It turns out that there’s another huge reason for lenders to dislike the use of mortgage modifications:  Mortgage Modifications usually don’t work out.

According to Lender Processing Services, a mortgage payment processor that monitors 39 million of the 50 million mortgages in America:

• “For the industry in general, after mortgages are modified roughly 25% go delinquent again after just one post-modification payment”
• “More than half end up delinquent after several post-modification payments”

Let’s put this in plain English terms:

If 1,000 mortgages are modified, 250 of them will make at most one payment under the modified terms and then will default again

Of those same 1,000 mortgages, more than 500 of them will end up in foreclosure yet again after only a few months.

My friend, these are awful statistics demonstrating that the problem isn’t the mortgages, it’s the borrowers who never should have had a loan (of any type) to begin with.

Before the more sensitive among you get your panties in a wad, take note:  This isn’t a suggestion that all foreclosure victims are fundamentally bad people.  I know there are lot of people who had good jobs and were fully qualified for their loans are now unable to avoid default due to layoffs and other legitimate issues.  But those aren’t the folks who are at the heart of this issue:  It’s sub-prime borrowers who never should have gotten the loans in the first place, regardless of the terms.

Thanks for listening to today’s rant.  Now let’s get back to some practical application:

Short Sales, as I’ve mentioned in the past several days, are going to be a key going forward.  And frankly, it might be helpful to point out the horrible stats about mortgage modifications to loss mitigation reps when you’re negotiating short sales.

FOR 100% FREE SHORT SALE TRAINING, CLICK HERE RIGHT NOW.

As always, your comments are welcomed here at RealEstate.BryanEllis.com - and I encourage you to join our free upcoming Short Sale Training.  Have a great day!

Mortgage modifications aren’t doing the trick.

According to Tom Deutsch, Deputy Executive Director with the American Securitization Forum:  “While critically important and increasingly employed, industry-led loss mitigation initiatives, including loan modifications, are not a panacea for declining home prices, mortgage defaults and foreclosures.”

Just like yesterday’s discussion of the massive changes to the $700 Billion Bailout Plan, this has direct ramifications for real estate investors.  Please read onward…

I’m not a mortgage industry insider.  I don’t know whether Mr. Deutsch’s statement is fact or a convenient creation of stubborn mortgage lenders.  Either seems possible.

Nevertheless, some reasonably plausible explanations exist for the stated weakness of mortgage modifications as a foreclosure avoidance tool:

• According to Michael Gross, Bank of America’s managing director for loan administration loss mitigation, a lender doesn’t necessarily have the authority to modify every loan, since many loans are subject to contractual obligations with underlying investors (Bryan’s Interpretation:  I suspect this is, in part, a coded way of saying that to modify a mortgage may inhibit the lender’s ability to profitably pay out on their deposit account obligations such as CD’s and savings accounts)
  
• Many home owners have multiple mortgages, and there’s no way for one mortgage holder to force the other mortgage holders to simultaneously modify their terms.  (Bryan’s Interpretation:  If Lender A and Lender B both have a mortgage against a property, there’s no way either of them are going to agree to take a loss unless the other lender takes a loss too.)
• Resistant borrowers who are in over their heads and just don’t care anymore are refusing to seek or accept mortgage modifications.

I think the real reason the mortgage industry is making a play to convince lawmakers that mortgage modifications aren’t working is in the hope that the government will offer further direct financial aid to the mortgage lenders.  After all, the mortgage companies succeeded in convincing our Very Stupid Congress that the entire world would fall apart without government intervention, so why not try the same thing again.

As it turns out, a Very Stupid Congressman, Democrat Barney Frank of Massachusetts, was very quick to demonstrate his lack of ability to creatively think when he said:  “I believe we now have a situation that requires legislation.”

Really, Barney?  Have you ever met a problem that didn’t require legislation?  Remember, Barney ole pal, you were instrumental in creating this subprime crisis (along with your buddy Democrat Senator Chris Dodd from Connecticut) when you legislatively paved the way for the subprime crisis and refused to do anything constructive to resolve it.  But I digress…

Forgive the brief rant.  It still galls me that there is overwhelming proof that Frank and Dodd were among the primary architects of this mess, yet they still have the nerve - and the full support of their party - in speaking out about it.  Yet again, I digress…

Here’s the connection to real estate investors: Just like yesterday’s analysis of changes to the $700 Billion Bailout plan, the news that lenders don’t want to grant mortgage modifications will probably further pave the way for more short sales since short sales are actually a final solution for lenders rather than a temporary “stop the bleeding” type of action, and therefore probably (though not certainly) a preferred way to deal with the problem of defaulted mortgages.

One way or the other, I’m convinced that short sales are going to become a tool of supreme importance during the next 12-24 months.

That’s why I’m placing extremely high importance on finding some good short sale training to provide to you.  I’m not a short sale expert, so I’ll seek out a bona fide expert on the topic and share them with you via free teleseminar and/or webinar as quickly as possible.

Do you have a preferred short sale expert from whom you’d like to hear?  If so, sound off below.  And also, tell us about your experience with mortgage modifications in recent months so we all know what is really happening in the real world of mortgages.

Thank you for reading RealEstate.BryanEllis.com!

*** BIG NEWS:  Bryan will host the nation’s leading expert and educator on Short Sale Investing in a private FREE webinar on Tuesday, November 25.  Click here to register (no cost).

This has some significant ramifications for investors and best strategies - please pay close attention!

Treasury Secretary Hank Paulson held a press conference last week during which he stated that the bailout fund - originally designed to fund a “troubled asset relief program” (TARP) - would no longer be used to buy bad mortgages from troubled lenders.  Instead, he’s going to use the money to bail out all manner of businesses including insurance companies, credit card companies and automakers.

It’s difficult to refuse to point out how incredibly right I was to oppose the bailout plan, but just because an opinion is right doesn’t make it the popular one.  (!!!)

Nevertheless, a practical ramification of this policy change is that lenders will become more aggressive about directly avoiding foreclosures. This will happen in at least two ways:

• Lenders will continue to announce new mortgage modification programs designed to keep home owners in their homes.  (Several major lenders have already announced such programs.)
• I suspect short sales will become more commonplace, and ultimately easier to perform

(More on short sales in a moment…)

While it’s deplorable that the government completely lied to us about the purpose of the $700 Billion bailout bill, I do think that this is ultimately a good thing for the real estate market and for real estate investors.  The best solution to the real estate crisis is to let real estate values find their true levels, after which buying will resume…

…which is exactly why I suspect short sales to increase significantly in frequency and importance.

(For our new readers, a “short sale” is an agreement by a mortgage lender to accept less money than is owed on a property due to changing market conditions and the inability of the borrower to pay the loan.  Essentially, it’s a last-ditch effort by the lender to avoid foreclosing the property.)

My friend, do yourself a favor.  Take every opportunity you can to learn about short sales, because I expect they will be a huge part of our business in the next year.  And when you know how to do short sales well, very large profits on each deal becomes distinctly possible.

What do you think - how will the change of purpose for the $700 Billion bailout fund effect the real estate market generally and real estate investors specifically?

As always, thank you for reading RealEstate.BryanEllis.com.

Apparently, regulators in the federal government are not happy about the success of credit unions, and they aim to throttle the profitability of credit unions by further expanding some genuinely stupid regulations to limit the freedom of credit unions.

Case in point:  The Jimmy Carter-era Community Reinvestment Act (CRA) forces lenders that want to expand their businesses to make stupid loans to weak borrowers living in bad locations.  Yes, it’s that bad…and it’s one of the roots of our present subprime crisis.

The CRA is the law which forced traditional bank lenders to get involved in the stupid business of subprime lending.  Interestingly enough, credit unions are the only category of financial institutions that have come through the financial crisis largely unscathed (and even profitably) - and credit unions have never been subjected to the requirements of the CRA.  (Yes, there is a connection.)

But this is not “fair” according to John Taylor, CEO of National Community Reinvestment Coalition (NCRC).  The NCRC masquerades as an advocate for “individual economic empowerment”, but what that actually means is they lobby Congress and regulators to support mortgage programs for people who can not pay back the loans.

(Yes, we call those loans “subprime” - and they are at the source of the economic downturn about which you’ve heard so much.)

Yes, you read that correctly:  NCRC exists (in part) to convince stupid politicians to continue to do subprime loans.  But now, the NCRC is trying to spread the cancer of subprime loans to other parts of the financial industry by calling for the application of the CRA to credit unions, even though there’s absolute no economic reason to do so.

This is bad news.  Regardless of one’s opinion about politics, it’s undeniable that the government as a whole has taken a socialistic turn towards a greater role in the financial markets, and such a shift suggests increasing likelihood that the government will follow the prompting of tiny organizations like the NCRC.  This will mean that not only do we have to suffer through the current subprime crisis, but we will likely have another significant phase of it that does not have to happen as credit unions suffer business losses as a direct result of misguided legislation.

But my friend, you can make a difference.  For example, the website you are now reading - http://realestate.BryanEllis.com - gets significantly more internet traffic than the NCRC website.  There are literally thousands of readers of this website each and every day.  All we need to do is make our voices heard.

Here’s how to do it:

Click here to find your congressman/woman and Senators here and send them an email or give them a call.  Tell them you don’t want the CRA expanded to include credit unions or any other financial organizations.

Thank you for reading RealEstate.BryanEllis.com.  Your comments are welcomed and encouraged.

And as always, the best thing about this blog was not the article I posted, but the comments you left.  There was a vigorous discussion among a number of experienced landlords versus a couple of people who felt that faltering tenants should be addressed with a softer touch.

This is similar to another issue faced in real estate investing:  how to deal with people going through foreclosure.  Some people feel that the best help that can be given to a foreclosure victim is to buy their house - even at a steep discount - and prevent the foreclosure from happening, whereas others feel that, at the very least, a pre-foreclosure victim should be allowed to rent back their property after selling it, and maybe should even be given a “fair market” price for their foreclosure property.

Generally speaking, people who espouse less strenuous treatment of noncompliant tenants or foreclosure victims cite “compassion” or “fairness” as justification for their opinions.  For example:

• Everyone is having a hard time right now - why don’t landlords just show a little compassion?
• The tenant lost their job and can’t pay, so is it fair that they should be evicted?
• Foreclosure is bad enough, and you shouldn’t take advantage of their bad situation.

This is where I’d like to open it up to you, my thousands of esteemed readers.  What do you think?  What role do “compassion” and “fairness” have in our business?  And more importantly, what do these words actually mean?

What do you think?  As always, thank you for your thoughts, and for reading RealEstate.BryanEllis.com.

Traditionally, an unemployment rate of 5% is considered “full employment”, so the news might not be as bad as we’re being led to believe.  Regardless, this is an issue that real estate investors - and particularly landlords - want to be aware of, since it could be your tenants who lose their jobs.

When your tenants lose the ability to pay you, the key is quick and decisive action.  But you must know when such a change happens before you can act on it.

I was thinking about this issue this morning and came to the conclusion that it would be ideal if there was a way to know as quickly as possible when a tenant has lost his/her job.  That way, you can be prepared to act quickly in the way that’s most appropriate.

Please note: What I’m about to describe to you are ideas in the embryonic stage.  I’ve not tested them, and I’ve not confirmed them with legal counsel.  I’m posting them here because I think it’s well worth considering, and it’s also possible that someone among the thousands of readers of this blog may have already implemented a similar idea and could tell us about it.  So here goes:

Here are a few ideas to be able to know quickly if your tenants have lost their job:

• Send a notice to all of your tenants that you have some sort of “Assistance Program” in the event of the Tenant’s being laid off, but that they must notify you within 3 (or whatever #) of days of their termination.  (It’s up to you what your “Assistance Program” entails - maybe you reduce rent slightly, or maybe you connect the tenant with an employment agency… that part is your choice.)
• Require your Tenants to disclose their employer to you at the time they sign their lease with you, and require them to notify you within a short period of time any time their employment situation changes.
• If your lease enables you to change its terms, consider doing so for active leases, and require the tenant to notify you of employment changes

These are the 3 ideas that I’ve come up with so far.  I’m very interested to hear your ideas on how to deal with the issue of a suddenly unemployed tenant.  If you would be so kind as to share your experience, we’ll all be grateful.  Also, feel free to share with us exactly how you use the information that your tenant has lost their job.

Thank you for reading RealEstate.BryanEllis.com!

In the interest of full disclosure, note that what I’m sharing with you here is based on my research, but not my experience.  I have never done business with any credit union.

According To Realty Times, “credit unions avoided writing subprime home loans and other easy-money mortgages. They also shunned selling packages of mortgages to Wall Street moguls who packaged them into now low- to no-return securities.”

If this is true, it suggests that credit unions may be on the verge of a boom, as they can offer capital that isn’t available elsewhere.  So for your own home, and for homes you are attempting to sell to buyers, your local credit union may be a good funding alternative.

However, credit unions generally use a more traditional and detailed application/approval process than other lenders.  With credit unions, your credit history does matter, your down payment does matter and your ability to pay does matter - so nobody should expect “subprime” treatment.

Nevertheless, the unique structure of credit unions (as non-profit financial institutions that generally hold their own notes long-term) can mean a greater availability of capital.

What I am not certain of is whether credit unions offer financing for investment properties.  If you know the answer to this, let us know in the comment area below.  Or if you have other experience with credit unions - positive or otherwise - please share it with us so we can all make an informed decision.

Thanks for reading RealEstate.BryanEllis.com!

That’s the reason for this post.  I want to begin a discussion about best ways to minimize your own tax burden.

(Note - President-Elect Barrack Obama has flatly stated that you are selfish if you want to minimize your taxes.  So if you’re a supporter of Mr. Obama, please disregard this content, as Obama does not support it.  But reasonable people certainly do.)

This post is not going to be highly detailed.  All I’m going to do right now is give you a few topics to research and begin to consider.  Further, I will do further research on these topics and provide more information to you as I discover it.

A few general ideas for you to think about for minimizing (or at least, delay) your tax burden are as follows:

• Sell any appreciated assets right now, before tax increases are instituted
• Use proper corporate structuring enabling shifting of profit from one tax year to the next
• Use of self-directed IRA’s and Solo 401k’s for tax-advantaged transactions
• Use 1031 exchanges when selling qualified real estate and defer taxation until more favorable taxation environments exist
• Convert as much of your income into lease-based (and other passive) income rather than active income

Clearly this list is far from complete, and there are no details included yet.  I’ll work with you to provide more details in the near future.  In the mean time:

Please share your thoughts below about general tax reduction strategies with which you are familiar.  Please don’t bother sharing the details yet - just give us an idea of how your strategy works.  I’ll use your comments as source material for finding further details and provide the information to my entire readership.

Again:  please share your tax-reduction tips below…

Thanks for reading RealEstate.BryanEllis.com.

If you’re an undecided voter, you’re a lot like me:  Not particularly in love with either candidate.  On the one hand, there’s the dashing and incredibly eloquent Barrack Obama versus the seasoned, courageous and wise John McCain.

Who do you choose?

Let’s ignore the politics for a moment, and think about reality for us as real estate investors, business people, lovers of our families and seekers of liberty.

There are all kinds of specific policy issues that make the choice fairly simple if your focus is on economic opportunity.  I’ll tell you about those in a minute, but let’s think about what’s really most important:  Our families.

I spent the afternoon with my daughters yesterday.  My daughters and my wife are the love of my life, and I would do anything to help and protect them.  I am sure you feel the same about your family.

My oldest daughter is named Kayla, and she and I have the special type of daddy-daughter relationship that every father craves.  As I was hanging out with her, I began to think of her future.  I thought about what she would become professionally.  I thought about whether and when she would get married.  I thought about what I would do to make sure she has every advantage.

This is important for a lot of reasons, some of which are obvious.  But one isn’t so obvious:  How will the choice between Obama and McCain effect my daughters - and your family?

The answer there is quite clear.

My daughters - and your family - will have to have a free society and business climate to experience real professional success.  And let’s be clear:  My hope is that my daughters are overwhelming financial successes beginning early and all the way through life.  Here’s why:

• The fundamental yearning of the human soul is freedom.  Behind only physical and political freedom in importance is financial freedom.
• My parents demonstrated and taught me that it’s very, very important to help those who need it, and I have taught my daughters the same.  The more financial success they have, the more good they can do.
• Financial success gives rise to opportunity.  I want my daughters to be able to take advantage of situations like we have right now, with a depressed stock market and low real estate prices.  That takes money.

Here’s where I have to take the inevitable leap into choosing sides.  While Mr. Obama is a rhetorical dynamo, he does not represent the best interest of my family - our yours.

You agreed that you want your children to have the best of everything, didn’t you?  Mr. Obama does not agree.  Imagine for a moment that one or more of your children are reasonably successful, and are able to realize a 6-digit income in their 20’s (I did it, even though nobody in my family had ever done so, so it’s definitely possible)…

Mr. Obama wants to take a staggering percentage of your child’s income in the future - but he wants to take it only from your child.  He doesn’t want to take it from your child’s friends who didn’t work quite as hard as your child.  He doesn’t want to take it from the people who are unable to compete with your child in the professional marketplace and work force.  He wants to take it from your child specifically, because your child is successful.

You may be tempted to think that Obama’s tax policies won’t be a factor by the time your child is an adult.  But please:  Do not fool yourself.  We still have most of the destructive “New Deal” tax policies after 6 decades.  Obama’s changes will be no different.

Furthermore, Obama will condemn your child’s preference to be keeper of his own money by referring to your child as “selfish”.  That’s right:  Obama has publicly stated that anyone who prefers not to pay exorbitant taxes is selfish.  To Obama, if you work hard and are successful, you are “selfish” if you prefer to be able to use your own money.

That’s hypocrisy, through and through.  Obama wants to take money from virtually everyone (he started his campaign by saying he’d raise taxes on those making over $300,000 - then went progressively down to $250,000 then $200,000 then $150,000).  The reason he claims to want that money is to “spread the wealth around” - or so he told “Joe the Plumber”.

What does that sound like to you?  If you remember your high school history and civics classes, you’ll know that’s a fundamental tenent of socialism and communism (which are the same things, just in varying extremes).  Both of those forms of government are oppressive and limiting and are not related to freedom.

What Obama proposes to do is to take away your child’s freedom to be a high income earner by stifling the motivation to achieve it.  (After all, if you’re going to lose most of your income above a certain point, why should you ever earn more than that?)

Furthermore, he’s going to stifle your child’s ability to do good for the benefit of those around him, because Obama wants to take away so much of your child’s income that your child will have little left to assist those in need.  Sure, Obama says that he wants to “spread the wealth around” so that those making less money will have more available to them - but has that ever worked?  It’s so rare that a person goes off of welfare and into the working world that such stories make big news.

Those stories wouldn’t be big news if government were good at managing charity.  but they are not.

And let’s not forget about your child’s safety.

We clearly have a big problem with terrorism, and are the primary target of terrorists throughout the world.  Why?  We’re free.  We have the right to run our lives as we want, and nothing is more of a threat to tyranny and destruction than freedom.  Our souls yearn for freedom, and enemies of freedom want to stamp it out wherever it exists.

That’s why Mr. Obama’s extremely tight associations with known terrorists like William Ayers (who bombed his targets here in America in the 60’s and who publicly has regretted that he didn’t do more) is so disturbing.  Obama has relied on William Ayers as a friend, professional acquaintance, political fundraiser and more for decades…

…and his only defense - which frankly is not believable - is that he did not know of Mr. Ayers’ past.  Yet still, Obama continues the association.

And Mr. Obama’s lifelong pastor, spiritual mentor and friend, Reverend Jeremiah Wright, is a well-documented hater of America.  Just look him up on YouTube and you’ll find so much blatant anti-America speech that it will make your stomach turn.

This is who Obama has relied on for advice and mentorship for two decades.  I guess if my mentor hated America like Rev. Wright does, I’d be willing to consider policies that are not in the best interest of America, too.

Which brings us back around to our children.  This is a historic election - but frankly, it’s being made into a racial and gender issue.  Many seem focused on Obama’s blackness or Palin’s femininity, but focusing on those things makes one bigoted, doesn’t it?

I propose that you look past those things.  I’ve already voted for John McCain.  Not because he’s my first choice - I was a strong supporter of another candidate during the primaries - but because I can’t conscience what a Barrack Obama presidency will do to this country, and to the hope I have for my daughter’s future.

Kayla was so much fun yesterday as we discussed the things she likes to do (she’s really into building things and would make a great engineer).  I voted for John McCain, because I want these things for Kayla:

• For her to be able to do as she pleases professionally and personally
• For her to be appropriately rewarded for her efforts, and for her to be able to use her blessings to benefit others in the way she chooses
• For her to be safe from terrorists and other enemies of America

I want freedom, opportunity and hope for my children.  In the light of those ideals, Mr. Obama’s calls for “change” ring quite hollow.

If you’re not sure how to vote today, think about your kids.  They are only children, and they don’t yet know what’s best for them.  But in your gut, you know exactly what’s best for them:  freedom and opportunity.

Please consider these things, and on behalf of the thousands of readers of FreeRealEstateTraining.com, I encourage you to vote for John McCain if you’ve not yet made up your mind.  And please:  Go vote right now.  Don’t miss this God-given opportunity.

Thank you.

I suspect a primary reason for this is that many lenders are waiting to see how the Bailout Bill will play out, and whether they’ll be able to sell their toxic assets to the government without adjusting the borrower’s loan.

Regardless of the reason, this is a horrendous practice.  Lenders should at the very least have a discussion with their challenged borrowers, even if the lender ultimately exercises its right to continue with a foreclosure.

If you face a situation in which your lender will not communicate with you, here are three alternatives to consider:

• Mortgage Insurer: If you made a down payment of under 20% when you acquired your property, your loan almost certainly has a mortgage insurance policy.  The insurer who wrote your policy will be on the hook for a part of the loss in the event that the lender forecloses your property, so it may be helpful to communicate with your mortgage insurer and have them apply pressure directly to your lender.
• Forensic Loan Audit: A very high percentage of loans contain inaccuracies or outright violations of law which may seriously pressure the lender to modify the loan in the borrower’s favor, and a great way to discover those issues is through a Forensic Loan Audit.
• Your Attorney: Frequently your attorney can prompt a response even when you can not.  If you have a relationship with an attorney, ask them to contact the lender on your behalf.  If not, here is a link to Prepaid Legal Services, a very low-cost legal program

Whatever you do, don’t just stand by and agree to be ignored by your lender.  Ultimately, it’s their choice to determine whether to modify your loan.  But it is within your power to force the issue if necessary using one of the above tools/resources.

If you have other ideas or thoughts about this issue, I welcome your comments below.

Thanks for reading RealEstate.BryanEllis.com!