling from New York Judge Jeffrey Spinner, in which he wiped out $525,000.00 in mortgage debt due to the "harsh and repugnant" conduct of much-maligned lender IndyMac, has sent "shock waves" throughout the mortgage industry, along with a clear warning for banks to act in "good faith" and "good conscience" - or face severe consequences - Chris Qualmann)
Foreclosure ruling sends message to lenders
Nov, 29, 2009 04:30 PM - Newsday (Melville, NY)
Nov. 29--A Suffolk judge's decision to wipe out the mortgage debt of a foreclosed-upon East Patchogue couple may send a message to predatory subprime lenders that unless they work to save their customers' homes, they stand to lose everything, some real estate attorneys said.
"This case shows the change in the tide as to the sentiment about mortgage foreclosures in general," said Woodbury bankruptcy attorney Craig Robins, who called Suffolk County Court Judge Jeffrey Spinner's decision "a good demonstration that courts are not going to tolerate this type of conduct by the mortgage companies anymore."
The judge's ruling against the lender -- IndyMac Mortgage Services, based in Pasadena, Calif. -- was without doubt highly unusual. In addition, it was perhaps without precedent. A search of published reports nationally turned up no similar action, and several attorneys said the decision was the first of its kind, at least on Long Island.
But some wondered whether the precedent set is a positive one and others questioned the legal soundness of the ruling.
"It's encouraging as a citizen, but as a practitioner, I can only think that if the judges have the authority to throw out mortgages, who's going to be lending money?" Commack real estate attorney Lita Smith-Mines said.
In a statement, OneWest Bank E.S.B., IndyMac's parent company, has said the bank will appeal. A spokeswoman for OneWest Bank did not return a call last week for comment.
Behind the rulingIn his Nov. 19 decision, Spinner wrote that IndyMac Mortgage Services exhibited conduct that was "harsh, repugnant, shocking and repulsive" in its proceedings against Diana Yano-Horoski, owner of the Oakland Street home at issue.
Spinner wrote that IndyMac "soundly rebuffed" even the most reasonable of settlement offers, inflated the amount of debt of Yano-Horoski and her husband, Gregory Horoski, and seemed determined to kick them out of their home. In order to deter IndyMac from such "unconscionable" behavior in the future, Spinner erased the Horoskis' nearly $300,000 debt -- in effect turning over the home to the family free and clear.
In the nine-page decision, the judge found IndyMac's credibility wanting and invoked the court's "equity jurisdiction," citing an 1890 Court of Appeals decision and numerous other cases in concluding that the mortgage company's actions were so egregious that it had no claim, morally or ethically, to "equitable relief" in the matter.
"Thus, where a party acts in a manner that is offensive to good conscience and justice, he will be completely without recourse in a court of equity, regardless of what his legal rights may be," Spinner wrote.
IndyMac, at its height, was known as a subprime lender that doled out high-cost loans to borrowers with less-than-perfect credit. According to Federal Reserve data, IndyMac approved the fourth-highest number of home mortgage loans out of 440 lenders, with 3,893 in 2007. They were fourth-highest in 2006 as well, with 5,058 mortgages.
Out of more than 500 lenders, IndyMac Bank brought the seventh-highest number of foreclosure actions on Long Island, with 970 between January 2008 and June 2009.
Special circumstancesRobins said such improper and irresponsible practices were not isolated to IndyMac. But, while Spinner's decision could create important case law that will likely be cited by homeowners' attorneys in future foreclosure proceedings, Robins said he did not think it should "open the floodgates" for similar decisions.
"I do see a lot of the irresponsible practices that mortgage lenders commit frequently, but I think what sets this case apart was that there were several irresponsible practices in this one case," said Robins, adding that Spinner "used this case to send a loud warning to all mortgage companies . . . that they better shape up and get their act together."
Anthony Sabino, a law professor at St. John's University who practices bankruptcy law in Mineola, said Spinner's decision to wipe out a homeowner's debt to a bank may seem like a victory for the underdog, but it could send a dangerous message.
"If all of a sudden banks couldn't rely on being paid back their mortgages -- you think it's tough to get a mortgage now?" said Sabino, adding that a multitude of similar decisions could slow down construction and put people out of work and out of their homes.
Spinner's ruling resembled -- but went further than -- so-called "cram-down" legislation that passed the House of Representatives in March but was defeated in the Senate. The legislation would have allowed homeowners in foreclosure to ask a bankruptcy judge to reduce their mortgage payment if their lender had not offered better terms.
Sabino said he doubted decisions similar to Spinner's would follow, because while lenders may routinely engage in "nasty" practices, they would not usually rise to the level of that admonished in the Horoskis' case.
"The laws of banking and real estate have been around since men and women lived in caves. A bank lends you money, you buy a house, and you have to pay the bank back the money, or it takes the house away. That's not going to change," said Sabino, who added that the ruling may not set a precedent at all if OneWest Bank is successful in its planned appeal.
Attorneys said judges usually deal with unscrupulous lenders by dismissing their cases or, in extreme instances, issuing monetary sanctions paid to the court.
However, Hauppauge attorney Arshad Majid, who has represented several homeowners in foreclosure proceedings, said, while they rarely use it, judges have the power in some instances to void mortgages. He was not surprised to hear that Spinner would take the drastic step.
"It's not only a court of law that he presides over, but it is also a court of equity," Majid said of Spinner. "The court, in making this decision, wanted to stop a pattern of abuse."
Monday, November 30, 2009
11.30.09 BANKS WILL PAY IF THEY DON'T MODIFY LOANS
(Editor's Note - The U.S. Treasury Department announced today that Lenders who received "bailout money" under the Government's $75 billion "Troubled Asset Relief Program" ("TARP") may receive stiff fines for their lackluster performance and failure to meet objectives with regard to helping eligible homeowners obtain loan modifications - Chris Qualmann).
TREASURY DEPARTMENT PUSHES MORTGAGE LENDERS FOR LOAN RELIEF
FROM THE NY TIMES (By PETER S. GOODMAN)
Published: November 30, 2009
The administration said Monday that it would increase the pressure on banks to help troubled homeowners receive permanently lower mortgage payments.
The Treasury Department said that mortgage servicers would be required to submit plans on how they would decide whether a loan would be permanently modified. Bank that fall short of the guidelines of their agreement could face fines or sanctions, the Treasury said.
Monday’s move was the latest evidence that a $75 billion taxpayer-financed effort aimed at stemming foreclosures was struggling. Even as lenders have accelerated the pace at which they are reducing mortgage payments for borrowers, most loans modified remain in a trial stage lasting up to five months, and only a tiny fraction of them have been made permanent.
In its statement on Monday, the Treasury Department said that more than 650,000 borrowers have received trial modifications under the program, called Making Home Affordable, and that about 375,000 borrowers were eligible to convert to permanent modifications by the end of the year.
That would represent a sharp turnaround — in November, an oversight panel created by Congress reported that fewer than 2,000 of the 500,000 loan modifications then in progress had become permanent.
The chief of the Treasury’s Homeownership Preservation Office, Phyllis Caldwell, said Monday that the administration was refocusing efforts “to ensure that borrowers and servicers know what their responsibilities are in converting trial modifications to permanent ones.”
In addition, the department will begin including data in its report that shows the number of permanent modifications by bank, a move intended to pressure the banks to speed up modifications. The listing currently shows only temporary modifications.
“The banks are not doing a good enough job,” Michael S. Barr, Treasury’s assistant secretary for financial institutions, said Friday. “Some of the firms ought to be embarrassed, and they will be.” “We’re seeing a failure by some of the bigger banks on execution,” Mr. Barr said. “We’re going to be quite focused and direct on particular institutions that are not doing a good job.”
From its inception early this year, the administration’s program has been dogged by persistent questions about whether it could diminish a swelling wave of foreclosures. Some economists argued that the plan was built for last year’s problem — exotic mortgages whose payments had increased — and not for the current threat of soaring joblessness. Lawyers who defend homeowners against foreclosure maintained that mortgage companies collect lucrative fees from long-term delinquency, undercutting their incentive to lower payments to affordable levels.
Though the program was initially proclaimed as a means of sparing three million to four million households from foreclosure, “they’re going to be lucky if they save one or one and a half million,” said Edward Pinto, a consultant to the real estate finance industry who served as chief credit officer to the government-backed mortgage company Fannie Mae in the late 1980s.
A White House spokeswoman, Jennifer R. Psaki, said last week that the administration would continue to refine the program as needed. “We will not be satisfied until more program participants are transitioning from trial to permanent modifications,” she said.
The banks say they are making good-faith efforts to comply with the program and provide relief.
“We’ve poured resources into this,” a spokesman for JPMorgan Chase, Tom Kelly, said Friday. “We’ve made dramatic improvements, and we continue to try to get better.”
Some senators contend that the Treasury program, intended to address mortgages whose low promotional interest rates had soared, is outmoded. At this point, foreclosures are being propelled by joblessness, which is sending millions of previously creditworthy people with ordinary mortgages into delinquency.
Within the Senate, some discussion now focuses on pursuing legislation that would create a national foreclosure prevention program modeled on one started last year in Philadelphia. That program forces mortgage companies to submit to court-supervised mediation with delinquent borrowers aimed at striking an equitable resolution before they are allowed to proceed with the sale of foreclosed homes.
Some Democrats say the time has come to reconsider a measure opposed by the Obama administration: giving bankruptcy judges the right to amend mortgages as a means of pressuring lenders to extend reductions.
Lawyers who defend homeowners against foreclosure increasingly say they doubt the Treasury program can be made effective. Under the plan, companies that agree to lower payments for troubled borrowers collect $1,000 from the government, followed by another $1,000 a year for up to three years. The program is based on the idea that a small cash incentive will induce the banks to cut their losses and accept smaller payments.
But the mortgage companies that collect payments from homeowners — servicers, as they are known — generally do not own the loans. Rather, they collect fees from investors that actually own mortgages, and their fees often increase the longer a borrower remains in delinquency.
Under the Treasury program, borrowers who receive loan modifications must make their new payments on a trial basis and then submit new paperwork validating their income to make their modifications permanent.
But borrowers and their lawyers report that much of the required paperwork is being lost in a maze of bureaucratic disorganization. Servicers are abruptly changing fax numbers and mislaying files — the same issues that have plagued the program from its inception.
“People continue to get lost in the phone tree hell,” said Diane E. Thompson, a lawyer with the National Consumer Law Center.
Some lawyers who defend homeowners against foreclosure assert that mortgage companies are merely stalling, using trial loan modifications as an opportunity to extract a few more dollars from borrowers who would otherwise make no payments.
“I don’t think they ever intended to do permanent loan modifications,” said Margery Golant, a Florida lawyer who previously worked for a major mortgage company, Ocwen Financial. “It’s a shell game that they’re playing.”
TREASURY DEPARTMENT PUSHES MORTGAGE LENDERS FOR LOAN RELIEF
FROM THE NY TIMES (By PETER S. GOODMAN)
Published: November 30, 2009
The administration said Monday that it would increase the pressure on banks to help troubled homeowners receive permanently lower mortgage payments.
The Treasury Department said that mortgage servicers would be required to submit plans on how they would decide whether a loan would be permanently modified. Bank that fall short of the guidelines of their agreement could face fines or sanctions, the Treasury said.
Monday’s move was the latest evidence that a $75 billion taxpayer-financed effort aimed at stemming foreclosures was struggling. Even as lenders have accelerated the pace at which they are reducing mortgage payments for borrowers, most loans modified remain in a trial stage lasting up to five months, and only a tiny fraction of them have been made permanent.
In its statement on Monday, the Treasury Department said that more than 650,000 borrowers have received trial modifications under the program, called Making Home Affordable, and that about 375,000 borrowers were eligible to convert to permanent modifications by the end of the year.
That would represent a sharp turnaround — in November, an oversight panel created by Congress reported that fewer than 2,000 of the 500,000 loan modifications then in progress had become permanent.
The chief of the Treasury’s Homeownership Preservation Office, Phyllis Caldwell, said Monday that the administration was refocusing efforts “to ensure that borrowers and servicers know what their responsibilities are in converting trial modifications to permanent ones.”
In addition, the department will begin including data in its report that shows the number of permanent modifications by bank, a move intended to pressure the banks to speed up modifications. The listing currently shows only temporary modifications.
“The banks are not doing a good enough job,” Michael S. Barr, Treasury’s assistant secretary for financial institutions, said Friday. “Some of the firms ought to be embarrassed, and they will be.” “We’re seeing a failure by some of the bigger banks on execution,” Mr. Barr said. “We’re going to be quite focused and direct on particular institutions that are not doing a good job.”
From its inception early this year, the administration’s program has been dogged by persistent questions about whether it could diminish a swelling wave of foreclosures. Some economists argued that the plan was built for last year’s problem — exotic mortgages whose payments had increased — and not for the current threat of soaring joblessness. Lawyers who defend homeowners against foreclosure maintained that mortgage companies collect lucrative fees from long-term delinquency, undercutting their incentive to lower payments to affordable levels.
Though the program was initially proclaimed as a means of sparing three million to four million households from foreclosure, “they’re going to be lucky if they save one or one and a half million,” said Edward Pinto, a consultant to the real estate finance industry who served as chief credit officer to the government-backed mortgage company Fannie Mae in the late 1980s.
A White House spokeswoman, Jennifer R. Psaki, said last week that the administration would continue to refine the program as needed. “We will not be satisfied until more program participants are transitioning from trial to permanent modifications,” she said.
The banks say they are making good-faith efforts to comply with the program and provide relief.
“We’ve poured resources into this,” a spokesman for JPMorgan Chase, Tom Kelly, said Friday. “We’ve made dramatic improvements, and we continue to try to get better.”
Some senators contend that the Treasury program, intended to address mortgages whose low promotional interest rates had soared, is outmoded. At this point, foreclosures are being propelled by joblessness, which is sending millions of previously creditworthy people with ordinary mortgages into delinquency.
Within the Senate, some discussion now focuses on pursuing legislation that would create a national foreclosure prevention program modeled on one started last year in Philadelphia. That program forces mortgage companies to submit to court-supervised mediation with delinquent borrowers aimed at striking an equitable resolution before they are allowed to proceed with the sale of foreclosed homes.
Some Democrats say the time has come to reconsider a measure opposed by the Obama administration: giving bankruptcy judges the right to amend mortgages as a means of pressuring lenders to extend reductions.
Lawyers who defend homeowners against foreclosure increasingly say they doubt the Treasury program can be made effective. Under the plan, companies that agree to lower payments for troubled borrowers collect $1,000 from the government, followed by another $1,000 a year for up to three years. The program is based on the idea that a small cash incentive will induce the banks to cut their losses and accept smaller payments.
But the mortgage companies that collect payments from homeowners — servicers, as they are known — generally do not own the loans. Rather, they collect fees from investors that actually own mortgages, and their fees often increase the longer a borrower remains in delinquency.
Under the Treasury program, borrowers who receive loan modifications must make their new payments on a trial basis and then submit new paperwork validating their income to make their modifications permanent.
But borrowers and their lawyers report that much of the required paperwork is being lost in a maze of bureaucratic disorganization. Servicers are abruptly changing fax numbers and mislaying files — the same issues that have plagued the program from its inception.
“People continue to get lost in the phone tree hell,” said Diane E. Thompson, a lawyer with the National Consumer Law Center.
Some lawyers who defend homeowners against foreclosure assert that mortgage companies are merely stalling, using trial loan modifications as an opportunity to extract a few more dollars from borrowers who would otherwise make no payments.
“I don’t think they ever intended to do permanent loan modifications,” said Margery Golant, a Florida lawyer who previously worked for a major mortgage company, Ocwen Financial. “It’s a shell game that they’re playing.”
Saturday, November 28, 2009
US SENATOR DEMANDS THAT BANKS SPEED UP LOAN MODS
New Jersey Senator Robert Menendez has demanded that mortgage companies "pick up the pace" and provide faster, better service to homeowners struggling under mortgages they can’t afford to pay. In a letter to CEOs of 20 major mortgage companies (nearly all of which have received "bail out" money under the Government's "Troubled Asset Relief ("TARP") Program), Menendez raised concerns about their level of commitment and rate of participation in a Government-sponsored homeowner relief initiative.
Menendez urged the CEOs to review and revise their loan modification efforts to help achieve the goals of the Obama Administration's "Making Home Affordable" ("HAMP") loan modification program.
The Office of the Comptroller of the Currency and Office of Thrift Supervision estimates that loan servicers implemented approximately 185,000 new loan modifications in the first quarter of 2009 - a number that pales in comparison to the 2.4 million foreclosures during the same time period.
Menendez, a member of the Senate banking committee, has been at the forefront of recent public hearings regarding prevention of foreclosures, at which representatives of the U.S. Department of Treasury, the U.S. Department of Housing and Urban Development and representatives from mortgage lenders and consumer groups have testified.
The Senator's letter was sent to: James Dimon of JPMorgan Chase; Alvaro G. de Molina of GMAC Financial Services; Kenneth D. Lewis of Bank of America Corporation; Vikram Pandit of Citigroup Inc.; Ellen Alemany of Citizens Financial Group; Bruce Rose of Carrington Mortgage Services; Tom Wind of Aurora Loan Services LLC; Derrick D. Cephas of Amalgamated Bank; David Ertel of Bayview Loan Servicing, LLC; Darren Williams of Wescom Central Credit Union; John G. Stumpf of Wells Fargo Bank, NA; Robert Shafir of Credit Suisse Americas; Rolando Rodriguez of RG Mortgage Corportation; John J. Mack of Morgan Stanley; Dennis Stowe of Residential Credit Solutions; William C. Erbey of Ocwen Financial Corporation, Inc.; Anthony Barone of Nationstar Mortgage LLC; Keith A. Anderson of Green Tree Financial Corporation; Karen L. McCormick of First Federal Savings and Loan; and Donald H. Layton of E*TRADE Financial Corporation
(EDITOR'S NOTE - Why wasn't a letter sent to IndyMac - now known as "OneWest" - who probably needed it the most? SEE the recent article on this webpage: "NY Judge CANCELS IndyMac loan due to BAD FAITH)
The letter from Senator Menendez read as follows:
Dear [CEO name],
I write in my capacity as Chairman of the Senate Banking Subcommittee on Housing, Transportation, and Community Development to urge you to expand loan modifications under the Home Affordable Modification Program (HAMP) and to work cooperatively with the Administration’s efforts to reduce foreclosures.
As you might know, the Senate Committee on Banking, Housing, and Urban Affairs will examine these and other loan modification issues at a hearing entitled “Preserving Homeownership: Progress Needed to Prevent Foreclosures.” In preparing for that hearing, I have become even more concerned about the progress that lenders, loan servicers, and the federal government are making toward modifying loans to help the national foreclosure crisis.
Our nation’s housing crisis is the root of the global economic crisis that we are faced with. Preventing foreclosures helps keep families in their homes, helps the surrounding communities maintain property values and helps lift the economy, which are results that I believe we can all support. However, the Office of the Comptroller of the Currency and Office of Thrift Supervision estimate that servicers implemented about 185,000 new loan modifications in the first quarter of 2009, which is dwarfed by the estimated 2.4 million foreclosures in 2009 according to the Center for Responsible Lending. It is also not clear how effective these modifications are in preventing foreclosures. I understand that Treasury Secretary Timothy F. Geithner and Department of Housing and Urban Development Secretary Shaun Donovan also sent you a letter to that effect on July 9th.
It has been widely reported that lenders and servicers have generally been overwhelmed by requests for loan modifications and have not always succeeded in implementing good systems to deal with those requests with well-trained loan professionals who can provide accurate information for borrowers. Another problem I hear repeatedly is that the loan modifications being offered are sometimes not generous enough to meet the needs of families, many of whom have experienced recent unemployment.
In light of these and other problems, I fully expect you to review your company’s policies and procedures regarding loan modifications to find a balanced approach that not only ensures the financial viability of your company, but also achieves the goal of the program, which is to reduce consumers’ foreclosures on their mortgages. I look forward to hearing the steps your company is taking to achieve more loan modifications.
Sincerely,
ROBERT MENENDEZ
United States Senator
Hopefully, this aggressive effort from Senator Menendez will achieve much-needed positive results.
Menendez urged the CEOs to review and revise their loan modification efforts to help achieve the goals of the Obama Administration's "Making Home Affordable" ("HAMP") loan modification program.
The Office of the Comptroller of the Currency and Office of Thrift Supervision estimates that loan servicers implemented approximately 185,000 new loan modifications in the first quarter of 2009 - a number that pales in comparison to the 2.4 million foreclosures during the same time period.
Menendez, a member of the Senate banking committee, has been at the forefront of recent public hearings regarding prevention of foreclosures, at which representatives of the U.S. Department of Treasury, the U.S. Department of Housing and Urban Development and representatives from mortgage lenders and consumer groups have testified.
The Senator's letter was sent to: James Dimon of JPMorgan Chase; Alvaro G. de Molina of GMAC Financial Services; Kenneth D. Lewis of Bank of America Corporation; Vikram Pandit of Citigroup Inc.; Ellen Alemany of Citizens Financial Group; Bruce Rose of Carrington Mortgage Services; Tom Wind of Aurora Loan Services LLC; Derrick D. Cephas of Amalgamated Bank; David Ertel of Bayview Loan Servicing, LLC; Darren Williams of Wescom Central Credit Union; John G. Stumpf of Wells Fargo Bank, NA; Robert Shafir of Credit Suisse Americas; Rolando Rodriguez of RG Mortgage Corportation; John J. Mack of Morgan Stanley; Dennis Stowe of Residential Credit Solutions; William C. Erbey of Ocwen Financial Corporation, Inc.; Anthony Barone of Nationstar Mortgage LLC; Keith A. Anderson of Green Tree Financial Corporation; Karen L. McCormick of First Federal Savings and Loan; and Donald H. Layton of E*TRADE Financial Corporation
(EDITOR'S NOTE - Why wasn't a letter sent to IndyMac - now known as "OneWest" - who probably needed it the most? SEE the recent article on this webpage: "NY Judge CANCELS IndyMac loan due to BAD FAITH)
The letter from Senator Menendez read as follows:
Dear [CEO name],
I write in my capacity as Chairman of the Senate Banking Subcommittee on Housing, Transportation, and Community Development to urge you to expand loan modifications under the Home Affordable Modification Program (HAMP) and to work cooperatively with the Administration’s efforts to reduce foreclosures.
As you might know, the Senate Committee on Banking, Housing, and Urban Affairs will examine these and other loan modification issues at a hearing entitled “Preserving Homeownership: Progress Needed to Prevent Foreclosures.” In preparing for that hearing, I have become even more concerned about the progress that lenders, loan servicers, and the federal government are making toward modifying loans to help the national foreclosure crisis.
Our nation’s housing crisis is the root of the global economic crisis that we are faced with. Preventing foreclosures helps keep families in their homes, helps the surrounding communities maintain property values and helps lift the economy, which are results that I believe we can all support. However, the Office of the Comptroller of the Currency and Office of Thrift Supervision estimate that servicers implemented about 185,000 new loan modifications in the first quarter of 2009, which is dwarfed by the estimated 2.4 million foreclosures in 2009 according to the Center for Responsible Lending. It is also not clear how effective these modifications are in preventing foreclosures. I understand that Treasury Secretary Timothy F. Geithner and Department of Housing and Urban Development Secretary Shaun Donovan also sent you a letter to that effect on July 9th.
It has been widely reported that lenders and servicers have generally been overwhelmed by requests for loan modifications and have not always succeeded in implementing good systems to deal with those requests with well-trained loan professionals who can provide accurate information for borrowers. Another problem I hear repeatedly is that the loan modifications being offered are sometimes not generous enough to meet the needs of families, many of whom have experienced recent unemployment.
In light of these and other problems, I fully expect you to review your company’s policies and procedures regarding loan modifications to find a balanced approach that not only ensures the financial viability of your company, but also achieves the goal of the program, which is to reduce consumers’ foreclosures on their mortgages. I look forward to hearing the steps your company is taking to achieve more loan modifications.
Sincerely,
ROBERT MENENDEZ
United States Senator
Hopefully, this aggressive effort from Senator Menendez will achieve much-needed positive results.
Friday, November 27, 2009
BLACK FRIDAY - NY Times Says STAY HOME
[This ran in the NY Times yesterday, November 26th. According to the Times, " Black Friday is about 'Cheap Stuff' at 'Cheap Prices' " ... and good deals on good products are likely to begin (and extend) long beyond Thanksgiving weekend - CRQ]
Retailers Extend Deals Beyond Black Friday - By STEPHANIE ROSENBLOOM and CLAIRE CAIN MILLER
Attention shoppers: It might pay to just sleep in this Black Friday.
The conventional wisdom is that the most stupendous bargains of the year are to be had on the Friday after Thanksgiving. But the marketplace has become so packed on that crowded shopping day that some retailers are shifting their strategy.
Deals on certain products are likely to be just as good, perhaps even better, in the days and weeks after Friday. In this economy, retailers need to stand out — and some of them are betting they can do so by offering bargains later in the season. Also, while chains are not discounting as deeply as last year, they know the primary way to get penny-pinching consumers to spend is to keep the deals coming all season long.
Exactly which strategy retailers are pursuing this year differs not only among shopping chains but among categories of merchandise. That means the best time to shop for the season could hinge on which items are on your list.
“Black Friday is about cheap stuff at cheap prices,” said Daniel de Grandpre, the editor in chief of DealNews.com, which tracks such sales each year. “That means that high-end stuff is not on sale on Black Friday. It just isn’t.”
That is not to say consumers who brave the nation’s stores on Friday will not find deals on flat-screen televisions and fluffy ear muffs. But the products on sale that day, particularly electronics, generally are lower-end products without many extras, or they are older models on the verge of being discontinued. That is, of course, a reason stores are able to offer them at low prices.
“It looks like a real mixed bag of deals and duds,” said Andrew Eisner, director of content for Retrevo, a Web site that reviews consumer electronics and recommends where and when to buy them.
Many of the gadgets on sale this Friday will be outdated models, he said, like navigation devices without speech capability, Blu-ray players without Internet connections and digital cameras without face-recognition technology.
Manish Rathi, a co-founder of Retrevo, cited some “over-the-hill” products, like a Nikon CoolPix digital camera being sold at Target for $88, reduced from $140.
Mr. de Grandpre said luxury retailers tended to stay out of the Black Friday fray because they would rather not associate with bargain-basement shopping. To participate in the nation’s über-shopping day in a way that is befitting their status, luxury chains do offer deals, but only in certain popular holiday and seasonal categories, like coats and home décor. And they do not bother to open at 5 a.m., a common opening time on the day after Thanksgiving for the lower-end retailers known as big-box stores.
The luxury chain Saks, for instance, is offering 40 percent off already reduced merchandise, but not its newest collections. The chain does not bring in merchandise specifically for the day after Thanksgiving. And the doors open at the relatively late hour of 8 a.m.
“The key difference is we don’t run a strategy of these key items that we buy thousands of and that we mark down to these low, low amounts,” said Kimberly Grabel, senior vice president for marketing at Saks. “That is the big-box mentality.”
Stores have greatly reduced their inventories since last year, when the economic downturn forced them into panic selling. So while there will be sales, as there are every year in any economy, it is possible stores might run out of certain products or sizes. “For the best selection you are going to need to shop early this year,” Ms. Grabel said.
Her best advice? “Stay home and shop online.”
Indeed, on Wednesday, many stores had begun holiday promotions on their Web sites. On Wednesday, clothing was up to 40 percent off at Bloomingdale’s, Saks, Neiman Marcus and Barneys. At Nordstrom, merchandise was up to 50 percent off. At Lord & Taylor, some items, like women’s coats, were half off.
Saks planned to offer its early deals online at midnight Wednesday. “We figure some people will need a break from their family on Thursday,” Ms. Grabel said.
To distinguish themselves from discounters, the likes of Saks and Neiman Marcus also offer gift cards for spending a certain amount of money within a designated time period on Black Friday, which got its name because it was thought to be the day when retailers often shifted into the black, or became profitable. In the coming months, the chains will probably continue borrowing the idea of private, timed online sales.
Made popular by members-only shopping Web sites like Gilt, Rue La La and HauteLook, the sales give consumers a now-or-never incentive to buy, and are a less conspicuous way for stores to sell designer merchandise at a discount. Consumers must sign up for e-mail alerts on retailers’ Web sites to be in the know.
In general, chain stores will not divulge their promotion schedules for the rest of the shopping season, but some Web sites also track sales throughout the holiday season, including Deal- News.com, BlackFriday.info, and Bfads.net.
Expect some notable deals online on Monday, now called Cyber Monday, when consumers return to their offices and go holiday shopping on the Web.
This year, more e-commerce sites plan to offer bargains to win over reluctant consumers. For instance, Blue Nile, the online jeweler, has long avoided participating in promotional days. But no more.
“Even the wealthy have become more value-conscious,” said John Baird, a spokesman for Blue Nile, noting a shift in the behavior of its more affluent customers.
Blue Nile plans to offer two promotions on Monday — free overnight shipping on orders placed by 6 p.m. Eastern time, and discounts on a different item each day through Dec. 23. (On one of the days, a 15-carat diamond eternity bracelet will cost $27,000, down from $36,500. Blue Nile would not say which day the bracelet would be on sale.)
“We want to be very careful when we offer special promotions like this, to make sure they are brand-appropriate,” Mr. Baird said. “We’re not going to be like the mall jeweler, so you’re not going to see 50 percent off the entire store.”
Across-the-board sales are the specialty of the nation’s biggest big-box stores and Web sites, and they, too, began discounting before consumers roasted their turkeys.
Kmart had a “Better Than Black Friday Sale.” Best Buy offered “Early Black Friday Prices” on some televisions, and on Nov. 11 the chain offered its lowest-ever advertised price on a laptop, $250. Toys “R” Us had early blockbuster deals known as doorbusters. And for weeks, Wal-Mart, the nation’s largest retailer, has been offering deep discounts.
Consumers who missed those bargains need not fret.
“Once you’ve started discounting, it’s hard to stop midseason,” said Maggie Taylor, a vice president and senior credit officer for Moody’s Investors Service.
Some chains are even getting a jump on Monday, re-imagining it as Cyber Sunday. J.C. Penney, for instance, plans to offer its Monday sales beginning Sunday, for two days. Staples also plans to offer its Web deals on both Sunday and Monday.
Consumers can track hourly specials on CyberMonday.com, which will continue posting news about deals at the nation’s major online retailers long after Monday.
Retailers Extend Deals Beyond Black Friday - By STEPHANIE ROSENBLOOM and CLAIRE CAIN MILLER
Attention shoppers: It might pay to just sleep in this Black Friday.
The conventional wisdom is that the most stupendous bargains of the year are to be had on the Friday after Thanksgiving. But the marketplace has become so packed on that crowded shopping day that some retailers are shifting their strategy.
Deals on certain products are likely to be just as good, perhaps even better, in the days and weeks after Friday. In this economy, retailers need to stand out — and some of them are betting they can do so by offering bargains later in the season. Also, while chains are not discounting as deeply as last year, they know the primary way to get penny-pinching consumers to spend is to keep the deals coming all season long.
Exactly which strategy retailers are pursuing this year differs not only among shopping chains but among categories of merchandise. That means the best time to shop for the season could hinge on which items are on your list.
“Black Friday is about cheap stuff at cheap prices,” said Daniel de Grandpre, the editor in chief of DealNews.com, which tracks such sales each year. “That means that high-end stuff is not on sale on Black Friday. It just isn’t.”
That is not to say consumers who brave the nation’s stores on Friday will not find deals on flat-screen televisions and fluffy ear muffs. But the products on sale that day, particularly electronics, generally are lower-end products without many extras, or they are older models on the verge of being discontinued. That is, of course, a reason stores are able to offer them at low prices.
“It looks like a real mixed bag of deals and duds,” said Andrew Eisner, director of content for Retrevo, a Web site that reviews consumer electronics and recommends where and when to buy them.
Many of the gadgets on sale this Friday will be outdated models, he said, like navigation devices without speech capability, Blu-ray players without Internet connections and digital cameras without face-recognition technology.
Manish Rathi, a co-founder of Retrevo, cited some “over-the-hill” products, like a Nikon CoolPix digital camera being sold at Target for $88, reduced from $140.
Mr. de Grandpre said luxury retailers tended to stay out of the Black Friday fray because they would rather not associate with bargain-basement shopping. To participate in the nation’s über-shopping day in a way that is befitting their status, luxury chains do offer deals, but only in certain popular holiday and seasonal categories, like coats and home décor. And they do not bother to open at 5 a.m., a common opening time on the day after Thanksgiving for the lower-end retailers known as big-box stores.
The luxury chain Saks, for instance, is offering 40 percent off already reduced merchandise, but not its newest collections. The chain does not bring in merchandise specifically for the day after Thanksgiving. And the doors open at the relatively late hour of 8 a.m.
“The key difference is we don’t run a strategy of these key items that we buy thousands of and that we mark down to these low, low amounts,” said Kimberly Grabel, senior vice president for marketing at Saks. “That is the big-box mentality.”
Stores have greatly reduced their inventories since last year, when the economic downturn forced them into panic selling. So while there will be sales, as there are every year in any economy, it is possible stores might run out of certain products or sizes. “For the best selection you are going to need to shop early this year,” Ms. Grabel said.
Her best advice? “Stay home and shop online.”
Indeed, on Wednesday, many stores had begun holiday promotions on their Web sites. On Wednesday, clothing was up to 40 percent off at Bloomingdale’s, Saks, Neiman Marcus and Barneys. At Nordstrom, merchandise was up to 50 percent off. At Lord & Taylor, some items, like women’s coats, were half off.
Saks planned to offer its early deals online at midnight Wednesday. “We figure some people will need a break from their family on Thursday,” Ms. Grabel said.
To distinguish themselves from discounters, the likes of Saks and Neiman Marcus also offer gift cards for spending a certain amount of money within a designated time period on Black Friday, which got its name because it was thought to be the day when retailers often shifted into the black, or became profitable. In the coming months, the chains will probably continue borrowing the idea of private, timed online sales.
Made popular by members-only shopping Web sites like Gilt, Rue La La and HauteLook, the sales give consumers a now-or-never incentive to buy, and are a less conspicuous way for stores to sell designer merchandise at a discount. Consumers must sign up for e-mail alerts on retailers’ Web sites to be in the know.
In general, chain stores will not divulge their promotion schedules for the rest of the shopping season, but some Web sites also track sales throughout the holiday season, including Deal- News.com, BlackFriday.info, and Bfads.net.
Expect some notable deals online on Monday, now called Cyber Monday, when consumers return to their offices and go holiday shopping on the Web.
This year, more e-commerce sites plan to offer bargains to win over reluctant consumers. For instance, Blue Nile, the online jeweler, has long avoided participating in promotional days. But no more.
“Even the wealthy have become more value-conscious,” said John Baird, a spokesman for Blue Nile, noting a shift in the behavior of its more affluent customers.
Blue Nile plans to offer two promotions on Monday — free overnight shipping on orders placed by 6 p.m. Eastern time, and discounts on a different item each day through Dec. 23. (On one of the days, a 15-carat diamond eternity bracelet will cost $27,000, down from $36,500. Blue Nile would not say which day the bracelet would be on sale.)
“We want to be very careful when we offer special promotions like this, to make sure they are brand-appropriate,” Mr. Baird said. “We’re not going to be like the mall jeweler, so you’re not going to see 50 percent off the entire store.”
Across-the-board sales are the specialty of the nation’s biggest big-box stores and Web sites, and they, too, began discounting before consumers roasted their turkeys.
Kmart had a “Better Than Black Friday Sale.” Best Buy offered “Early Black Friday Prices” on some televisions, and on Nov. 11 the chain offered its lowest-ever advertised price on a laptop, $250. Toys “R” Us had early blockbuster deals known as doorbusters. And for weeks, Wal-Mart, the nation’s largest retailer, has been offering deep discounts.
Consumers who missed those bargains need not fret.
“Once you’ve started discounting, it’s hard to stop midseason,” said Maggie Taylor, a vice president and senior credit officer for Moody’s Investors Service.
Some chains are even getting a jump on Monday, re-imagining it as Cyber Sunday. J.C. Penney, for instance, plans to offer its Monday sales beginning Sunday, for two days. Staples also plans to offer its Web deals on both Sunday and Monday.
Consumers can track hourly specials on CyberMonday.com, which will continue posting news about deals at the nation’s major online retailers long after Monday.
Thursday, November 26, 2009
Best Day to Buy a Car? Black Friday!
Thinking only of hitting the malls the day after Thanksgiving? It's also the best day of the year to shop for a car, according to TrueCar, which tracks new-vehicle auto sales and compares price data.
TrueCar.com compared daily car, truck and SUV prices for several years and found the day after Thanksgiving, Black Friday, is the day with the biggest discounts.
TrueCar's monthly report on prices and deals says the "most negotiable" new cars now are the 2009 Audi Q5 and 2010 BMW 1-series.
Analysts looked at day-by-day car pricing for the last several years. That data revealed that discounts on Black Friday are, on average, the biggest of the year.
"The discounts from dealerships, as well as manufacturers' incentives, generate the highest discounts of the year on Black Friday," said Jesse Toprak, an analyst for Truecar.com.
Unlike typical Black Friday sales where customers know exactly what they'll pay for an item, car prices are individually negotiated the day of the sale, so it's difficult for customers to know ahead of time they'll be getting a deal. But there's been a clear trend, Toprak said.
The average new car discount on Nov. 27 is projected to be 7.5%. The average discount the day before and after is expected to be just over 6%. On a typical day throughout the year, car shoppers usually pay about 4.7% less than the sticker price.
Truecar.com projected particularly large Black Friday discounts on certain models. For instance, consumers should be able to pay about 28% off sticker price for a 2009 Suzuki SX4 compact car, 26% off for a 2009 Nissan Titan or Ford F-150 pick-up or 20% off a 2009 Hyundai Sonata sedan.
Getting in on the Black Friday madness
Car dealers are trying to get a piece of the Black Friday shopping frenzy, Toprak theorized, and that may to lead to the bigger discounts found in the data.
"There's a lot of noise in the market that day, and we have to stand out," agreed Brian Benstock, general manager of New York City's Paragon Honda.
Paragon Honda will send bicycle riders dressed in gorilla costumes to a nearby Best Buy store, Benstock said. The gorillas will be draped in sandwich-board signs advertising car deals available just down the road.
Paragon Honda will also be relying on more traditional advertising methods to pull customers in, Benstock said, including TV and print ads touting a "$5-a-day" Honda Civic. (That's a $149 a month for a 30-month lease with $1,999 down.)
Michelle Primm, managing partner of Cascade Auto Group in Cuyahoga Falls, Ohio, said her dealerships don't usually do big, splashy ads, except on the Friday and Saturday after Thanksgiving.
"Those are the only two days when we buy full-page ads in the paper," she said.
Primm says her dealership does get more business on Black Friday although according to Truecar.com's Toprak, average dealership traffic doesn't tend to be particularly high that day, said Toprak.
"Dealerships always spend a lot of money on marketing for that day," said Toprak "but for some reason it's not a particularly big day for car shopping."
That may be part of the reason for extra-big discounts, Toprak theorized. Dealerships that aren't getting the business just keep trying harder.
Not everyone is playing, though. Bob Goldberg, general manager of Premium Nissan in New Rochelle, NY, denied that Black Friday is particularly special at his dealership. "Every day is important to us," he said. "I don't consider it different from any other day."
Crunch time for car dealers
Adding to the sales pressure, Black Friday this year happens to fall very close to the end of the month. Car deals typically sweeten as the month goes on because many dealerships are approaching quotas they must meet in order to get additional manufacturer incentives.
"The push is on as we get close to the end of the month," Nissan dealer Goldberg conceded.
Besides monthly deadlines, dealers are also under pressure to clear out 2009 model year cars and trucks before the end of the calendar year. Those cars will be much harder to sell after Dec. 31, when they become "last year's" models.
First Published: November 17, 2009 at: http://money.cnn.com/2009/11/17/autos/black_friday_car_deals/index.htm
TrueCar.com compared daily car, truck and SUV prices for several years and found the day after Thanksgiving, Black Friday, is the day with the biggest discounts.
TrueCar's monthly report on prices and deals says the "most negotiable" new cars now are the 2009 Audi Q5 and 2010 BMW 1-series.
Analysts looked at day-by-day car pricing for the last several years. That data revealed that discounts on Black Friday are, on average, the biggest of the year.
"The discounts from dealerships, as well as manufacturers' incentives, generate the highest discounts of the year on Black Friday," said Jesse Toprak, an analyst for Truecar.com.
Unlike typical Black Friday sales where customers know exactly what they'll pay for an item, car prices are individually negotiated the day of the sale, so it's difficult for customers to know ahead of time they'll be getting a deal. But there's been a clear trend, Toprak said.
The average new car discount on Nov. 27 is projected to be 7.5%. The average discount the day before and after is expected to be just over 6%. On a typical day throughout the year, car shoppers usually pay about 4.7% less than the sticker price.
Truecar.com projected particularly large Black Friday discounts on certain models. For instance, consumers should be able to pay about 28% off sticker price for a 2009 Suzuki SX4 compact car, 26% off for a 2009 Nissan Titan or Ford F-150 pick-up or 20% off a 2009 Hyundai Sonata sedan.
Getting in on the Black Friday madness
Car dealers are trying to get a piece of the Black Friday shopping frenzy, Toprak theorized, and that may to lead to the bigger discounts found in the data.
"There's a lot of noise in the market that day, and we have to stand out," agreed Brian Benstock, general manager of New York City's Paragon Honda.
Paragon Honda will send bicycle riders dressed in gorilla costumes to a nearby Best Buy store, Benstock said. The gorillas will be draped in sandwich-board signs advertising car deals available just down the road.
Paragon Honda will also be relying on more traditional advertising methods to pull customers in, Benstock said, including TV and print ads touting a "$5-a-day" Honda Civic. (That's a $149 a month for a 30-month lease with $1,999 down.)
Michelle Primm, managing partner of Cascade Auto Group in Cuyahoga Falls, Ohio, said her dealerships don't usually do big, splashy ads, except on the Friday and Saturday after Thanksgiving.
"Those are the only two days when we buy full-page ads in the paper," she said.
Primm says her dealership does get more business on Black Friday although according to Truecar.com's Toprak, average dealership traffic doesn't tend to be particularly high that day, said Toprak.
"Dealerships always spend a lot of money on marketing for that day," said Toprak "but for some reason it's not a particularly big day for car shopping."
That may be part of the reason for extra-big discounts, Toprak theorized. Dealerships that aren't getting the business just keep trying harder.
Not everyone is playing, though. Bob Goldberg, general manager of Premium Nissan in New Rochelle, NY, denied that Black Friday is particularly special at his dealership. "Every day is important to us," he said. "I don't consider it different from any other day."
Crunch time for car dealers
Adding to the sales pressure, Black Friday this year happens to fall very close to the end of the month. Car deals typically sweeten as the month goes on because many dealerships are approaching quotas they must meet in order to get additional manufacturer incentives.
"The push is on as we get close to the end of the month," Nissan dealer Goldberg conceded.
Besides monthly deadlines, dealers are also under pressure to clear out 2009 model year cars and trucks before the end of the calendar year. Those cars will be much harder to sell after Dec. 31, when they become "last year's" models.
First Published: November 17, 2009 at: http://money.cnn.com/2009/11/17/autos/black_friday_car_deals/index.htm
Wednesday, November 25, 2009
NY Judge CANCELS IndyMac Loan due to BAD FAITH
JUDGING INDYMAC – New York Judge Finds IndyMac’s behavior “Repugnant, Shocking, Repulsive and Completely Devoid of Good Faith”.
Yesterday, November 24th in a Long Island courtroom, Judge Jeffrey Arlen Spinner ruled in essence that a bank who is seeking foreclosure against a homeowner must act and negotiate in good faith in an attempt to mitigate damages.
In the case of INDY MAC v YANO HOROSKI, Judge Spinner found that the bank's conduct was “wholly unsupportable at law or in equity, greatly egregious and so completely devoid of good faith that equity (in the nature of granting foreclosure) cannot be permitted to intervene on its behalf.”
However, Judge Spinner went further, stating that IndyMac's unapproachability, insensitivity and contemptuous conduct toward the borrower throughout the entire case made him believe that the bank would repeat this conduct -- SO HE EXTINGUISHED THE ENTIRE DEBT!
The facts are as follows: Ms Yano Horoski is a college professor who refinanced her existing residential mortgage for $ 292,500.00 with an adjustable whose interest rate went from 10% to 12%. Due to unforseen financial and medical hardships she and her husband could no longer afford the monthly payment, so they contacted IndyMac with the hope of obtaining a loan modification.
As Judge Spinner noted in his ruling, the borrower and her husband made countless attempts to mediate their loan with IndyMac - and even made a proposal under which their daughter would purchase the home. But the bank turned a deaf ear to all efforts to resolve the issue, and instead went forward with demanding foreclosre (DESPITE the fact that IndyMac, now known as "OneWest", received millions of dollars in "bailout" money from the government's "Troubled Asset Relief ("TARP") Program").
Judge Spinner's ruling also pointed out several things that homeowners and their advocates have long known and understood - but that Courts (until now) have been unwilling to recognize.
His findings included:
“Were IndyMac amenable, the homeowner would presumably continue to maintain the property’s physical condition, pay taxes thereon and the property would retain or perhaps increase its market value. IndyMac would receive a regular income stream, albeit with a reduced rate of interest and without sustaining a loss of several hundred thousand dollars."
"In addition, no neighborhood blight would occur from the boarding of the property after foreclosure, which would, in turn, avert problems of litter, dumping, vagrancy and vandalism as well as a corresponding decline in the property values in the immediate area. In short, a loan modification would result in a proverbial “win-win” for all parties involved. To do otherwise would result in virtually certain undomiciled status for two physically unhealthy persons and their daughter, leading to an additional level of problems, both for them and for society.”
The judge said that the court, when attempting to reach a decision as to whether to permit the foreclosure, is required to look at the "entire situation", and to give careful consideration to “whether the remedy sought by Plaintiff (IndyMac) would be repugnant to the public interest when seen from the point of view of public morality”.
He added:
“Equitable relief will not lie in favor of one who acts in a manner which is shocking to the conscience, neither will equity be available to one who acts in a manner that is oppressive or unjust or whose conduct is sufficiently egregious so as to prohibit the party from asserting its legal rights against a defaulting adversary."
"The compass by which the questioned conduct must be measured is a moral one and the acts complained of need not be criminal nor actionable at law but must merely be willful and unconscionable or be of such a nature that honest and fair minded folk would roundly denounce such actions as being morally and ethically wrong. Thus, where a party acts in a manner that is offensive to good conscience and justice, he will be completely without recourse in a court of equity, regardless of what his legal rights may be.”
And then in closing, the Judge wrote:
“The Court cannot be assured that Plaintiff will not repeat this course of conduct if this action is merely dismissed and hence, dismissal standing alone is not a reasonable option. Likewise, the imposition of monetary sanctions is not likely to have a salubrious or remedial effect on these proceedings and certainly would not inure to Defendant’s benefit.
"This Court is of the opinion that cancellation of the indebtedness and discharge of the mortgage, when taken together, constitute the appropriate equitable disposition under the unique facts and circumstances presented herein.”
CONCLUSION: It's important to note that this decision is not an appellate court decision, and cannot be used as a "precedent" for courts in other states and jurisdictions. Further, Judge Skinner's decision will be agressively appealed, and many legal commentators throughout the internet already are predicting that the ruling stands a good chance of being overturned.
However, as professionals close to the foreclosure crisis are well aware, Judge Skinner's observations as to how many lenders conduct business with homeowners are "right on the mark".
The bottom line is that if homeowners believe they are being victimized, ignored or given the "runaround" by their lenders, they need to IMMEDIATELY stand up for their rights, secure the services of experienced legal counsel, and avail themselves of remedies currently available under applicable State and Federal laws.
Yesterday, November 24th in a Long Island courtroom, Judge Jeffrey Arlen Spinner ruled in essence that a bank who is seeking foreclosure against a homeowner must act and negotiate in good faith in an attempt to mitigate damages.
In the case of INDY MAC v YANO HOROSKI, Judge Spinner found that the bank's conduct was “wholly unsupportable at law or in equity, greatly egregious and so completely devoid of good faith that equity (in the nature of granting foreclosure) cannot be permitted to intervene on its behalf.”
However, Judge Spinner went further, stating that IndyMac's unapproachability, insensitivity and contemptuous conduct toward the borrower throughout the entire case made him believe that the bank would repeat this conduct -- SO HE EXTINGUISHED THE ENTIRE DEBT!
The facts are as follows: Ms Yano Horoski is a college professor who refinanced her existing residential mortgage for $ 292,500.00 with an adjustable whose interest rate went from 10% to 12%. Due to unforseen financial and medical hardships she and her husband could no longer afford the monthly payment, so they contacted IndyMac with the hope of obtaining a loan modification.
As Judge Spinner noted in his ruling, the borrower and her husband made countless attempts to mediate their loan with IndyMac - and even made a proposal under which their daughter would purchase the home. But the bank turned a deaf ear to all efforts to resolve the issue, and instead went forward with demanding foreclosre (DESPITE the fact that IndyMac, now known as "OneWest", received millions of dollars in "bailout" money from the government's "Troubled Asset Relief ("TARP") Program").
Judge Spinner's ruling also pointed out several things that homeowners and their advocates have long known and understood - but that Courts (until now) have been unwilling to recognize.
His findings included:
“Were IndyMac amenable, the homeowner would presumably continue to maintain the property’s physical condition, pay taxes thereon and the property would retain or perhaps increase its market value. IndyMac would receive a regular income stream, albeit with a reduced rate of interest and without sustaining a loss of several hundred thousand dollars."
"In addition, no neighborhood blight would occur from the boarding of the property after foreclosure, which would, in turn, avert problems of litter, dumping, vagrancy and vandalism as well as a corresponding decline in the property values in the immediate area. In short, a loan modification would result in a proverbial “win-win” for all parties involved. To do otherwise would result in virtually certain undomiciled status for two physically unhealthy persons and their daughter, leading to an additional level of problems, both for them and for society.”
The judge said that the court, when attempting to reach a decision as to whether to permit the foreclosure, is required to look at the "entire situation", and to give careful consideration to “whether the remedy sought by Plaintiff (IndyMac) would be repugnant to the public interest when seen from the point of view of public morality”.
He added:
“Equitable relief will not lie in favor of one who acts in a manner which is shocking to the conscience, neither will equity be available to one who acts in a manner that is oppressive or unjust or whose conduct is sufficiently egregious so as to prohibit the party from asserting its legal rights against a defaulting adversary."
"The compass by which the questioned conduct must be measured is a moral one and the acts complained of need not be criminal nor actionable at law but must merely be willful and unconscionable or be of such a nature that honest and fair minded folk would roundly denounce such actions as being morally and ethically wrong. Thus, where a party acts in a manner that is offensive to good conscience and justice, he will be completely without recourse in a court of equity, regardless of what his legal rights may be.”
And then in closing, the Judge wrote:
“The Court cannot be assured that Plaintiff will not repeat this course of conduct if this action is merely dismissed and hence, dismissal standing alone is not a reasonable option. Likewise, the imposition of monetary sanctions is not likely to have a salubrious or remedial effect on these proceedings and certainly would not inure to Defendant’s benefit.
"This Court is of the opinion that cancellation of the indebtedness and discharge of the mortgage, when taken together, constitute the appropriate equitable disposition under the unique facts and circumstances presented herein.”
CONCLUSION: It's important to note that this decision is not an appellate court decision, and cannot be used as a "precedent" for courts in other states and jurisdictions. Further, Judge Skinner's decision will be agressively appealed, and many legal commentators throughout the internet already are predicting that the ruling stands a good chance of being overturned.
However, as professionals close to the foreclosure crisis are well aware, Judge Skinner's observations as to how many lenders conduct business with homeowners are "right on the mark".
The bottom line is that if homeowners believe they are being victimized, ignored or given the "runaround" by their lenders, they need to IMMEDIATELY stand up for their rights, secure the services of experienced legal counsel, and avail themselves of remedies currently available under applicable State and Federal laws.
Tuesday, November 24, 2009
Renters in Foreclosure - Do They Have Rights?
Renters in Foreclosure: What Are Their Rights?
(from www.nolo.com)
Renters and tenants whose landlords have lost their properties through foreclosure now have important rights.
Renters and tenants are now being affected by foreclosures almost as often as homeowners. The mortgage industry crisis that started in 2006 has resulted in thousands -- no, make that millions -- of foreclosed homes. Most of the occupants are the homeowners themselves, who must scramble to find alternate housing with very little notice. They're being joined by scores of renters who discover, often with no warning, that their rented house or apartment is now owned by a bank, which wants them out.
Who Are the Renters?
Renters who lose their homes to foreclosures don't fit a single profile. Many of them live in smaller buildings, condos, and single-family homes. They're located in cities and surrounding suburbs, in low-income and upscale neighborhoods. In short, foreclosed homes are everywhere, and they're rented by people with widely varying incomes, including some with "Section 8" (federal housing assistance) vouchers.
Who Are the Defaulting Owners?
The typical foreclosed home may have originally been owner-occupied, but more often it's owned by investors and speculators who were hoping to profit from the rents. Caught between the slump in housing values and the rise of mortgage interest rates, these owners could not feasibly sell or extract enough rent to cover their monthly costs. In droves, they lost their investments. For example, in Minneapolis and its surrounding suburbs, 38% of the 2006 foreclosures involved rental properties; in Minneapolis alone, 65% were rentals.
Who Are the New Landlords?
When an owner defaults on a mortgage, the mortgage holder, often a bank, either becomes the new owner or sells the property at a public sale. If the bank becomes the owner, it may pay a servicing company to handle the property. But don't expect close attention -- these companies are focused on financial matters, not mundane things like maintenance.
Some renters find themselves with a new owner even before the foreclosure. Lawyers in Massachusetts, for example, contend that many new rental property owners are investment trusts that specialize in purchasing troubled loans directly from banks, then foreclosing, evicting, and selling.
New Owners Means No Maintenance
Many tenants have no idea that their building has been taken at foreclosure. They continue to pay rent to the former owner, who often pockets the money but is hardly inclined to maintain the building it no longer owns. In the meantime, the new owners simply refuse to be landlords, never making repairs or even paying utility bills. Because the banks are stuck with increasing numbers of foreclosed properties that they can't sell, they remain non-landlords for some time, making life impossible for their tenants until those tenants are evicted.
Renters in Foreclosed Properties No Longer Lose Their Leases
Before May 20, 2009, most renters lost their leases upon foreclosure. The rule in most states was that if the mortgage was recorded before the lease was signed, a foreclosure wiped out the lease (this rule is known as "first in time, first in right"). Because most leases last no longer than a year, it was all too common for the mortgage to predate the lease and destroy it upon foreclosure.
These rules changed dramatically on May 20, 2009, when President Obama signed the "Protecting Tenants at Foreclosure Act of 2009." This legislation provided that leases would survive a foreclosure -- meaning the tenant could stay at least until the end of the lease, and that month-to-month tenants would be entitled to 90 days' notice before having to move out (this notice period is longer than any state's non-foreclosure notice period, a real boon to tenants).
An exception was carved out for the buyer who intends to live on the property -- this buyer may terminate a lease with 90 days' notice. Importantly, the law provides that any state legislation that is more generous to tenants will not be preempted by the federal law. These protections apply to Section 8 tenants, too.
Importantly, tenants who live in cities with rent control "just cause" eviction protection are also protected from terminations at the hands of an acquiring bank or new owner. These tenants can rely on their ordinance's list of allowable, or "just causes," for termination. Because a change of ownership, without more, does not justify a termination, the fact that the change occurred through foreclosure will not justify a termination.
Does It Make Sense to Evict Tenants?
New owners may want to terminate existing tenants because they believe that vacant properties are easier to sell. Common sense suggests otherwise. In many situations a building full of stable, rent-paying tenants will be more valuable (and command a higher price) than an empty building. Emptied buildings are also prone to vandalism and other deterioration -- after all, no one is on site to monitor their condition. When entire neighborhoods become a wasteland of empty foreclosed multifamily buildings, their value drops even further. It's hard to understand why new owners choose to pay lawyers to start eviction procedures instead of paying a modest fee to a management company to collect rent and manage the property while they wait to sell.
"Cash for Keys"
To encourage tenants to leave quickly and save on the court costs associated with an eviction, banks offer tenants a cash payout in exchange for their rapid departure. Thinking that they have little choice, many tenants -- even Section 8, protected tenants -- take the deal. It doesn't help them much as they join the swelling ranks of newly displaced tenants (and former homeowners) who are competing to find an affordable new rental.
What Can a Foreclosed-Upon Tenant Do?
Thanks to the 2009 federal legislation, most tenants with leases will keep their leases, and month-to-month tenants will have at least 90 days to relocate. Tenants with leases have no legal recourse against their former landlords, because they are in the same position vis a vis the new owner as they were with the old: The lease survives and ends as it would had there been no foreclosure. Similarly, month-to-month tenants always know that they can be terminated with proper notice, and 90 days is longer than any state's termination period.
However, a lease-holding tenant whose rental has been bought by a buyer who want to move in to the property ends up less fortunate than before the new law -- he may lose his lease with 90 days' notice, a result that probably would not have happened had the owner simply sold the property to a buyer who intended to occupy the property. (Normally, the new owner has to wait until the lease ends, absent a lease clause providing for termination upon sale, though such clauses may not be legal in all situations.)
Suing in Small Claims Court
A lease-holding tenant who has to move out so that new owners may move in might consider suing their former landlord in small claims court. Here's how it works.
After signing a lease, the landlord is legally bound to deliver the rental for the entire lease term. In legalese, this duty is known as the "covenant of quiet enjoyment." A landlord who defaults on a mortgage, which sets in motion the loss of the lease, violates this covenant, and the tenant can sue for the damages it causes.
Small claims court is a perfect place to bring such a lawsuit. The tenant can sue the original landlord for moving and apartment-searching costs, application fees, and the difference, if any, between the new rent for a comparable rental and the rent under the old lease. Though the former owner is probably not flush with money, the awards in these cases won't be very much, and the court judgment and award will stay on the books for many years. A persistent tenant can probably collect what's owed eventually.
(from www.nolo.com)
Renters and tenants whose landlords have lost their properties through foreclosure now have important rights.
Renters and tenants are now being affected by foreclosures almost as often as homeowners. The mortgage industry crisis that started in 2006 has resulted in thousands -- no, make that millions -- of foreclosed homes. Most of the occupants are the homeowners themselves, who must scramble to find alternate housing with very little notice. They're being joined by scores of renters who discover, often with no warning, that their rented house or apartment is now owned by a bank, which wants them out.
Who Are the Renters?
Renters who lose their homes to foreclosures don't fit a single profile. Many of them live in smaller buildings, condos, and single-family homes. They're located in cities and surrounding suburbs, in low-income and upscale neighborhoods. In short, foreclosed homes are everywhere, and they're rented by people with widely varying incomes, including some with "Section 8" (federal housing assistance) vouchers.
Who Are the Defaulting Owners?
The typical foreclosed home may have originally been owner-occupied, but more often it's owned by investors and speculators who were hoping to profit from the rents. Caught between the slump in housing values and the rise of mortgage interest rates, these owners could not feasibly sell or extract enough rent to cover their monthly costs. In droves, they lost their investments. For example, in Minneapolis and its surrounding suburbs, 38% of the 2006 foreclosures involved rental properties; in Minneapolis alone, 65% were rentals.
Who Are the New Landlords?
When an owner defaults on a mortgage, the mortgage holder, often a bank, either becomes the new owner or sells the property at a public sale. If the bank becomes the owner, it may pay a servicing company to handle the property. But don't expect close attention -- these companies are focused on financial matters, not mundane things like maintenance.
Some renters find themselves with a new owner even before the foreclosure. Lawyers in Massachusetts, for example, contend that many new rental property owners are investment trusts that specialize in purchasing troubled loans directly from banks, then foreclosing, evicting, and selling.
New Owners Means No Maintenance
Many tenants have no idea that their building has been taken at foreclosure. They continue to pay rent to the former owner, who often pockets the money but is hardly inclined to maintain the building it no longer owns. In the meantime, the new owners simply refuse to be landlords, never making repairs or even paying utility bills. Because the banks are stuck with increasing numbers of foreclosed properties that they can't sell, they remain non-landlords for some time, making life impossible for their tenants until those tenants are evicted.
Renters in Foreclosed Properties No Longer Lose Their Leases
Before May 20, 2009, most renters lost their leases upon foreclosure. The rule in most states was that if the mortgage was recorded before the lease was signed, a foreclosure wiped out the lease (this rule is known as "first in time, first in right"). Because most leases last no longer than a year, it was all too common for the mortgage to predate the lease and destroy it upon foreclosure.
These rules changed dramatically on May 20, 2009, when President Obama signed the "Protecting Tenants at Foreclosure Act of 2009." This legislation provided that leases would survive a foreclosure -- meaning the tenant could stay at least until the end of the lease, and that month-to-month tenants would be entitled to 90 days' notice before having to move out (this notice period is longer than any state's non-foreclosure notice period, a real boon to tenants).
An exception was carved out for the buyer who intends to live on the property -- this buyer may terminate a lease with 90 days' notice. Importantly, the law provides that any state legislation that is more generous to tenants will not be preempted by the federal law. These protections apply to Section 8 tenants, too.
Importantly, tenants who live in cities with rent control "just cause" eviction protection are also protected from terminations at the hands of an acquiring bank or new owner. These tenants can rely on their ordinance's list of allowable, or "just causes," for termination. Because a change of ownership, without more, does not justify a termination, the fact that the change occurred through foreclosure will not justify a termination.
Does It Make Sense to Evict Tenants?
New owners may want to terminate existing tenants because they believe that vacant properties are easier to sell. Common sense suggests otherwise. In many situations a building full of stable, rent-paying tenants will be more valuable (and command a higher price) than an empty building. Emptied buildings are also prone to vandalism and other deterioration -- after all, no one is on site to monitor their condition. When entire neighborhoods become a wasteland of empty foreclosed multifamily buildings, their value drops even further. It's hard to understand why new owners choose to pay lawyers to start eviction procedures instead of paying a modest fee to a management company to collect rent and manage the property while they wait to sell.
"Cash for Keys"
To encourage tenants to leave quickly and save on the court costs associated with an eviction, banks offer tenants a cash payout in exchange for their rapid departure. Thinking that they have little choice, many tenants -- even Section 8, protected tenants -- take the deal. It doesn't help them much as they join the swelling ranks of newly displaced tenants (and former homeowners) who are competing to find an affordable new rental.
What Can a Foreclosed-Upon Tenant Do?
Thanks to the 2009 federal legislation, most tenants with leases will keep their leases, and month-to-month tenants will have at least 90 days to relocate. Tenants with leases have no legal recourse against their former landlords, because they are in the same position vis a vis the new owner as they were with the old: The lease survives and ends as it would had there been no foreclosure. Similarly, month-to-month tenants always know that they can be terminated with proper notice, and 90 days is longer than any state's termination period.
However, a lease-holding tenant whose rental has been bought by a buyer who want to move in to the property ends up less fortunate than before the new law -- he may lose his lease with 90 days' notice, a result that probably would not have happened had the owner simply sold the property to a buyer who intended to occupy the property. (Normally, the new owner has to wait until the lease ends, absent a lease clause providing for termination upon sale, though such clauses may not be legal in all situations.)
Suing in Small Claims Court
A lease-holding tenant who has to move out so that new owners may move in might consider suing their former landlord in small claims court. Here's how it works.
After signing a lease, the landlord is legally bound to deliver the rental for the entire lease term. In legalese, this duty is known as the "covenant of quiet enjoyment." A landlord who defaults on a mortgage, which sets in motion the loss of the lease, violates this covenant, and the tenant can sue for the damages it causes.
Small claims court is a perfect place to bring such a lawsuit. The tenant can sue the original landlord for moving and apartment-searching costs, application fees, and the difference, if any, between the new rent for a comparable rental and the rent under the old lease. Though the former owner is probably not flush with money, the awards in these cases won't be very much, and the court judgment and award will stay on the books for many years. A persistent tenant can probably collect what's owed eventually.
"Black Friday" Scams (& 10 Secrets Retailers Don't Want You to Know)
According to most retailers and sales tracking organizations, the day after Thanksgiving (“Black Friday”) is the busiest shopping day of the year - a whole lot of money changes hands as people begin their holiday gift-gathering.
They don't call it "Black Friday" for nothing – It's all about placing retailers "into the black" (in other words, into profitability). They profit not by offering goods at a loss, but by using ultra-low “teaser” prices to lure consumers into their stores, where they can employ underhanded tactics to make money.
Criminals and scammers also become extra-active on this occasion. According to Lou Venezia, CEO of Adeptra (a call center technology firm), "Credit and debit fraud is more prevalent than ever - and as fraudsters look to take advantage of the volume of transactions over this busy shopping period, consumers expect peace of mind as their banks and credit issuers hopefully do all they can to stay a step ahead (of criminals)."
Current research from Adeptra shows that shoppers themselves need to pay far closer attention, and take substantially greater interest in their accounts' activity. Adeptra reports that just over one (1) in ten (10) American consumers (11%) check their balances daily, and approximately 50% review their accounts once a week.
But according to Mike Elgan, technology writer and former editor of Windows Magazine, with some smart planning you can make "Black Friday" profitable for yourself, not the store.
Here is Mike’s list of “10 things retailers don't want you to know”:
(1) Most Black Friday deals are leaked early online. Check sites that post leaked Black Friday ads and info, and give yourself an advantage over the masses. The four best sites are: bfads.net, blackfriday.gottadeal.com, blackfridayads.com, and blackfriday.info. Some of these sites will optionally send you an e-mail whenever they post a new ad or new information. (So will Wal-mart's "Secret Section.") Some have cell phone versions of the site for referring while in-store.
(2) Many Black Friday deals are "bait-and-switch" scams. They may sell you a very cheap product with a very expensive warranty, or use a given price, but add software, accessories or other over-priced add-ons as a required but unadvertised part of the purchase. You'll find out about this only at the register. If the price at the register is significantly higher than advertised for any reason, ask to speak to a supervisor and insist on the advertised price. If they still refuse, threaten to write a letter to the attorney general.
(3) Get the best price without hassles by knowing price-match and return policies. Many stores offer price-match guarantees (if a competitor offers a lower price, they'll match it). Increasingly, Black Friday sales are exempt from all this. Others have a return policy that, in effect, is a price-match guarantee for the store itself (if they drop the price, the difference is later refunded to you if you ask for it). If you know which product you want to buy, and can find a store with a price-match guarantee that honors Black Friday prices, buy it! When Black Friday rolls around, you can go looking for the best price, and not have to worry about whether the store is out of stock. If a store is willing to refund the difference between its own normal price and its Black Friday price, buy it early for the same reason.
(4) Beat the system by shopping in teams. Stores rely on a long list of tricks, from limited sale hours to low inventories in order to lure you into the stores without giving you the time to comparison shop for the product you want at the best possible price. Have one team member in each store when it opens, each with a list of what everyone wants to buy. Use Joopz.com to set up broadcast SMS. Each team member finds every product on the list, then broadcasts pricing. The person at the store with the lowest price for each item buys it.
(5) Use your cell phone browser to check competing deals, and also product quality. You can also use standard sites like BizRate.com, Shopping.com and PriceGrabber.com to check just how good prices are. Sometimes Black Friday prices can be beat online anytime.
(6) Some Black Friday promos are designed to unload "loser" products. Products that are obsolete, unpopular, damaged or returned are prime candidates for Black Friday sales. Make sure you narrow your list of products, so you don't end up buying something you don't really want.
(7) Shop early - Very early. Many stores will open at midnight this year. Many open as early as 5 am. Find out in advance what time each store opens, so you can plan accordingly.
(8) Some of the best deals are advertised only on Thanksgiving -- or even on Black Friday itself. Make sure you get all the local newspaper on Thanksgiving Day and Black Friday.
(9) Some Black Friday deals are actually available online. Others are available ONLY online - or have prices that actually beat in-store prices. Start checking prices on Thanksgiving. Check Web sites again very early Black Friday morning, and shop there first. Then, go to the stores only if you have to. Also, there some stores that will let you order items online the day before, and allow you pick them up on Black Friday.
(10) Plan ahead to think clearly. Bring food, wear comfortable shoes, and leave the kids at home (kids can influence impulse buying or convince you to leave early). Stay focused, and don't let yourself be caught up in the frenzy.
Black Friday is a zero-sum game. Either the store wins, or you do. Use these tips to beat the stores at their own game.
Mike Elgan can be reached at mike.elgan+datamation@gmail.com or through his blog: http://therawfeed.com.
They don't call it "Black Friday" for nothing – It's all about placing retailers "into the black" (in other words, into profitability). They profit not by offering goods at a loss, but by using ultra-low “teaser” prices to lure consumers into their stores, where they can employ underhanded tactics to make money.
Criminals and scammers also become extra-active on this occasion. According to Lou Venezia, CEO of Adeptra (a call center technology firm), "Credit and debit fraud is more prevalent than ever - and as fraudsters look to take advantage of the volume of transactions over this busy shopping period, consumers expect peace of mind as their banks and credit issuers hopefully do all they can to stay a step ahead (of criminals)."
Current research from Adeptra shows that shoppers themselves need to pay far closer attention, and take substantially greater interest in their accounts' activity. Adeptra reports that just over one (1) in ten (10) American consumers (11%) check their balances daily, and approximately 50% review their accounts once a week.
But according to Mike Elgan, technology writer and former editor of Windows Magazine, with some smart planning you can make "Black Friday" profitable for yourself, not the store.
Here is Mike’s list of “10 things retailers don't want you to know”:
(1) Most Black Friday deals are leaked early online. Check sites that post leaked Black Friday ads and info, and give yourself an advantage over the masses. The four best sites are: bfads.net, blackfriday.gottadeal.com, blackfridayads.com, and blackfriday.info. Some of these sites will optionally send you an e-mail whenever they post a new ad or new information. (So will Wal-mart's "Secret Section.") Some have cell phone versions of the site for referring while in-store.
(2) Many Black Friday deals are "bait-and-switch" scams. They may sell you a very cheap product with a very expensive warranty, or use a given price, but add software, accessories or other over-priced add-ons as a required but unadvertised part of the purchase. You'll find out about this only at the register. If the price at the register is significantly higher than advertised for any reason, ask to speak to a supervisor and insist on the advertised price. If they still refuse, threaten to write a letter to the attorney general.
(3) Get the best price without hassles by knowing price-match and return policies. Many stores offer price-match guarantees (if a competitor offers a lower price, they'll match it). Increasingly, Black Friday sales are exempt from all this. Others have a return policy that, in effect, is a price-match guarantee for the store itself (if they drop the price, the difference is later refunded to you if you ask for it). If you know which product you want to buy, and can find a store with a price-match guarantee that honors Black Friday prices, buy it! When Black Friday rolls around, you can go looking for the best price, and not have to worry about whether the store is out of stock. If a store is willing to refund the difference between its own normal price and its Black Friday price, buy it early for the same reason.
(4) Beat the system by shopping in teams. Stores rely on a long list of tricks, from limited sale hours to low inventories in order to lure you into the stores without giving you the time to comparison shop for the product you want at the best possible price. Have one team member in each store when it opens, each with a list of what everyone wants to buy. Use Joopz.com to set up broadcast SMS. Each team member finds every product on the list, then broadcasts pricing. The person at the store with the lowest price for each item buys it.
(5) Use your cell phone browser to check competing deals, and also product quality. You can also use standard sites like BizRate.com, Shopping.com and PriceGrabber.com to check just how good prices are. Sometimes Black Friday prices can be beat online anytime.
(6) Some Black Friday promos are designed to unload "loser" products. Products that are obsolete, unpopular, damaged or returned are prime candidates for Black Friday sales. Make sure you narrow your list of products, so you don't end up buying something you don't really want.
(7) Shop early - Very early. Many stores will open at midnight this year. Many open as early as 5 am. Find out in advance what time each store opens, so you can plan accordingly.
(8) Some of the best deals are advertised only on Thanksgiving -- or even on Black Friday itself. Make sure you get all the local newspaper on Thanksgiving Day and Black Friday.
(9) Some Black Friday deals are actually available online. Others are available ONLY online - or have prices that actually beat in-store prices. Start checking prices on Thanksgiving. Check Web sites again very early Black Friday morning, and shop there first. Then, go to the stores only if you have to. Also, there some stores that will let you order items online the day before, and allow you pick them up on Black Friday.
(10) Plan ahead to think clearly. Bring food, wear comfortable shoes, and leave the kids at home (kids can influence impulse buying or convince you to leave early). Stay focused, and don't let yourself be caught up in the frenzy.
Black Friday is a zero-sum game. Either the store wins, or you do. Use these tips to beat the stores at their own game.
Mike Elgan can be reached at mike.elgan+datamation@gmail.com or through his blog: http://therawfeed.com.
Credit Card Issuers Raising Rates & Fees - Before they Become Illegal
(EDITOR'S NOTE: The financial research firm Javelin Strategy & Research recently released a report regarding credit cards and consumer spending, showing that Americans have cut way back on credit card use - more than 30% - and having difficulty paying off balances. The report indicates growing conservative spending behaviors as a result of the economic downturn and the ramifications of the mortgage crisis, soaring fuel costs and rising food prices. Below is an article from the New York Times that ran November 10th concerning the way credit card companies are "making up" for the loss in revenue from declining credit card use. Scary stuff - CRQ)
NYT: Credit card issuers share pain with users - Companies accelerating rate and fee hikes before they become illegal
By Andrew Martin and Lowell Bergman (November 10, 2009)
Banks are struggling to make money in the credit card business these days, and consumers are paying the price. Interest rates are going up, credit lines are being cut and a variety of new fees are being imposed on even the best cardholders.
One recipient of new credit card terms is Anita Holaday, a 91-year-old in Florida, who received a letter last month from Citibank announcing that her new interest rate was 29.99 percent, an increase of 10 percentage points.
“I think it’s outrageous they pursue such a policy,” said Susan Holaday Schumacher, Ms. Holaday’s daughter, who pays her mother’s bills. “That rate is shocking under any circumstances.”
While the average interest rates charged by banks are lower than Ms. Holaday’s, her situation is not all that unusual. The higher rates and fees reflect the grim new realities of the credit card industry — the percentage of uncollectible balances has hit a record even as a new law may further limit the cards’ profitability.
Banks began raising interest rates and pulling back credit lines about a year ago as delinquencies crept upward and regulators discussed reforms. As banks have become more aggressive in making changes, lawmakers have accused them of trying to impose rate increases before many of the new rules take effect in February.
On Monday, the Federal Reserve provided new evidence of the banks’ actions. About 50 percent of the banks responding to the Fed’s survey said they were increasing interest rates and reducing credit lines on borrowers with good credit scores. About 40 percent said they were imposing higher fees. The banks also said they were demanding higher minimum credit scores and tightening other requirements.
A study by the Pew Charitable Trusts, released late last month, concluded that the 12 largest banks, issuing more than 80 percent of the credit cards, were continuing to use practices that the Fed concluded were “unfair or deceptive” and that in many instances had been outlawed by Congress.
In response to voter complaints, the House of Representatives voted last week to make the law effective immediately. The bill now goes to the Senate, where a vote has not been scheduled. The Senate Banking Committee chairman, Christopher J. Dodd, Democrat of Connecticut, meanwhile, is pushing legislation that would freeze interest rates on existing credit card balances until the law takes effect.
Whatever the starting date, the law makes it much harder for banks to change interest rates on existing balances, and requires more time and notice before a new rate can go into effect.
In their defense, banking officials say they have no choice but to raise rates and limit credit. Because of the new rules and the prolonged economic malaise, they say it is now far riskier to issue credit cards than it was just a few years ago.
“We sell credit; we don’t sell sweaters,” said Kenneth J. Clayton, senior vice president for card policy at the American Bankers Association. “The only way to manage your return is through the price of the product or the availability.”
The nation’s largest banks are scrambling to figure out a new business model that fits within the new rules and current economic conditions. Those banks made handsome profits over the last decade by charging high interest rates and penalty fees to a small group of customers who routinely paid late or exceeded their balances.
Already, banks are shifting to a model in which a smaller pool of Americans will be eligible for credit cards, and customers with cards will probably pay more for the privilege through annual fees and higher interest.
Meanwhile, the banks are in the process of shedding customers considered too risky. That means tens of thousands of Americans will no longer be able to splurge on Nike gym shoes or flat-screen televisions unless, of course, they have enough cash to pay for them.
Still, even consumer advocates have said that the banks were too quick in the past to give out credit. “You know, it doesn’t take a rocket scientist to figure out that if you keep borrowing and borrowing in order to consume now, eventually you crash and burn,” said Martin Eakes, chief executive for the Center for Responsible Lending. “That’s what we’re facing.”
In the 12 months that ended in September, the number of Visa, MasterCard, American Express and Discover card accounts in the United States fell by 72 million, according to David Robertson, publisher of The Nilson Report, an industry newsletter. There are 555 million accounts still in the marketplace, he said.
In roughly the same time period, banks lowered credit limits by 26 percent, to $3.4 trillion, from $4.6 trillion, according to an analysis of government data by Foresight Analytics.
Interest on credit card accounts, meanwhile, has increased to an average of 13.71 percent, up from 11.94 percent a year ago, according to federal records.
As to credit card charge-offs — industry lingo for uncollectible balances — the number tracks the unemployment rate and, therefore, is hovering at around 10 percent.
For the banks, this is uncharted territory. In the modern financing era, credit cards were long a profit center, producing tens of billions in annual profits with a default rate that hovered around 4 percent until the recession.
“We know we are going to lose a lot of money next year in cards, and it could be north of $1 billion in both the first quarter and the second quarter. And that number will probably only start coming down as you see unemployment and charge-offs come down,” Jamie Dimon, chief executive of JPMorgan Chase, said in an earnings call last month.
Banking officials said that because the new law limits their ability to reprice credit as a customer’s risk profile changes, they will instead have to price for future risk at the start, when a cardholder applies for a new card.
That means fewer applicants will be approved for new credit cards, and those who are accepted will increasingly be charged annual fees or variable interest rates, rather than fixed rates. Currently, about 20 percent of credit cards charge annual fees, a percentage that is rising, said Bill Hardekopf, chief executive of LowCards.com. Current cardholders, too, will be affected.
Asked to explain its rate increases, Citibank issued a statement saying the “actions are necessary given the losses across the industry from customers not paying back their loans and regulatory changes that eliminate repricing for that risk.”
Ms. Holaday Schumacher did not accept that explanation. She said she haggled with Citibank to try to get her mother’s bills forwarded to her house in Washington and, during the process, two bills were inadvertently paid late, resulting in the rate increase.
“How unbelievably unfair for an older person who might not understand what this is all about,” she said. Citibank declined to comment on the account.
Still, many of the nation’s banks are trying to repair their tarnished reputations with consumers.
American Express and Discover Financial, for instance, have vowed to stop charging fees when cardholders exceed their credit limits. JPMorgan has started a program that can help consumers categorize their spending and pay down their balances more quickly.
And Bank of America is promoting a line of consumer products so simple that the terms and conditions fit on one page. The BankAmericard Basic Visa, for instance, has no rewards and a single interest rate.
Andrew Rowe, Global Card Services strategy executive at Bank of America, said the new products represented a sea change in the bank’s attitude toward consumer products. Instead of benefiting from consumers who displayed risky behavior by penalizing them with fees, the bank is now trying to help them break those bad habits, he said.
“We succeed if our customers succeed,” he said. “That’s the paradigm shift.”
Treasury Secretary Timothy F. Geithner, for one, said he would welcome consumer products that were simpler and less risky. But, he added in an interview with the PBS documentary program “Frontline”: “It’s a bit of a late conversion. It would have been nice to happen earlier.”
This article, "A Squeeze on Customers Ahead of New Rules," originally appeared in the New York Times.
Copyright © 2009 The New York Times
URL: http://www.msnbc.msn.com/id/33829687/ns/business-the_new_york_times/
NYT: Credit card issuers share pain with users - Companies accelerating rate and fee hikes before they become illegal
By Andrew Martin and Lowell Bergman (November 10, 2009)
Banks are struggling to make money in the credit card business these days, and consumers are paying the price. Interest rates are going up, credit lines are being cut and a variety of new fees are being imposed on even the best cardholders.
One recipient of new credit card terms is Anita Holaday, a 91-year-old in Florida, who received a letter last month from Citibank announcing that her new interest rate was 29.99 percent, an increase of 10 percentage points.
“I think it’s outrageous they pursue such a policy,” said Susan Holaday Schumacher, Ms. Holaday’s daughter, who pays her mother’s bills. “That rate is shocking under any circumstances.”
While the average interest rates charged by banks are lower than Ms. Holaday’s, her situation is not all that unusual. The higher rates and fees reflect the grim new realities of the credit card industry — the percentage of uncollectible balances has hit a record even as a new law may further limit the cards’ profitability.
Banks began raising interest rates and pulling back credit lines about a year ago as delinquencies crept upward and regulators discussed reforms. As banks have become more aggressive in making changes, lawmakers have accused them of trying to impose rate increases before many of the new rules take effect in February.
On Monday, the Federal Reserve provided new evidence of the banks’ actions. About 50 percent of the banks responding to the Fed’s survey said they were increasing interest rates and reducing credit lines on borrowers with good credit scores. About 40 percent said they were imposing higher fees. The banks also said they were demanding higher minimum credit scores and tightening other requirements.
A study by the Pew Charitable Trusts, released late last month, concluded that the 12 largest banks, issuing more than 80 percent of the credit cards, were continuing to use practices that the Fed concluded were “unfair or deceptive” and that in many instances had been outlawed by Congress.
In response to voter complaints, the House of Representatives voted last week to make the law effective immediately. The bill now goes to the Senate, where a vote has not been scheduled. The Senate Banking Committee chairman, Christopher J. Dodd, Democrat of Connecticut, meanwhile, is pushing legislation that would freeze interest rates on existing credit card balances until the law takes effect.
Whatever the starting date, the law makes it much harder for banks to change interest rates on existing balances, and requires more time and notice before a new rate can go into effect.
In their defense, banking officials say they have no choice but to raise rates and limit credit. Because of the new rules and the prolonged economic malaise, they say it is now far riskier to issue credit cards than it was just a few years ago.
“We sell credit; we don’t sell sweaters,” said Kenneth J. Clayton, senior vice president for card policy at the American Bankers Association. “The only way to manage your return is through the price of the product or the availability.”
The nation’s largest banks are scrambling to figure out a new business model that fits within the new rules and current economic conditions. Those banks made handsome profits over the last decade by charging high interest rates and penalty fees to a small group of customers who routinely paid late or exceeded their balances.
Already, banks are shifting to a model in which a smaller pool of Americans will be eligible for credit cards, and customers with cards will probably pay more for the privilege through annual fees and higher interest.
Meanwhile, the banks are in the process of shedding customers considered too risky. That means tens of thousands of Americans will no longer be able to splurge on Nike gym shoes or flat-screen televisions unless, of course, they have enough cash to pay for them.
Still, even consumer advocates have said that the banks were too quick in the past to give out credit. “You know, it doesn’t take a rocket scientist to figure out that if you keep borrowing and borrowing in order to consume now, eventually you crash and burn,” said Martin Eakes, chief executive for the Center for Responsible Lending. “That’s what we’re facing.”
In the 12 months that ended in September, the number of Visa, MasterCard, American Express and Discover card accounts in the United States fell by 72 million, according to David Robertson, publisher of The Nilson Report, an industry newsletter. There are 555 million accounts still in the marketplace, he said.
In roughly the same time period, banks lowered credit limits by 26 percent, to $3.4 trillion, from $4.6 trillion, according to an analysis of government data by Foresight Analytics.
Interest on credit card accounts, meanwhile, has increased to an average of 13.71 percent, up from 11.94 percent a year ago, according to federal records.
As to credit card charge-offs — industry lingo for uncollectible balances — the number tracks the unemployment rate and, therefore, is hovering at around 10 percent.
For the banks, this is uncharted territory. In the modern financing era, credit cards were long a profit center, producing tens of billions in annual profits with a default rate that hovered around 4 percent until the recession.
“We know we are going to lose a lot of money next year in cards, and it could be north of $1 billion in both the first quarter and the second quarter. And that number will probably only start coming down as you see unemployment and charge-offs come down,” Jamie Dimon, chief executive of JPMorgan Chase, said in an earnings call last month.
Banking officials said that because the new law limits their ability to reprice credit as a customer’s risk profile changes, they will instead have to price for future risk at the start, when a cardholder applies for a new card.
That means fewer applicants will be approved for new credit cards, and those who are accepted will increasingly be charged annual fees or variable interest rates, rather than fixed rates. Currently, about 20 percent of credit cards charge annual fees, a percentage that is rising, said Bill Hardekopf, chief executive of LowCards.com. Current cardholders, too, will be affected.
Asked to explain its rate increases, Citibank issued a statement saying the “actions are necessary given the losses across the industry from customers not paying back their loans and regulatory changes that eliminate repricing for that risk.”
Ms. Holaday Schumacher did not accept that explanation. She said she haggled with Citibank to try to get her mother’s bills forwarded to her house in Washington and, during the process, two bills were inadvertently paid late, resulting in the rate increase.
“How unbelievably unfair for an older person who might not understand what this is all about,” she said. Citibank declined to comment on the account.
Still, many of the nation’s banks are trying to repair their tarnished reputations with consumers.
American Express and Discover Financial, for instance, have vowed to stop charging fees when cardholders exceed their credit limits. JPMorgan has started a program that can help consumers categorize their spending and pay down their balances more quickly.
And Bank of America is promoting a line of consumer products so simple that the terms and conditions fit on one page. The BankAmericard Basic Visa, for instance, has no rewards and a single interest rate.
Andrew Rowe, Global Card Services strategy executive at Bank of America, said the new products represented a sea change in the bank’s attitude toward consumer products. Instead of benefiting from consumers who displayed risky behavior by penalizing them with fees, the bank is now trying to help them break those bad habits, he said.
“We succeed if our customers succeed,” he said. “That’s the paradigm shift.”
Treasury Secretary Timothy F. Geithner, for one, said he would welcome consumer products that were simpler and less risky. But, he added in an interview with the PBS documentary program “Frontline”: “It’s a bit of a late conversion. It would have been nice to happen earlier.”
This article, "A Squeeze on Customers Ahead of New Rules," originally appeared in the New York Times.
Copyright © 2009 The New York Times
URL: http://www.msnbc.msn.com/id/33829687/ns/business-the_new_york_times/
Monday, November 23, 2009
The "Great Unknowns" of Credit Card Bills
(Below is an excellent article sent to me this morning and written by David Segal (a/k/a "the Haggler"), consumer affairs writer for the NY Times online edition. It raises excellent points concerning the "tricks and traps" of credit card billing statements - CRQ)
THE HAGGLER - The Great Unknowns of Credit Card Bills
By DAVID SEGAL ("The Haggler")
Published: November 21, 2009
Three years ago, the Haggler’s credit card bill seemed to stop showing up in the mail. Another month went by — no bill. The month after that, still nothing. Each month, the Haggler would call the issuer, Bank of America, and pay over the phone, then ask the same question: "Why did you stop sending me a bill?"
"We’re still sending you a bill", came the company’s reply each time.
Guess what? The company was right. It just was sending the bill in a restyled envelope, with no trace of “Bank of America." In other words, it looked like junk mail, and the Haggler kept throwing it away.
Now, the Haggler can’t prove it, but this seemed like a brilliant, low-cost way to pocket a fortune in late fees.
“We are not trying to fool people, and we don’t change our envelopes on a regular basis,” said Anne Pace, a company spokeswoman. She explained that the change in envelope design was prompted by the 2006 acquisition of several credit card companies, after which the envelopes of all customers were left blank “for the sake of consistency.”
Consistency? It would be consistent, as far as B. of A. customers are concerned, to leave the envelope unchanged, no?
Seriously, the person who dreamed up the envelope switcheroo must wake up laughing. Ever since, the Haggler has held a grudging, vaguely appalled respect for credit card companies. Which brings us to our letter:
Q. "After a fraudulent $200 charge showed up on my Chase Visa bill in August, Chase closed the account, for safety purposes, and created a new one for me. When I called to activate the new card, a rep offered other services, including a change to the closing date. To prevent all my cards from coming due at the same time, I accepted the offer and moved up my closing date by 13 days."
"In September, I paid my balance in full prior to the new closing date, and I did the same in October. But my November statement showed a finance charge of $7.74, which I was told by a supervisor was a “legitimate” charge because I did not pay the full balance due by the moved-up due date."
"Untrue. The electronic statements — I paid over the Web — do not indicate any unpaid balance. But Chase will not remove the charge."
"I do not need the $7.74, which I have paid along with the total balance on the card. Once this is recorded, I will cancel the account."
"But I wonder how many others have accepted this “free and convenient” service of a moved-up closing date, then incurred a finance charge."
Charlotte Bell
Milford, Conn.
A. The short answer is that we will never know. The Haggler got in touch with Chase, and the company’s e-mailed response was so terse that the generic, legal mumbo-jumbo underneath it was actually three times as long. Henceforth, the Chase Legal-Mumbo- Jumbo-to-Content Ratio will stand as a new way to accurately quantify the lameness of a corporate explanation.
In this case, we have a C.L.M.J.C.R. of 3.
“Because of customer privacy, I cannot discuss customers or details about customer accounts,” wrote Tanya Madison, a spokeswoman. “However, it is the policy of Chase that if a systems error is made, a refund is promptly given to the customer subject to that error.”
Ms. Bell, of course, was happy to waive her privacy rights, for the purposes of this column, which makes those rights a ridiculous fig leaf for Chase to hide behind. Actually, fig leaf is too dignified in this context. This is more like a Fig Newton.
A company rep was more expansive in a call to Ms. Bell after the Haggler’s inquiry. She blamed a computer mistake, said the $7.74 fee would be removed and added that Chase hoped to learn from this error.
Fingers crossed. The backdrop of this boo-boo is an industry that for the last 10 years has been refining the low art of late-fee shenanigans. Edmund Mierzwinski, consumer program director of the U.S. Public Interest Research Group, says that starting in 1999 — when the repeal of the Glass-Steagall Act allowed commercial and investment banks to merge — credit card companies started looking to late fees for profit.
“It began with regulators allowing banks to say that if a bill arrived on the due date but after a certain time on that day — like noon — then it was late,” Mr. Mierzwinski said. “Now, how many people know when a bank checks their mail?”
Some banks started moving up due dates without notice. Others required that payments sent via overnight mail use a special address, so that if you sent a payment by FedEx to the regular address, you were late.
Getting the picture? In May, Congress passed the Card Accountability, Responsibility and Disclosure Act, which curtails some of these practices. But critics predict that the elimination of some fees will give rise to new ones.
Vigilance is recommended, as the coda to Ms. Bell’s story attests. Last week, after Chase removed the $7.74 fee, she received a letter stating that she’d mistakenly been credited twice for the $200 fraud that led to the cancellation of her original card, so a $200 charge would be added to her next bill.
Actually, the second $200 credit was not from Chase — it was from a shoe store.
Ms. Bell contacted Chase and the company removed the charge.
“You can’t make this stuff up,” Ms. Bell said.
E-mail the "Haggler" at: haggler@nytimes.com.
Keep it brief and family-friendly and go easy on the caps-lock key. Letters may be edited for clarity and length.
THE HAGGLER - The Great Unknowns of Credit Card Bills
By DAVID SEGAL ("The Haggler")
Published: November 21, 2009
Three years ago, the Haggler’s credit card bill seemed to stop showing up in the mail. Another month went by — no bill. The month after that, still nothing. Each month, the Haggler would call the issuer, Bank of America, and pay over the phone, then ask the same question: "Why did you stop sending me a bill?"
"We’re still sending you a bill", came the company’s reply each time.
Guess what? The company was right. It just was sending the bill in a restyled envelope, with no trace of “Bank of America." In other words, it looked like junk mail, and the Haggler kept throwing it away.
Now, the Haggler can’t prove it, but this seemed like a brilliant, low-cost way to pocket a fortune in late fees.
“We are not trying to fool people, and we don’t change our envelopes on a regular basis,” said Anne Pace, a company spokeswoman. She explained that the change in envelope design was prompted by the 2006 acquisition of several credit card companies, after which the envelopes of all customers were left blank “for the sake of consistency.”
Consistency? It would be consistent, as far as B. of A. customers are concerned, to leave the envelope unchanged, no?
Seriously, the person who dreamed up the envelope switcheroo must wake up laughing. Ever since, the Haggler has held a grudging, vaguely appalled respect for credit card companies. Which brings us to our letter:
Q. "After a fraudulent $200 charge showed up on my Chase Visa bill in August, Chase closed the account, for safety purposes, and created a new one for me. When I called to activate the new card, a rep offered other services, including a change to the closing date. To prevent all my cards from coming due at the same time, I accepted the offer and moved up my closing date by 13 days."
"In September, I paid my balance in full prior to the new closing date, and I did the same in October. But my November statement showed a finance charge of $7.74, which I was told by a supervisor was a “legitimate” charge because I did not pay the full balance due by the moved-up due date."
"Untrue. The electronic statements — I paid over the Web — do not indicate any unpaid balance. But Chase will not remove the charge."
"I do not need the $7.74, which I have paid along with the total balance on the card. Once this is recorded, I will cancel the account."
"But I wonder how many others have accepted this “free and convenient” service of a moved-up closing date, then incurred a finance charge."
Charlotte Bell
Milford, Conn.
A. The short answer is that we will never know. The Haggler got in touch with Chase, and the company’s e-mailed response was so terse that the generic, legal mumbo-jumbo underneath it was actually three times as long. Henceforth, the Chase Legal-Mumbo- Jumbo-to-Content Ratio will stand as a new way to accurately quantify the lameness of a corporate explanation.
In this case, we have a C.L.M.J.C.R. of 3.
“Because of customer privacy, I cannot discuss customers or details about customer accounts,” wrote Tanya Madison, a spokeswoman. “However, it is the policy of Chase that if a systems error is made, a refund is promptly given to the customer subject to that error.”
Ms. Bell, of course, was happy to waive her privacy rights, for the purposes of this column, which makes those rights a ridiculous fig leaf for Chase to hide behind. Actually, fig leaf is too dignified in this context. This is more like a Fig Newton.
A company rep was more expansive in a call to Ms. Bell after the Haggler’s inquiry. She blamed a computer mistake, said the $7.74 fee would be removed and added that Chase hoped to learn from this error.
Fingers crossed. The backdrop of this boo-boo is an industry that for the last 10 years has been refining the low art of late-fee shenanigans. Edmund Mierzwinski, consumer program director of the U.S. Public Interest Research Group, says that starting in 1999 — when the repeal of the Glass-Steagall Act allowed commercial and investment banks to merge — credit card companies started looking to late fees for profit.
“It began with regulators allowing banks to say that if a bill arrived on the due date but after a certain time on that day — like noon — then it was late,” Mr. Mierzwinski said. “Now, how many people know when a bank checks their mail?”
Some banks started moving up due dates without notice. Others required that payments sent via overnight mail use a special address, so that if you sent a payment by FedEx to the regular address, you were late.
Getting the picture? In May, Congress passed the Card Accountability, Responsibility and Disclosure Act, which curtails some of these practices. But critics predict that the elimination of some fees will give rise to new ones.
Vigilance is recommended, as the coda to Ms. Bell’s story attests. Last week, after Chase removed the $7.74 fee, she received a letter stating that she’d mistakenly been credited twice for the $200 fraud that led to the cancellation of her original card, so a $200 charge would be added to her next bill.
Actually, the second $200 credit was not from Chase — it was from a shoe store.
Ms. Bell contacted Chase and the company removed the charge.
“You can’t make this stuff up,” Ms. Bell said.
E-mail the "Haggler" at: haggler@nytimes.com.
Keep it brief and family-friendly and go easy on the caps-lock key. Letters may be edited for clarity and length.
Obama's "HAMP" Loan Mod Plan: Seven (7) Key Points
(Below is an article written in March of this year that provides a 7-point summary of the Obama Administration's "Home Affordable Modification Program" ("HAMP"). Since then, numerous updates, administrative changes, clarifications and additions to the program have come into play (see my various "Editor's Notes" peppered throughout the article), but this piece still gives a (mostly) decent "nuts and bolts" overview of the program - Chris Qualmann).
Obama's Loan Modification Plan: 7 Things You Need to Know
At the heart of the President Barack Obama's ambitious plan to rescue the housing market is the conviction that restructuring distressed mortgages will keep struggling borrowers in their homes and help insert a floor beneath plummeting property values. With $75 billion dedicated to reworking troubled loans, that's a big bet—especially considering that a top banking regulator said last December that almost 53 percent of loans modified in the first quarter of 2008 went bad again within six months.
But supporters argue that mortgage modifications need to be properly engineered to work — and many early ones weren't. To that end, the Obama administration has provided details on its plan to restructure at-risk loans and help as many as four million home owners avoid foreclosure. Here are seven (7) things you need to know about Obama's loan modification program.
1. Payments, not prices: The plan centers on the belief that struggling borrowers will stay in their homes—even as values decline sharply—as long as they can make their monthly payments. Although not everyone agrees with this, billionaire investor Warren Buffett endorsed the philosophy in his most recent letter to shareholders. "Commentary about the current housing crisis often ignores the crucial fact that most foreclosures do not occur because a house is worth less than its mortgage (so-called “upside-down” loans)," Buffett wrote. "Rather, foreclosures take place because borrowers can’t pay the monthly payment that they agreed to pay."
(EDITOR'S NOTE: As much as I respect Mr. Buffett, I strongly disagree with his "over-simplification" as to the cause of the foreclosure crisis, and contend that foreclosures also take place because of the deceptive, fraudulent, and predatory lending tactics that caused millions of borrowers to acquire sub-prime loans in the first place - simply "Google" the term "Countrywide Lawsuit" or "Countrywide Settlement" and you'll see what I mean)
2. Thirty-one percent: To that end, the administration's plan requires participating loan servicers to reduce monthly payments to no more than 38 percent of the borrower's gross monthly income. The government would then chip in to bring payments down further, to no more than 31 percent of the borrower's monthly income.
(EDITOR'S NOTE: This is commonly referred to as the "31% Debt-to-Income ("DTI") Ratio").
In lowering the payment, the servicer would first reduce the interest rate to as low as 2 percent. If that's not enough to hit the 31 percent threshold, they would then extend the terms of the loan to up to 40 years. If that's still not enough, the servicer would forebear loan principal at no interest. The plan does not, however, require servicers to reduce mortgage principal, which Richard Green, the director of the Lusk Center for Real Estate at USC, considers a shortcoming. "For underwater loans, if you don't write down the balance to be less than the value of the house, people still have an incentive to default," Green says. "Writing down the principal first instead of last—which is what [the Obama administration is] proposing—makes sense to me."
(EDITOR'S NOTE: While "principal reduction" is what all of us want and strive for (in addition to "rate reduction") when seeking a loan modification ... it's something that's very rare, higly difficult to achieve, and an area where most lenders will firmly "dig in their heels").
3. Cash incentives: To encourage participation, servicers will be paid $1,000 for each modification and will get an additional $1,000 payout each year for as many as three years, as long as the borrower continues making payments. Borrowers, meanwhile, can get up to $1,000 knocked off the principal of their loan each year for as many as five years if they make their payments on time. Neither party can receive the cash incentives until the modified loan payments have been made for at least three months.
4. Financial hardship: The Obama administration is pitching its plan as an effort to help responsible homeowners ensnared in the historic housing slump and painful recession—not speculators. As such, only owner-occupied, primary residences with outstanding principal balances of up to $729,750 are eligible. Occupancy status will be verified through documents, such as the borrower's credit report. In addition, the program is designed to target homeowners who are undergoing "serious hardships"—such as a loss of income—which have put them at risk of default.
To participate, borrowers will have to sign an affidavit of financial hardship and verify their income with documents. "If we would have had such stringent verification over the last four or five years, we probably wouldn't be in as bad a position as we are in," says Richard Moody, the chief economist at Mission Residential.
But while Moody has no objection to such verification, obtaining documents from so many homeowners could be an onerous effort. "It's going to be a very time-consuming process," he says (EDITOR'S NOTE: NO KIDDING!).
Only loans originated on or before Jan. 1, 2009, are eligible, and modified payments will remain in place for five years. Now that the administration's plan is out, lenders are free to begin modifying loans.
5. Net present value: To determine if a particular mortgage will be modified, the servicer will perform a so-called net present value test. The test compares the expected cash flow that the loan would generate if it is modified with the expected cash flow it would generate if it isn't. If the modified loan is expected to produce more cash flow for the mortgage holder, the servicer is to restructure the loan.
Howard Glaser, a mortgage industry consultant and a U.S. Department of Housing and Urban Development official during the Clinton administration, called this component of the plan "clever," arguing that it would work to ensure broad participation.
(EDITOR'S NOTE: I'd probably call it "DEVIOUS" rather than "CLEVER", because many lenders have been using this mysterious, secretly-held "net present value formula" as their "loophole" for denying loan modifications).
"When you apply the formula, the loans that are modified are the ones that are in the best economic interest of the investors to modify," Glaser says. "The federal subsidy for the payment on the modification ... tips the scale (supposedly - Ed.) toward modification as a better deal for the investor."
6. Second mortgages: The Obama plan also addresses the issue of second mortgages — such as home equity loans or home equity lines of credit (“HELOC” loans) — by offering incentives to extinguish them. But key details on this component of the plan remained unclear. "Distinguishing the second lien is really important," Green says. "[But] exactly how they are going to convince the second lien holder to do this is not clear to me at all."
7. Will it work? Moody argues that while the plan may reduce foreclosures for primary residences, it could lead to a spike in defaults for another group of homeowners. Although he supports the administration's efforts to focus the initiative on primary residences, Moody notes that "it could be the case that a lot of [real estate speculators] have been just hanging on waiting to see exactly what the details are of this [plan]," Moody says. Now that it's clear the Obama plan leaves speculators out, "we could actually see a spike in foreclosures or at least mortgage defaults among this group."
(EDITOR'S NOTE: as of November, 2009 the plan still fails to address the needs of owners of investment and rental properties. But despite this fact, many lenders are willing to provide private, "Non-HAMP" modifications on such properties. When seeking to modify a loan on a rental property, it's critical to show the lender why a modification is a "win-win" and in the lender's best financial interests.).
Glaser, meanwhile, worries that lenders may soon be overwhelmed by inquiries from homeowners looking to participate. "Starting today, millions of borrowers are going to start to call their lenders to see whether or not they are eligible," he said. "And I'm not sure that the financial services industry has the capacity to handle these inquiries." (EDITOR'S NOTE: all the more reason why homeowners need experienced professional representation when pursuing a loan modification from their lenders)
Obama's Loan Modification Plan: 7 Things You Need to Know
At the heart of the President Barack Obama's ambitious plan to rescue the housing market is the conviction that restructuring distressed mortgages will keep struggling borrowers in their homes and help insert a floor beneath plummeting property values. With $75 billion dedicated to reworking troubled loans, that's a big bet—especially considering that a top banking regulator said last December that almost 53 percent of loans modified in the first quarter of 2008 went bad again within six months.
But supporters argue that mortgage modifications need to be properly engineered to work — and many early ones weren't. To that end, the Obama administration has provided details on its plan to restructure at-risk loans and help as many as four million home owners avoid foreclosure. Here are seven (7) things you need to know about Obama's loan modification program.
1. Payments, not prices: The plan centers on the belief that struggling borrowers will stay in their homes—even as values decline sharply—as long as they can make their monthly payments. Although not everyone agrees with this, billionaire investor Warren Buffett endorsed the philosophy in his most recent letter to shareholders. "Commentary about the current housing crisis often ignores the crucial fact that most foreclosures do not occur because a house is worth less than its mortgage (so-called “upside-down” loans)," Buffett wrote. "Rather, foreclosures take place because borrowers can’t pay the monthly payment that they agreed to pay."
(EDITOR'S NOTE: As much as I respect Mr. Buffett, I strongly disagree with his "over-simplification" as to the cause of the foreclosure crisis, and contend that foreclosures also take place because of the deceptive, fraudulent, and predatory lending tactics that caused millions of borrowers to acquire sub-prime loans in the first place - simply "Google" the term "Countrywide Lawsuit" or "Countrywide Settlement" and you'll see what I mean)
2. Thirty-one percent: To that end, the administration's plan requires participating loan servicers to reduce monthly payments to no more than 38 percent of the borrower's gross monthly income. The government would then chip in to bring payments down further, to no more than 31 percent of the borrower's monthly income.
(EDITOR'S NOTE: This is commonly referred to as the "31% Debt-to-Income ("DTI") Ratio").
In lowering the payment, the servicer would first reduce the interest rate to as low as 2 percent. If that's not enough to hit the 31 percent threshold, they would then extend the terms of the loan to up to 40 years. If that's still not enough, the servicer would forebear loan principal at no interest. The plan does not, however, require servicers to reduce mortgage principal, which Richard Green, the director of the Lusk Center for Real Estate at USC, considers a shortcoming. "For underwater loans, if you don't write down the balance to be less than the value of the house, people still have an incentive to default," Green says. "Writing down the principal first instead of last—which is what [the Obama administration is] proposing—makes sense to me."
(EDITOR'S NOTE: While "principal reduction" is what all of us want and strive for (in addition to "rate reduction") when seeking a loan modification ... it's something that's very rare, higly difficult to achieve, and an area where most lenders will firmly "dig in their heels").
3. Cash incentives: To encourage participation, servicers will be paid $1,000 for each modification and will get an additional $1,000 payout each year for as many as three years, as long as the borrower continues making payments. Borrowers, meanwhile, can get up to $1,000 knocked off the principal of their loan each year for as many as five years if they make their payments on time. Neither party can receive the cash incentives until the modified loan payments have been made for at least three months.
4. Financial hardship: The Obama administration is pitching its plan as an effort to help responsible homeowners ensnared in the historic housing slump and painful recession—not speculators. As such, only owner-occupied, primary residences with outstanding principal balances of up to $729,750 are eligible. Occupancy status will be verified through documents, such as the borrower's credit report. In addition, the program is designed to target homeowners who are undergoing "serious hardships"—such as a loss of income—which have put them at risk of default.
To participate, borrowers will have to sign an affidavit of financial hardship and verify their income with documents. "If we would have had such stringent verification over the last four or five years, we probably wouldn't be in as bad a position as we are in," says Richard Moody, the chief economist at Mission Residential.
But while Moody has no objection to such verification, obtaining documents from so many homeowners could be an onerous effort. "It's going to be a very time-consuming process," he says (EDITOR'S NOTE: NO KIDDING!).
Only loans originated on or before Jan. 1, 2009, are eligible, and modified payments will remain in place for five years. Now that the administration's plan is out, lenders are free to begin modifying loans.
5. Net present value: To determine if a particular mortgage will be modified, the servicer will perform a so-called net present value test. The test compares the expected cash flow that the loan would generate if it is modified with the expected cash flow it would generate if it isn't. If the modified loan is expected to produce more cash flow for the mortgage holder, the servicer is to restructure the loan.
Howard Glaser, a mortgage industry consultant and a U.S. Department of Housing and Urban Development official during the Clinton administration, called this component of the plan "clever," arguing that it would work to ensure broad participation.
(EDITOR'S NOTE: I'd probably call it "DEVIOUS" rather than "CLEVER", because many lenders have been using this mysterious, secretly-held "net present value formula" as their "loophole" for denying loan modifications).
"When you apply the formula, the loans that are modified are the ones that are in the best economic interest of the investors to modify," Glaser says. "The federal subsidy for the payment on the modification ... tips the scale (supposedly - Ed.) toward modification as a better deal for the investor."
6. Second mortgages: The Obama plan also addresses the issue of second mortgages — such as home equity loans or home equity lines of credit (“HELOC” loans) — by offering incentives to extinguish them. But key details on this component of the plan remained unclear. "Distinguishing the second lien is really important," Green says. "[But] exactly how they are going to convince the second lien holder to do this is not clear to me at all."
7. Will it work? Moody argues that while the plan may reduce foreclosures for primary residences, it could lead to a spike in defaults for another group of homeowners. Although he supports the administration's efforts to focus the initiative on primary residences, Moody notes that "it could be the case that a lot of [real estate speculators] have been just hanging on waiting to see exactly what the details are of this [plan]," Moody says. Now that it's clear the Obama plan leaves speculators out, "we could actually see a spike in foreclosures or at least mortgage defaults among this group."
(EDITOR'S NOTE: as of November, 2009 the plan still fails to address the needs of owners of investment and rental properties. But despite this fact, many lenders are willing to provide private, "Non-HAMP" modifications on such properties. When seeking to modify a loan on a rental property, it's critical to show the lender why a modification is a "win-win" and in the lender's best financial interests.).
Glaser, meanwhile, worries that lenders may soon be overwhelmed by inquiries from homeowners looking to participate. "Starting today, millions of borrowers are going to start to call their lenders to see whether or not they are eligible," he said. "And I'm not sure that the financial services industry has the capacity to handle these inquiries." (EDITOR'S NOTE: all the more reason why homeowners need experienced professional representation when pursuing a loan modification from their lenders)
Sunday, November 22, 2009
Remembering President Kennedy
On this date in 1963 (November 22), President John F. Kennedy was assassinated in Dallas, Texas. I was five (5) years old at the time, and I actually remember where I was when I learned the news: I was a kindergarten student at Palm Cove school in Pompano Beach, Florida, and as I was going back to my classroom after recess, my teacher (Mrs. Mobay) told me of his shooting. I remember my mother crying when I got home that day.
Attached is a video of his inaugural address:
Attached is a video of his inaugural address:
Forming an LLC or an "S" Corporation in Florida
What are the differences between a Florida Limited Liability Company ("LLC") and a "Subchapter S" Corporation?
Generally, the 2 best choices for small businesses in Florida to consider are becoming an LLC or an "S" corporation. Some differences between LLCs and being an S corporation are:
(1) Memberships v. Stock Issuance: LLCs cannot issue stock, but rather, they offer "memberships." S corporations, on the other hand, can issue stock and are owned by the shareholders.
(2) Management: A Florida S corporation is managed by its directors and officers, while LLCs are managed directly by the members unless they hire managers.
(3) Restrictions: A Florida S corporation has some restrictions which are not applied to LLCs. For example, A Florida S corporation is limited to 75 shareholders, while the number of members in a Florida LLC is not subject to any restriction.
(4) Life Span: A Florida S corporation has an unlimited life span, while LLCs have a limited life span (in most cases around 30 years).
What are the advantages of a Limited Liability Company?
Some advantages of a Limited Liability Company are:
(1) Tax Advantages: Florida LLCs (like "S" corporations) have "pass-through" tax status, which avoids the double-taxation issues of "C" corporations. A "C" corporation must pay taxes on its income and individuals must pay taxes on the dividends they receive from the corporation. This can lead to double taxation on dividends that are paid out of corporate profits to the owners. Members of LLCs report the LLC's profits and losses directly on their tax returns, therefore they are only taxed once.
(2) Limitation of Liability: Similar to Florida State corporations, LLCs shield personal assets from business debt. LLC members typically will not be liable for the debts and obligations of the LLC because, in most cases, the LLC is viewed as a separate entity in the eyes of the law.
(3) Fewer Formalities: The Florida State Department of Corporations requires many formalities for Florida Corporations that it does not impose upon Florida LLCs. While corporations are required to follow many legally mandated formalities, LLCs have a more informal structure which makes them easier to maintain.
(4) Subsidiaries Allowed. LLCs are allowed to have subsidiaries without restriction, whereas being a Florida S corporation places limits upon having subsidiaries.
(5) Management Similar to a Florida Partnership: The management structure of a Florida LLC is much like that of a partnership. This allows the managing members to decide how the LLC will be run and to enter into an agreement formalizing this decision. Members can also appoint "managers" to run the LLC.
What is the ownership structure of a Florida LLC?
(1) Owners of a Florida LLC are called "members". A member's interest in a Florida LLC is represented by interest certificates.
(2) A Florida LLC is managed by its members, with each having control commensurate to their percentage of ownership, unless the members hire managers to operate the business.
Is there a difference in taxation of an LLC?
Limited liability company taxation is similar to that of partnerships or sole proprietorships, in that they have "pass-through" status. With limited liability company taxation the LLC itself pays no tax, but instead the owners of the LLC pay taxes on their share of the profits profits (or deducts their share of business losses) on their personal tax return.
In contrast to limited liability company taxation, C corporations are separately taxable entities. Therefore, the corporation must pay taxes on its income and individuals must pay taxes on the dividends they receive from the corporation. This can lead to double taxation on dividends that are paid out of corporate profits to the owners.
Limited liability company taxation is one of the most appealing reasons to form an LLC.
What are the restrictions of forming a Florida LLC?
The restrictions placed on LLCs are not placed by the Florida Division of Corporations, but by the federal government. These restrictions include:
(1) Limited Life Span: LLCs typically have limited life spans. LLCs must list a dissolution date in the Articles of Organization. In addition, certain events such as the death or withdrawal of a member can cause the LLC to dissolve. In contrast, Florida State corporations have perpetual existence.
(2) Difficult to Raise Outside Capital: LLCs do not have stock, therefore they don't get the benefit of stock ownership and sales. This makes it difficult for LLCs to raise capital from outside sources. In contrast, Florida State corporations can issue stock.
(3) Minimal Liquidity: The interest in a Florida LLC is not freely transferable. Generally, other LLC members must approve of transfers of interest. Therefore, the LLC interest holders have minimal liquidity. This is an additional reason that it is difficult for LLCs to raise capital from outside sources.
Generally, the 2 best choices for small businesses in Florida to consider are becoming an LLC or an "S" corporation. Some differences between LLCs and being an S corporation are:
(1) Memberships v. Stock Issuance: LLCs cannot issue stock, but rather, they offer "memberships." S corporations, on the other hand, can issue stock and are owned by the shareholders.
(2) Management: A Florida S corporation is managed by its directors and officers, while LLCs are managed directly by the members unless they hire managers.
(3) Restrictions: A Florida S corporation has some restrictions which are not applied to LLCs. For example, A Florida S corporation is limited to 75 shareholders, while the number of members in a Florida LLC is not subject to any restriction.
(4) Life Span: A Florida S corporation has an unlimited life span, while LLCs have a limited life span (in most cases around 30 years).
What are the advantages of a Limited Liability Company?
Some advantages of a Limited Liability Company are:
(1) Tax Advantages: Florida LLCs (like "S" corporations) have "pass-through" tax status, which avoids the double-taxation issues of "C" corporations. A "C" corporation must pay taxes on its income and individuals must pay taxes on the dividends they receive from the corporation. This can lead to double taxation on dividends that are paid out of corporate profits to the owners. Members of LLCs report the LLC's profits and losses directly on their tax returns, therefore they are only taxed once.
(2) Limitation of Liability: Similar to Florida State corporations, LLCs shield personal assets from business debt. LLC members typically will not be liable for the debts and obligations of the LLC because, in most cases, the LLC is viewed as a separate entity in the eyes of the law.
(3) Fewer Formalities: The Florida State Department of Corporations requires many formalities for Florida Corporations that it does not impose upon Florida LLCs. While corporations are required to follow many legally mandated formalities, LLCs have a more informal structure which makes them easier to maintain.
(4) Subsidiaries Allowed. LLCs are allowed to have subsidiaries without restriction, whereas being a Florida S corporation places limits upon having subsidiaries.
(5) Management Similar to a Florida Partnership: The management structure of a Florida LLC is much like that of a partnership. This allows the managing members to decide how the LLC will be run and to enter into an agreement formalizing this decision. Members can also appoint "managers" to run the LLC.
What is the ownership structure of a Florida LLC?
(1) Owners of a Florida LLC are called "members". A member's interest in a Florida LLC is represented by interest certificates.
(2) A Florida LLC is managed by its members, with each having control commensurate to their percentage of ownership, unless the members hire managers to operate the business.
Is there a difference in taxation of an LLC?
Limited liability company taxation is similar to that of partnerships or sole proprietorships, in that they have "pass-through" status. With limited liability company taxation the LLC itself pays no tax, but instead the owners of the LLC pay taxes on their share of the profits profits (or deducts their share of business losses) on their personal tax return.
In contrast to limited liability company taxation, C corporations are separately taxable entities. Therefore, the corporation must pay taxes on its income and individuals must pay taxes on the dividends they receive from the corporation. This can lead to double taxation on dividends that are paid out of corporate profits to the owners.
Limited liability company taxation is one of the most appealing reasons to form an LLC.
What are the restrictions of forming a Florida LLC?
The restrictions placed on LLCs are not placed by the Florida Division of Corporations, but by the federal government. These restrictions include:
(1) Limited Life Span: LLCs typically have limited life spans. LLCs must list a dissolution date in the Articles of Organization. In addition, certain events such as the death or withdrawal of a member can cause the LLC to dissolve. In contrast, Florida State corporations have perpetual existence.
(2) Difficult to Raise Outside Capital: LLCs do not have stock, therefore they don't get the benefit of stock ownership and sales. This makes it difficult for LLCs to raise capital from outside sources. In contrast, Florida State corporations can issue stock.
(3) Minimal Liquidity: The interest in a Florida LLC is not freely transferable. Generally, other LLC members must approve of transfers of interest. Therefore, the LLC interest holders have minimal liquidity. This is an additional reason that it is difficult for LLCs to raise capital from outside sources.
Friday, November 20, 2009
VIDEO: Why Homeowners Can't Modify Loans "On Their Own"
Check out this highly compelling video featuring California Congresswoman Maxine Waters (you'll need to cut and paste the link to your browser - we don't yet have the ability to convert youtube videos to .mpeg, windows, or realplayer format).
As Congresswoman Waters experienced firsthand, the process of merely "getting through to a decision maker" at a mortgage company is an incredibly time consuming, mind-numbing, horrendously frustrating experience.
The Congresswoman's statement (within the first couple of minutes of the video) says it all:
"THE AVERAGE AMERICAN, TRYING TO GET THROUGH (TO LENDERS) TO NEGOTIATE A LOAN MODIFICATION, CANNOT GET IT DONE"
http://www.youtube.com/watch?v=JczIimq22mE
As Congresswoman Waters experienced firsthand, the process of merely "getting through to a decision maker" at a mortgage company is an incredibly time consuming, mind-numbing, horrendously frustrating experience.
The Congresswoman's statement (within the first couple of minutes of the video) says it all:
"THE AVERAGE AMERICAN, TRYING TO GET THROUGH (TO LENDERS) TO NEGOTIATE A LOAN MODIFICATION, CANNOT GET IT DONE"
http://www.youtube.com/watch?v=JczIimq22mE
Thursday, November 19, 2009
Report Card for "Good" and "Bad" Mortgage Lenders
As part of the “Making Home Affordable” program, every month the federal government issues a HAMP performance report, which identifies the loan servicers trying to help consumers modify loans. The report provides statistics that show what percentage of eligible loans are being modified, sorted by bank, so that it’s easy to see what banks are really trying to help consumers with their modifications and what banks are barely trying.
Today, we got the grades for October — in a report formally titled the “Making Home Affordable Program Servicer Performance Report through October 2009.”
As I do every month, I’ve sliced-and-diced the data. This allows me to highlight the banks that have modified the highest percentage of loans that were eligible — as well as call “shame” on the banks that had loans that they could have modified, but didn’t move on any of those loans (or moved on less than five percent of them).
Let me specifically praise Bayview Loan Servicing of Coral Gables, which last month was a HAMP “hardly,” having modified just two percent of its eligible loans. This month Bayview moved into the top ten, having modified twenty-two percent of its eligible loans. Good job, guys.
What follows here is this month’s Top Ten (and Bottom Seven):
HAMP Heroes
- Saxon Mortgage Services, Irving, Texas (44%)
- Citimortgage, O’Fallon, Missouri (40%)
- GMAC Mortgage, Fort Washington, Pennsylvania (35%)
- Aurora Loan Services, Littleton, Colorado (33%)
- JP Morgan Chase, New York, New York (32%)
- Nationstar Mortgage, Lewisville, Texas (32%)
- Select Portfolio Servicing, Salt Lake City, Utah (29%)
- Wells Fargo Bank, San Francisco, California (29%)
- Residential Credit Solutions, Fort Worth, Texas (23%)
- Bayview Loan Servicing, Coral Gables, Florida (22%)
HAMP Horrors (no loans yet modified)
- Bank United, Coral Gables, Florida
- HomeEq Servicing, Sacramento, California
- Franklin Credit Management Corporation, Jersey City, New Jersey
- MorEquity, Inc., Evansville, Illinois
HAMP “Hardly” (less than five percent of loans modified)
- American Home Mortgage Servicing, Coppell, Texas
- RG Mortgage Corporation, San Juan, Puerto Rico
- Wachovia Mortgage, FSB, North Las Vegas, Nevada
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