Do NOT Take Out Retirement Funds to Cover Mortgage Payments!

You Are Screwing Yourself!

"A survey by the Greater Georgia Counseling service found that 29.6 percent of people who called the nonprofit agency for foreclosure prevention counseling received an early distribution from their 401(k) or other retirement plan within the six months prior to contacting the agency.

The fact that people are taking early withdrawals and falling behind on their bills again indicates they only got a temporary solution to their problem,” said Suzanne Boas, president of CCCS of Greater Atlanta."

Also, as the quote says, they fell behind anyway, therefore they will probably end up losing the home and their retirement funds.

Over 90% of respondents were younger than 59 1/2 meaning that they lost 35-45% of the withdrawn funds to early withdrawal penalties and income taxes! Wow, what a blow.

But that is not the worst of it. Assuming the average age of the respondents was 40, they would forfeit a quarter century or more of tax deferred growth on the withdrawn funds, which most likely could never be recovered.

Let me say it again. Wall St has said that Banks are too big to fail, homeowners are too small to Bail!

There ain't no bailout for you Bub! The Fed does not seem to want Obama to offer true relief for the homeowners, which would be a government purchase of mortgages at 80% of the current value of the home and recasting a new 30 year mortgage at that value.

This would certainly make the homeowner's mortgage payments much more affordable as well as eliminate the ridiculous Bubble Premium many homeowners are suffering under. And Please! Don't give me any "irresponsible homeowner" crap! This has to be a universal solution. There is NO Group more irresponsible and undeserving of a bailout, let alone Million dollar bonuses than the banks that created the problem in the 1st place!

Such a solution would stabilize the consumer, allowing them to start spending again and although the banks would get a well deserved spanking in terms of getting less than face value for their mortgages, it would flush out the toxic securities, appropriately disciplining the stock holders and bond holders and allow the rebuilding process to begin. Government support of insolvent banks only prolongs the problem and increases its severity.

My advice to homeowners in homes that are underwater, who cannot afford their mortgage payments, is to STOP paying your mortgage; stay in your home and husband what cash you can to make a clean start.

You don't want to lose your home, you say? You lost it when you signed the mortgage papers. You probably were not represented by an attorney. The loss of your home is the price you pay for that folly.

What about the Moral Hazzard, wu wu! When I was a kid growing up in the streets of Bed Stuy, we learned the lessons of Self Defense. If someone hit you, you hit them back!

The Fed triggered this mess by flooding the banks and the economy with excess credit, which is their classic way to kick off a recession or in some cases like now and 1930, a depression.

The banks and brokers then shoveled the money out to whoever had a pulse, in abject violation of their rules and regulations.

Wall St then did their part in the scheme, securitizing, insuring (for cash in violation of their rules and possibly the law) and leveraging, (with the help of relaxed government regulations) the bad mortgages to Stratoshperic heights, while collecting ungodly profits at every stage. About $13 Trillion in mortgages were pumped up to over $200 Trillion in garbage backed securities.

So tell me again who is acting irresponsibly and who is acting in self defense?

Banks now are refusing to foreclose on delinquent homeowners across the country because they are choking on those toxic loans they made, sort of poetic justice; so you may find that you will be able to stay in your home a lot longer than you think, especially if you live in a mortgage state.

In fact, when you are served with the foreclosure papers, the Notice of Default, or Lis Pendans, contact me. I may be able to help you negotiate with the bank. We find that in about 40% of the cases, we can negotiate a much lower payment because we know where to put the pressure on the banks.

YOU MUST BAIL OUT YOURSELF!

Obama Blinked!

Although the so called Bankruptcy Cramdown provision; the ability of BK judges to reduce the amount of loans on property in the course of the BK, is extended for the first time to first mortgages on principal residences; the fact that there is no general across the board principal reduction for home owners will keep the bill from solving the housing crisis.

Giving "Incentives" to unscrupulous lenders to cooperate and lower mortgage payments will not work. It hasn't worked in Hope or Hope for homeowner plans as we have seen.

There are simply too many considerations and limitations; who owns the mortgage or part of the mortgage? Who is servicing it? Do you know that some well known mortgage services eagerly purchase defaulting loans and make huge profits by adding fees and foreclosing on them? What are the mortgage owners or their investors contractual obligations toward modification or principal reduction, etc.

Only a Federal Law could cut through those considerations and force action by the lenders.

I believe Obama knows the answer is principal reductions on home mortgages down to 80-90% of CURRENT market value is the most powerful answer to the foreclosure crisis.

This would allow the 20% or so of all mortgage holders who are underwater, whose mortgage is more than the house is worth, to reset to payments they can afford. If these people are not relieved, they have ZERO incentive to sacrifice their life savings or retirement savings to keep paying their mortgage.

Perhaps in a few months Obama can say, we tried everything else and it did not work, so we are now going to force lenders to reduce principal on all loans to affordable levels. He probably felt it would be too radical and face too much opposition from the Know-Nothings, like Eric Cantor; and getting something passed now was better than getting nothing passed.

However, the hour is late, perhaps too late to put the housing monster back in its cage. It is already sucking up the scarce money homeowners need to service not only their mortgage but their credit cards, auto and student loans, which will cause massive defaults in those areas, hurting the banks even more.

There is even more carnage just over the horizon as I point out in an earlier posting.

There is already baked-in to the forecasts by Credit Suisse about 6 Million more foreclosure over the coming two years because of massive, Trillion dollar defaults in Alt-A and Option Arm loans.

Already 60% of Option Arms are underwater and more than 80% of borrowers are paying less than the interest owed on each payment, thereby Increasing the amount of principal owed with every payment!

Also, something I have not seen discussed is that even Prime loan defaults will probably skyrocket in the next 2-3 years. Historically their defaults peak 3-5 years after they are issued.

That means that the Trillions of dollars in prime loans written at the peak of the boom, 2005 and 2006 and therefore have suffered the sharpest home value drops,will enter peak default periods in 2008-2011. Already, Prime loans are entering default stage at a higher rate than sub prime in some areas!

Finally, the Know Nothings are crazy if they feel that an overall mortgage default rate of 10% is acceptable!

This is fully 10 Times the normal mortgage default rate! Many banks have about 50% of their capital in residential mortgages. A 10% default rate on their assets would reduce their lending capacity by 10-20x that amount. Such a blow to their lending and therefore earning ability would cripple them.

The Know Nothings are now, predictably, so consumed with the fear (they love to spread fear, remember the Yellow and Orange Alerts during the 2004 campaign?) that a homeowner who cheats, obviously a minority of all borrowers gets bailed out?

What about the banks and Wall St where All of the big banks and brokerage houses, rating agencies and others who created this mess in the first place? Aren't they being bailed out regardless? Oh, I forgot, the banks are too big to fail, but the homeowner is too small to bail.

In summation, I believe Obama's Home Rescue Plan is too little, too late, especially after the Know Nothings get finished savaging it. Will he get a second chance to make it better? Will it matter?

"Bank opposition to helping homeowners, Senator Durbin says, "was (is) very shortsighted in light of the mess they have created in our economy."

Banks Are Not Serious About Helping to Keep People in Their Homes!

You have heard that "banks want you to be able to pay your mortgage, they don't want your house." I have even said that in the past. While true on an individual level, today, bankers are taking a short term view to first to protect themselves, (and their jobs) then deal with the devil later on.

Look at These Excerpts from Yahoo News, Friday, Feb 13, 2009

The (housing) industry strategy all along has been to buy time and thwart regulation, financial-services lobbyists tell BusinessWeek . "We were like the Dutch boy with his finger in the dike," says one business advocate who, like several colleagues, insists on anonymity, fearing career damage. Some admit that, in retrospect, their clients, which include Bank of America (NYSE:BAC - News), Citigroup (NYSE:C - News), and JPMorgan Chase (NYSE:JPM - News), would have been better off had they agreed two years ago to address foreclosures systematically rather than pin their hopes on an unlikely housing rebound.

A major reason financial institutions and investors are so determined to avoid modifying loan terms more aggressively has to do with accounting nuances, say industry lobbyists. If, for example, a bank lowered the balance of a certain mortgage, there would be a strong argument that it would have to reduce the value on its balance sheet of all similar mortgages in the same geographic area to reflect the danger that the region had hit an economic slump. Under this stringent approach, financial industry mortgage-related losses could far surpass even the grim $1.1 trillion estimated by Goldman Sachs (NYSE:GS - News) in January. A desire to postpone this devastating situation helps explain lenders' intransigence, says Rick Sharga, vice-president of marketing at RealtyTrac, an Irvine (Calif.) firm that analyzes foreclosure patterns.


What About the Plans Already Announced to Help Homeowners?

Hope Now Alliance, a government-endorsed private sector organization announced by Paulson on Oct. 10, 2007. Lenders promised to cooperate with nonprofit credit counselors who would help borrowers prevent defaults. Faith Schwartz, a former subprime mortgage executive, was put in charge.

An analysis White did of a sample of 21,219 largely subprime mortgages modified in November under Hope Now in 2008 found that only 35% of the cases resulted in lower payments. In 18%, payments stayed the same; in the remaining 47%, they rose. The reason for this strange result: Lenders and loan servicers are tacking on missed payments, taxes, and big fees to borrowers' monthly bills.

Then there was Hope for Homeowners. It was already anticipated that its fine print would discourage all but a few borrowers. "We knew it was likely to have limited appeal," says Preston, the former secretary of HUD, which oversees the FHA. George Miller, executive director of the American Securitization Forum, a Wall Street trade group, calls the program and its 25 refinanced loans "useless" because of the onerous details.

The banks clearly are looking out for themselves first and foremost. As one banker put it, "Banks are too big to fail and homeowners are too small to bail!"

So, that is their attitude. They foisted fraudulent financial products onto homeowners and are now refusing to take responsibility and help their victims.

Here is a Typical Story of Homeowners Hoodwinked by the Banks!

Stefanie and James Smith of Santa Clarita, Calif., fear they may need the help of a bankruptcy court if they are to keep the subdivision home they bought for $579,000 in November 2005. Stefanie, 37, a university human resources coordinator, and James, 40, a federal law enforcement agent, borrowed the entire amount in two subprime loans that required a total monthly payment of $3,000. A representative of their lender, Countrywide, told them not to worry, says Stefanie: They would be able to refinance in a year.

By mid-2007 they were running late on payments, and refinancing options had dried up. With their monthly bill scheduled to jump to more than $4,000 this January due to a rising mortgage rate, Stefanie contacted Countrywide last summer. She asked for a loan modification so they could avoid default. In December the lender said it would be willing to increase their payment by $600. That was better than the scheduled rise of $1,100, so the Smiths agreed.

But now they are struggling to pay the higher amount. Countrywide's parent, BofA, declined to comment, citing the Smiths' privacy. After BusinessWeek's questions, though, Countrywide called them to discuss cutting their payments.

"We knew when we bought that the payments would be a stretch," says Stefanie. She regrets assuming they would be able to refinance at a lower rate. "We are not deadbeats," she adds. "All we want is a mortgage we can afford."

Our Advice to Homeowners Facing Foreclosure!

If you are now losing your home because you cannot pay your mortgage, don't rape your 401(k) or your children's college fund, you will Never be able to replace those funds in the economy we are entering.

Accept the possibility that you have already lost your house, you did sign the mortgage, probably without being represented by a lawyer, that is your responsibilty.

Now, you can either be put out of the house with No money left to your name, a bad thing, having raided your savings, retirement and children's funds, or you can stop paying now and be put out later with your savings intact to finance a new start, a better outcome.

With more and more people underwater, making payments on homes worth less than their mortgage, this will become a popular tactic and will eventually force the banks to help.

In fact, we are seeing an increasing number of people who stop making their payments and challenge the banks in court. If the bank cannot produce your original mortgage and note, they cannot proceed with the foreclosure! It is estimated that fully 40% of banks cannot produce this documentation, so it is well worth the risk.

Contact me directly if you would like more information on this subject or assitance in implementing it. I can be reached at 646-961-3818

Oh, what about the Moral Hazzard such a brazzen act of self help would produce? I think the danger of producing Moron Hazzards are much greater; people exhausting their money to make payments on homes that are underwater!