Category Archives: Public Policy

Khushwant Singh’s 8 Clues to Happiness should Drive USA Housing and Social Policy

July 29, 2011 – 4:18 pm

My friend Jaspreet Sihota shared with me Khushwant Singh’s 8 Clues to Happiness. Khushwant Singh is a famously happy (and old) Sikh author and I agree with him 100%. In fact, I believe these 8 principles should underly housing and social policy in America where millions of families are obese, financially unstable (and insecure about their work prospects due to globalization), and worried that a home of their own may not be a reality for future generations.

EIGHT CLUES TO HAPPINESS

By- KHUSHWANT SINGH

Having lived a reasonably contented life, I was musing over what a

person should strive for to achieve happiness. I drew up a list of a

few essentials which I put forward for the readers’ appraisal.

1. First and foremost is GOOD HEALTH. If you do not enjoy good health

you can never be happy. Any ailment, however trivial, will deduct from

your happiness.

2. Second, A HEALTHY BANK BALANCE. It need not run into millions but

should be enough to provide for creature comforts and something to

spare for recreation, like eating out, going to the pictures,

traveling or going on holidays on the hills or by the sea. Shortage of

money can be only demoralizing. Living on credit or borrowing is

demeaning and lowers one in one’s own eyes.

3. Third, A HOME OF YOUR OWN. Rented premises can never give you the

snug feeling of a nest which is yours for keeps that a home provides:

if it has a garden space, all the better. Plant your own trees and

flowers, see them grow and blossom, cultivate a sense of kinship with

them.

4. Fourth, AN UNDERSTANDING COMPANION, be it your spouse or a friend.

If there are too many misunderstandings, they will rob you of your

peace of mind.

5. Fifth, LACK OF ENVY towards those who have done better than you in

life; risen higher, made more money, or earned more fame.

Envy can be very corroding; avoid comparing yourself with others.

6. Sixth, DO NOT ALLOW OTHER PEOPLE to descend on you for gossip. By

the time you get rid of them, you will feel exhausted and poisoned by

their gossip-mongering.

7. Seventh, CULTIVATE SOME HOBBIES which can bring you a sense of

fulfillment, such as gardening, reading, writing, painting, playing or

listening to music.

8. Eighth, every morning and evening, devote 15 minutes to

INTROSPECTION. In the morning, 10minutes should be spent on stilling

the mind and then 5minutes in listing things you have to do that day.

In the evening, 5minutes to still the mind again, and 10minutes to go

over what you had undertaken to do.

RICHNESS is not

Earning More,

Spending More or

Saving More, but …

RICHNESS IS WHEN YOU NEED NO MORE

Tags happiness, healthy living, home ownership, housing policy, khushwant singh | Comment (0)

Business Life Public Policy Real Estate

Origination News: “New Role Suggested for RE Agents”

March 21, 2011 – 1:02 am

My Utah presentation (subject of the ‘Elephant in the Python’ blog) was quoted/picked up by this reporter for Origination News. Instead of just talking about this though, I am getting involved in leveraging real estate agents as the ‘enlightened self interested party’ in helping us solve this housing crisis by preventing foreclosures. ray

“Origination News: New Role Suggested for RE Agents”
Monday, March 7, 2011
By Lew Sichelman

PARK CITY, UT—Among the numerous and often futile efforts to keep troubled borrowers in their homes, a former IndyMac Bank executive believes real estate agents represent a largely untapped resource.Not agents who list and sell foreclosed properties, said Ray Mathoda, who now bills herself as a housing industry social entrepreneur.

Those professionals are “bank-facing” agents who work for investors.

Rather, consumer-centric agents who have much more to benefit by helping buyers and sellers, Mathoda said at the Midwinter Housing Conference here earlier this month.

Noting that borrower outreach has been pretty much a failure—even today, two out of every five owners who fall into foreclosure claim to have had no contact with their servicers—and that consumers are often poorly informed about their options, Mathoda said realty agents stand a good chance of reaching borrowers who are often “bombarded by a barrage” of confusing, uncoordinated array letters and phone calls.

At the very least, she added, agents can be used by servicers and investors to augment the efforts of overworked, understaffed housing counseling agencies.

Mathoda, who was chief administrative officer at IndyMac, has founded two socially responsible minority-owned businesses—AssetPlanUSA, a national provider of training and education solutions to the housing industry, and HausAngeles, a real estate management consulting firm and brokerage located in the Los Angeles area.

She has been an advocate for standardized, pro-consumer and pro-investor short sales since the start of the housing crisis, arguing that the primary goal of everyone should be financial stability, not home retention.

But noting that short sales aren’t the only viable option, for either the borrower or the investor, Mathoda said no one is in a better position to explain their choices to consumers than real estate agents.

She admitted that realty agents don’t always have the best reputations.

But she said that operating under their brokers’ supervision and an honor code of ethics, agents have the “good business sense” to help people decide what’s best for them.

In return, she added, an agent gets a referral source, if not a client, for life.

And perhaps even a listing or two along the way.

“Real estate agents are our only professional with a fiduciary obligation, yet we’re not taking advantage of that,” Mathoda said.

see the rest here: http://www.originationnews.com/on_features/new-role-suggested-1023709-1.html

Tags foreclosure prevention, hafa, housing crisis, real estate agents, short sales | Comment (1)

Business Politics Public Policy Real Estate World Affairs

Strategies to address the elephant in the python: housing market stability we all want

February 12, 2011 – 8:07 pm

I spoke yesterday in Utah at the mid-Winter Housing Finance Conference on the subject of loan Servicing (what’s wrong and how to fix it). The focus of my presentation was on outlining a new vision for default management – the business of Banks (loan servicers and investor) working with consumers in default on their mortgage. Here is the document I shared with the audience.

Implementing the ideas shared in the presentation is possible – I know of others or am personally involved in implementing several of these approaches myself. The end result of adopting these approaches would be much higher success in preventing residential real estate foreclosures than the default industry is achieving today PLUS significant reductions in investor mortgage loan loss severity relative to current approaches.

Strategies to Address the Elephant in the Python: Housing Market Stability We All Want

Tags default, distressed consumers, foreclosure alternatives, foreclosure prevention, foreclosures, housing market, housing policy, housing stability, housing strategy, loan modifications, short sales | Comment (0)

Business Life People Public Policy Real Estate

492 Days “Free Rent” For Those Choosing Foreclosure

November 30, 2010 – 2:08 am

For those of you who don’t think there’s additional downside risk in the housing market, here is a number that is a shock to almost any reasonable reader: 492.

This is a number that was reported in a Wall Street Journal blog from yesterday…and represents “the number of days since the average borrower in foreclosure last made a mortgage payment”.

I am an ardent advocate that the government and Banks can and should be doing a lot more (more efficiently than current approaches) to help distressed homeowners get educated about their realistic options, avoid foreclosure, and get a fresh start so they can move on to get jobs, stabilize themselves financially, and buy a home again…if they so desire, and if their credit behavior supports the opportunity. However, the housing crisis will not be solved and private mortgage investors will not lend again freely (as they need to in order to support overall economic growth) unless some common sense standards are set for the foreclosure process across the 50 states.

During extraordinary times such as the ones we are living in currently, I am a proponent of a 12 month maximum standard transition timeframe for borrowers with documented financial distress to transition from their properties through either a foreclosure alternative or through foreclosure. I think 12 months is enough time for a family to come to terms with their financial problems, develop a plan to get back on track, and start to implement on that plan including moving out of the home they couldn’t afford.

Here’s some more information from and a link to the relevant blog:

Number of the Week: 492 Days From Default to Foreclosure

492: The number of days since the average borrower in foreclosure last made a mortgage payment.

Banks can’t foreclose fast enough to keep up with all the people defaulting on their mortgage loans. That’s a problem, because it could make stiffing the bank even more attractive to struggling borrowers.

In recent months, the number of borrowers entering severe delinquency — meaning they missed their third monthly mortgage payment — has been on the decline, falling to about 700,000 in October, according to mortgage-data provider LPS Applied Analytics. But it’s still more than double the number of foreclosure processes started.

As a result, banks are taking progressively longer to foreclose. The average borrower in the foreclosure process hadn’t made a payment in 492 days as of the end of October, according to LPS. That compares to 382 days a year ago and a low of 244 days in August 2007. Here’s a link to the full blog: http://tinyurl.com/36ghafg

Tags borrower, distressed borrower, foreclosure, foreclosure process, foreclosure timeline, free rent | Comment (0)

Business Life People Public Policy Real Estate

HAFA Short Sales: A Much Needed “Fresh Start” Program For Troubled Borrowers

November 27, 2010 – 7:14 pm

A recently implemented foreclosure alternatives program created by federal officials is reflective of what many real estate professionals know already: for those experiencing significant loss of household income, financial stability and a job are more important than short term retention of home ownership.

The Home Affordable Foreclosure Alternatives – or HAFA program – designed by the Treasury Department and implemented by Fannie Mae, Freddie Mac, and loan servicers representing more than 90 percent of all loans outstanding offers short sale and deed-in-lieu opportunities to millions of distressed homeowners who are struggling to make their mortgage payments due to labor market issues.

Short sales are the primary foreclosure alternative offered under the HAFA program. With its mandatory implementation in the non-GSE market starting April 5, 2010 and its adoption by both Fannie Mae and Freddie Mac on August 1^st, 2010, HAFA becomes the only standardized nationwide short sale program offered by multiple loan servicers with mandated debt forgiveness by all lien holders and $3000 in relocation support to help families move to affordable housing and regain their financial footing.

Until now, debt forgiveness for qualifying families has been a critical missing ingredient in the short sale industry – affecting homeowners as well as the real estate professionals supporting them during their time of need. Loan servicers – who represent the interests of loan investors (not consumers) – have been reluctant to promise debt forgiveness when approving short sale transactions due to fear of potential lawsuits from loan investors aiming to maximize their collections on bad debt.

Now, the HAFA program has set a clear and much needed market standard – for qualifying families with unaffordable mortgages on their primary residence – debt forgiveness should be the norm. Finally, we can offer distressed borrowers a respectful exit and fresh start outside the foreclosure process.

Tags debt forgiveness, distressed borrower, foreclosure alternatives, foreclosure prevention, hafa, home affordable foreclosure alternatives, mortgage relief, short sales, treasury | Comment (0)

Business Life People Politics Public Policy Real Estate World World Affairs

Responsible 2nd Chances: Loan Modifications Addressing the Issue of Negative Equity and (Borrower) Moral Hazard

January 9, 2010 – 11:46 pm

Proactive government and bank efforts to help distressed borrowers have largely, if not exclusively, been focused on ‘home retention’ programs in 2009. On the one hand this focus makes sense: the first question that should be asked and answered when a family stops making their mortgage payment due to financial hardship is whether an change to the loan terms would make the home affordable for the same borrower (thereby avoiding all the negative effects of a pre or post foreclosure home sale) while being acceptable to the investor.

On the other hand, given constrained resources this almost exclusive focus on home retention, which has come thus far at the expense of those that could not afford to keep ownership of their home, has been a little confusing to me, a former Chief People Officer who had to layoff over 7000 people between mid-2007 and mid-2008 due to the mortgage crisis. Most of these above mentioned responsible employees of my former mortgage bank employer, unfortunately fall into the latter category of families who would not be able to afford homes they once could, and I think we have missed the boat thus far on properly providing and supporting home and life transitions for these families.

My issue with the focus of government and bank programs thus far is not that they shouldn’t focus on helping every family in trouble first try to keep their home if they want…but on the public message and conversation we are having.

America is undergoing a fundamental shift in consumer behavior and economic activity today, and as Charles Darwin said, ‘It’s not the strongest species that survive, nor the most intelligent. It’s the ones most adaptable to change’.

Americans (myself included) need to adapt to the new economy…and if this means they need to sell their home and move…so be it. (Family), jobs and financial stability are more important, in my view, than holding onto a home one cannot afford.

Notwithstanding the above gap in proactive bank and government programs till date, let’s circle back to the issue of home retention first. Early results are in on government and bank home retention efforts…and performance thus far is viewed as below expectations. Only about 20% of the families in trouble have been provided a temporary modification (mod) yet…and conversion rates of these temporary mods to permanent mods are very low thus far. 2 things should be noted before one judge’s the above too soon:

1. The number of loan modifications attempted (this is where progress starts – with a step in the right direction) is significantly larger than in the previous year/s and under the previous administration/team

2. In some ways, the problem isn’t the number of people in trial mods. While lots of effort is and will be put on solving the current problem (hopefully successfully) of converting the 75% or so performing trial mods into permanent ones (except where there was mis-statement of income, which is not kosher in my view), the real issue is improperly set expectations…and lack of enough alternate modification programs (addressing the diversity in situation among those in trouble right now).

A key flaw in most loan modifications offered today including HAMP is highlighted by the article I am including below on a recent by the New York Federal Reserve Bank: they do not address the issue of negative equity.

Since 25% of US homeowners have negative equity today, and since our national goal is to do more to help those in trouble who want to retain their home, I thought I’d resurface a simple loan modification proposal I first introduced in an April 2009 blog….which I believe could significantly expand the success of our home retention efforts.

Responsible Second Chances: A break today in exchange for some of tomorrow’s upside

For every American family who is unable to afford the payment on their primary residence, I would offer them a one page loan modification with the following terms:

1.    Reduction in loan principal down to current market value.
2.    30 year fixed mortgage at current historically low market rates.
3.    25% of any equity appreciation from the written down loan principal (the remaining 75% would go back to the investor taking the loss on the principal write-down today)…thereby reducing the bite of the loss of principal taken today.

4. Requirement that if the borrower misses more than 3 mortgage payments again and is unable to reinstate their loan, they would voluntarily exit the property within 6 months of falling behind…either via a Short Sale or Voluntary Foreclosure.

Why do I think the program above would help many not being helped today? Here’s why:

1.    It addresses the issue of negative equity…which is critical, per the article and study mentioned below
2.    It is ‘economically’ the right answer (in effect, any family that can afford their home today at current values and mortgage rates, gets to keep it)
3.    It addresses the issue of moral hazard: there’s no free lunch in America (at least not for long). The family gives up 75% future equity appreciation in exchange for the investor taking a significant loss on the loan today (via the principal write-down). This should largely eliminate, in my view, the need to collect financial hardship documentation…which is a key reason many mods are not becoming permanent today.
4.    It is simple to understand, unlike the HAMP program…which does not result in a principal reduction, as many borrowers applying for HAMP mistakenly believe it does.

5. It addresses the issue of what happens if the loan goes bad again…which is important for the investor who is making a big compromise today.

Implementability

It is likely my proposal is not implementable in many parts of the private market…particularly the securitized loan market. However, it could be implemented for government sponsored and owned enterprises…Fannie Mae, Freddie Mac and FHA…which represent a large part of the market.

Article from DSNews.com: Fed Study Finds Principal Writedowns Minimize Risk of Redefault

Servicers who lower distressed homeowners’ mortgage payments by reducing the principal balance, as opposed to just making interest rate adjustments, are much more likely to see the payments keep coming in and ward off a redefault, according to a new study published by the Federal Reserve Bank of New York.

The economists found a definite pattern among modifications made since December 2005 that suggests “an intention among servicers to make the loans more affordable, while not losing any of the underlying principle.” However, their analysis shows that modifications that trim off some of the loan balance have higher rates of success and “can double the reduction in re-default rates.”

While principal writedowns essentially mean the lender or investor must eat a loss, many analysts argue that it’s a smaller loss than comes with the eventual foreclosure and the price tag of a nonperforming asset in today’s housing market, already swollen with REO inventories and vacant properties.

According to the New York Fed’s economists, when a borrower’s monthly mortgage payment is cut by 25 percent by reducing the interest rate only, the borrower is 11 percent less likely to default within one year.
But, if the monthly payment is lowered by the same 25 percent, this time by shaving 25 percent off of the outstanding loan balance, coupled with a small interest rate cut, the chances that the borrower will defaulting again within one year drops by nearly 27 percent.

The report’s authors also concluded that borrowers who have a loan-to-value (LTV) ratio of 115 percent or higher – meaning they owe 15 percent or more than their homes are worth – pose a 51 percent higher risk of redefaulting after a modification.

According to a blog by Wall Street Journal reporter Nick Timiraos, the findings of the New York Fed paper could have big implications on the administration’s Home Affordable Modification Program (HAMP). Timiraos explained that while the program doesn’t preclude principal forgiveness on the part of lenders, HAMP’s primary push is on lowering interest rates and extending the loan term to bring monthly payments down – exactly the types of modifications that the Fed report says have a higher chance of becoming delinquent again.

The Congressional Oversight Panel and the special inspector general for the Troubled Asset Relief Program (TARP) have criticized the government’s mortgage modification efforts on numerous occasions for not addressing the issue of negative equity, which would ultimately involve trimming LTV ratios by shaving off outstanding mortgage balances.

A growing number of mortgage experts and foreclosure counselors agree with the federal watchdogs and the New York Fed economists that principal reduction is a powerful incentive for borrowers to keep up with their restructured payments, particularly now, when such a large number of mortgages are underwater.
First American CoreLogic says that nearly 10.7 million, or 23 percent, of the residential mortgages in the United States had negative equity at the end of the third quarter of 2009, with the homeowner owing more on the home than it was worth.

A modification is only worthwhile if it induces borrowers who would otherwise default to continue paying, the New York Fed’s economists noted, and they argue in their analysis that borrowers with positive equity in their properties have a strong incentive to keep current on their mortgage, since delinquency and foreclosure will ultimately lead to a loss of the asset.

“In fact,” they wrote, “borrowers with positive equity (that is, borrowers whose house is worth more than the balance on their mortgage) should rarely default, since refinancing the mortgage or selling the property are better options than foreclosure, which may cause the borrower to lose [their] equity.”

Tags foreclosure prevention, HAMP, home retention, loan modification, Making Home Affordable, negative equity, principal writedowns | Comment (0)

Life Los angeles Politics Public Policy Real Estate

“Shadow REO Inventory” Presents Govt Unique Opportunity For Affordable Housing Expansion

October 16, 2009 – 7:00 pm

If there was ever an example of what it means to “swim upstream in a river” in life or in business…the below article describes it in detail. Despite what is possibly history’s most ambitious and concerted recent effort to protect and expand affordable housing in NYC (led by Mayor Bloomberg)….the City’s total stock of such housing declined over the past 7 years.

This reduction in affordable rental housing is bad news for the City’s lowest income residents, and generally bad news for our society…as housing costs are most families’ single largest expense…and increasing rents without similar increases in earnings….mean the poor continually get “squeezed”….thereby perpetuating a cycle of financial and personal hardship which makes it difficult for families to lift themselves out of poverty into financial stability and growth.

I have been a keen observer of the situation in NYC, as the affordable housing reality on the ground is similar in my hometown of Los Angeles. Here too, affordable housing stock has not kept up with the need for such housing….and the situation has gotten worse (not better) over the past decade.

Not since the end of the 2nd world war – when a lot of the workforce housing that supported the war was converted into affordable housing for lower income families – has affordable housing been created en masse across the USA. And today…I believe history has presented this country and government with another such opportunity…to try to make a big dent in “solving” our affordable housing needs, particularly in high cost urban areas such as Los Angeles and NYC.

As it did back in the 1940’s, the US federal government today either directly or indirectly “owns” or will own a large number of vacant and foreclosed properties. An example of this indirect ownership are the over 100,000 foreclosures estimated to currently be on the balance sheets of Fannie Mae and Freddie Mac. In fact, some have estimated the total “shadow inventory” of current and future foreclosed properties (not yet listed on the market) to be as high as 7 million properties nationwide.

Many housing market observers, myself included, believe this shadow inventory presents significant ongoing risks to the housing market. In other words, as this shadow inventory turns into actual properties listed for sale on the market, it is likely to drive imbalances in real estate demand vs. supply…thereby resulting in declining home prices…which will present risks to millions of homeowners as well as the broader US housing and economic recovery.

Given the above, perhaps it makes sense for the government to come up with a creatively designed program (i.e., one that minimizes/eliminates taxpayer burden) to convert a large number of the properties they either own or will own (directly or indirectly) into affordable housing? Fannie Mae and Freddie Mac REO’s are one good candidate for this type of policy/strategy…as are REO’s owned by the FHA and other governmental agencies.

If we could design the right program and policy to achieve this, it could have enormous social and economic benefits for the US….including helping move the ball forward on a key goal of de-concentrating poverty outside traditionally large, generally poorly maintained, and often crime-ridden public housing developments (aka “projects”) nationwide.

Is this just a dreamer’s dream…or can and will it become reality?

As City Adds Housing for Poor, Market Subtracts It

By MANNY FERNANDEZ; October 15, 2009

Mayor Michael R. Bloomberg is closing in on a milestone: building or preserving 165,000 city-financed apartments and houses for low-, moderate- and middle-income families, the goal of a $7.5 billion housing plan he announced in 2002 and expanded in 2005.
It has already financed the creation or preservation of 94,000 units, including 72,000 for low-income households, city officials say.
But those efforts have been overwhelmed by a far larger number — the 200,000 apartments affordable to low-income renters that New York City has lost over all, because of market forces, during the mayor’s tenure.
The shrinking supply of these apartments, highlighted by researchers at New York University, illustrates not only the increasing strain that housing costs have had on this city of renters, but also the limits of the mayor’s success in providing the city’s poor with reasonable places to live. While the mayor’s plan has put thousands of low-income families in new or rehabilitated buildings and helped stabilize neighborhoods, it has been nearly drowned out by the twin waves of gentrification and rent deregulation.
“We’re losing units even with additions to the stock under the mayor’s housing plan,” said Victor Bach, a senior housing policy analyst for the Community Service Society, a nonprofit antipoverty group, and a member of a panel that advised the Bloomberg administration on housing in 2002. “I’m not knocking the plan. I’m just saying it hasn’t done much to stop the hemorrhaging of lower-rent units across the city.”
Including public housing, the number of apartments considered affordable to low-income households — those earning less than 80 percent of the city’s median income, or less than $37,000 — decreased to 991,592 from 1,189,962, a drop of nearly 17 percent, from 2002 to 2008. About 42 percent of the city’s households fit in that income category in 2008.
The data were supplied by the Furman Center for Real Estate and Urban Policy at New York University, which analyzed the city’s Housing and Vacancy Survey from 2002, 2005 and 2008. The center and other housing experts consider an apartment affordable if it costs no more than 30 percent of a family’s income, or about $925 a month for a family earning $37,000.
Although the numbers present a gloomy picture, they did contain a glimmer of hope. The worst years were between 2002 and 2005, when the city lost affordable apartments at the highest rate of the mayor’s tenure. In the next three years, as the mayor’s plan took hold, the city actually gained about 8,000.

Click here for the rest of the article: As City Adds Housing for Poor, Market Subtracts It

Tags affordable foreclosures, affordable housing, affordable housing development and preservation, affordable housing supply, fannie mae, foreclosures, freddie mac, los angeles affordable housing | Comment (0)

Public Policy Real Estate

Foreclosure Alternatives for Everyone Who Deserves Them

May 19, 2009 – 7:16 pm

I applaud the recent announcement by Secretaries Geithner and Donovan expanding the government’s ‘Making Homes Affordable’ Initiative to include the ‘Foreclosure Alternatives’ Program…which was in my mind the #1 missing piece in the Administration’s policies to date…and should vastly increase the ability of Americans in trouble to avoid foreclosure and get back on their feet faster…even they cannot afford to continue to own their home.

Full details on the program are not available yet, and I admit I am biased in my enthusiastic response to this policy change as I have been advocating for exactly such a change over the last 6 months and feel/felt so strongly about this program/policy that I have focused a major part of my time and business on Servicer Offered Short Sales.

I will say more once the government releases further details, but in the meantime here’s a memo I sent to key local and national policy makers and influencers in mid-April on exactly this topic. This would be a good read for anyone seeking to understand the rationale for and potential benefits of the new ‘Foreclosure Alternatives’ program.

To: Key Local (Los Angeles) and National Policy Makers and Influencers
From: Ray Mathoda, Founder and CEO, HausAngeles, Inc.
Date: April 15, 2009
Re: Closing the (Large) Gap in our National Foreclosure Prevention & Loss Mitigation Initiatives with Systematic Servicer Initiated Short Sales

I applaud the leadership and efforts of the Obama administration, FDIC and Treasury Department to help consumers, stem foreclosures and stabilize the housing market. Providing responsible homeowners a viable opportunity to stay in their home via an expanded set of loan modification and refinance options designed to lower their monthly housing costs significantly is a welcome and necessary development. Current government and non-government led initiatives in isolation however will prove insufficient in preventing a large number of avoidable foreclosures.

The purpose of this memo is to propose and request your support for a foreclosure prevention solution that simultaneously mitigates investor losses for a currently unaddressed large segment of troubled borrowers: systematic servicer initiated short sales.

Despite generous concessions to payments and loan terms, systematic modification efforts will continue to fail to help those troubled homeowners who are not offered, do not qualify for, or fail a loan modification. The fact is that our collective public and private sector efforts to help troubled homeowners have been focused on providing borrowers with two primary resolution options: loan modification or foreclosure. As a result, those that don’t qualify for or succeed at a loan modification remain “in limbo and uncertainty” until they are foreclosed on and are either offered a small cash payment (typically $1000) to vacate the property or evicted involuntarily.

I strongly believe it is not only possible to significantly mitigate the adverse impact of a likely foreclosure for these millions of responsible homeowners who cannot realistically expect to retain ownership of their homes; it is our responsibility to attempt to do so.

How many troubled homeowners will face foreclosure despite the Obama Loan Modification Plan?
According to the Congressional Oversight Panel’s March Oversight Report, an estimated 1 in 9 US homeowners is likely to be in foreclosure over the next few years. This equates to approximately 10+ million possible foreclosures. Assuming the Obama modification program successfully provides a loan modification for the 3-4 million homeowners it is expected to help, this leaves us with approximately 6-7 million likely foreclosures.

What is a short sale and why is it better than foreclosure?
A short sale is simply the process whereby property ownership is transferred by a borrower to a third party with the servicer and investor’s approval when the loan amount is in excess of the sale proceeds from the property. In short sales, a “deficiency” is created in the amount of this difference and if/when this deficiency is forgiven, it has historically been treated as taxable income resulting in an IRS obligation.

There are three key factors which make short sales a compelling alternative to foreclosure today:

• Scale and scope of the foreclosure issue and its adverse impact on the housing market: The likely number of foreclosures we will face in the coming years is very high (6-7 million as noted above). Foreclosures have a demonstrated and well understood significantly adverse impact on both the communities in which they occur as well as the overall housing market. As a result, there is a macro-economic rationale for preventing as many foreclosures as realistically feasible.

• Tax law: The Mortgage Forgiveness Debt Relief Act of 2007 temporarily changed the tax rules such that most troubled borrowers in owner occupied properties can complete a short sale before January 1, 2010 without incurring a large IRS obligation related to the deficiency.

• Declining home price environment and related investor incentives: We continue to have a (rapidly) declining home price environment in many regions with high numbers of at-risk borrowers. In this type of environment, short sales can help significantly reduce the negative externalities associated with foreclosures, which have the potential to destroy entire neighborhoods.

The potential savings here are material enough that it is possible to create programs that re-invest a portion of these savings to help troubled borrowers relocate to rental housing. I am aware of and personally involved with at least one pilot program which offers borrowers cash payments of between $5,000 and $15,000 for cooperating with their servicer to complete a timely short sale.
Here is an illustration of the investor savings possible due to short sales: The Case Schiller index shows home prices declined at a 26% rate between January 2008 and January 2009 in Los Angeles . This translates to an approximately 2% monthly decline in home prices. Assuming the timing of home sale is accelerated by 6 months for a $200,000 home, the related savings on home price depreciation are approximately 12% of the property value or $24,000. This does not include the 10% – 20% discount attributable to “bank-owned” sales (i.e. distressed sellers) or the savings to investors through expenses avoided by preventing foreclosure which can also be significant.

The below summarizes at a high level, the key benefits of a short sale relative to foreclosure for key stakeholders including consumers, the housing market, investors, and servicers.

Key Stakeholder Benefit of Short Sale vs. Foreclosure

Borrowers (Consumers)
• Avoid emotional and reputational pain of foreclosure
• Credit impact reduced to 2-3 years vs. 5-7 years
• No continuing financial or tax obligation when deficiency forgiven/ not pursued on purchase money owner occupied homes
• Note: Deficiency can and should be treated differently for investors and owners of 2nd/vacation homes, and tax consequences are different for such homes, as well as in the case of cash out mortgages

Investors
• Lower losses due to reduction in duration between loan going delinquent and property disposition (see example above)
• Lower losses due to savings on foreclosure related expenses (e.g., legal, home maintenance/rehab)

Servicers
• Reduction in servicer advances (i.e., reduced liquidity stress and interest expenses on advances)
US Housing Market & Economy
• Home prices stabilize at higher level as property sold is not physically distressed

Don’t we already have short sales? How is this different?
Due to increasing realtor-driven consumer education on the borrower benefits described above, short sales are being attempted by more and more troubled borrowers. Whereas a year ago there were almost no successful short sales, I would estimate that of total distressed residential properties sold in any given month 5-10% are likely short sales and the remaining 90-95% are foreclosures. As a percentage of total short sales attempted, I have heard anecdotally (many times) that a majority fail. The practical reality on the ground is that servicers and investors just aren’t set up to make efficient, timely, economic decisions on short sales where the likely alternative is foreclosure.

While improved borrower requested short sale processes and timelines would help, that issue is not the focus of this memo. In order to do this right, I believe servicers must offer and approve short sales systematically and in bulk right at the time a ‘no’ loan modification decision is made, or a previously executed loan modification fails. While it is perfectly logical that a short sale would be offered to every troubled borrower as an option to foreclosure, this ‘common sense’ solution is not in place today.

It should be noted that the suggested process of systematizing, standardizing and bulk-offering this ‘make sense’ solution is no different than the evolution of our loan modification policies and efforts as a nation over the past year or so since FDIC Chairwoman Shiela Bair led an attempt to conduct bulk modifications at Indymac Bank after the institution was put into FDIC conservatorship.

Why would government leadership and support be helpful and/or necessary?
I believe government leadership and support would increase the total number of troubled borrowers who are ultimately able to avoid foreclosure, accelerate the pace at which these borrowers are helped, and reduce servicer and non-profit foreclosure prevention counseling and process expenses as follows:

• Borrower education and communication: By helping troubled borrowers understand that short sales are a legitimate option that should be considered if a loan modification is not offered or fails. Many troubled borrowers are so inundated by a variety of third parties – some well intentioned, many not – including their servicer constantly calling them that they stop listening to or trusting anyone who contacts them.

• Deficiency related contractual and tax issues: By eliminating uncertainty and creating simple standards regarding how the deficiency created in a short sale is treated contractually and from a tax standpoint by borrower type/situation (e.g., in the case of responsible owner occupied borrowers, investors and/or owners of 2nd/vacation homes). This is a critical issue that will require communication and coordination with investors and is unlikely to be resolved properly without government intervention (e.g., in the systematic short sale pilot program I am familiar with, the contractual language regarding the deficiency leaves the servicer the option of pursuing the deficiency even though there is no intention of doing so in the case of owner occupied borrowers). Finally, state tax laws are not always consistent with federal tax law, and only the government can resolve these differences effectively in a fair and expedient manner.

• Standardization: There is a critical need to maintain as much standardization as possible in both program guidelines and related forms/documentation requirements, and the government is the only stakeholder that can drive this much needed standardization effectively

• Augments the Administration’s Home Affordable Modification Guidelines: Although the Home Affordable Modification Program includes payments to servicers in the guidelines, there is no guidance for servicers as to how to execute meaningful numbers of short sales; this direction is required to minimize foreclosures

Disclaimer: This article is an opinion piece only. It should not be construed as legal or tax advice. Any individuals should contact their legal counsel, tax advisor and/or credit reporting agency to ensure they understand the legal, credit and tax implications of any decision they make.

Tags bulk short sales, foreclosure alternatives, obama foreclosure alternatives program, servicer offered short sales, short sales, systematic short sales | Comment (0)

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Who should get to keep their home and who shouldn’t? Simplicity is key for success

April 23, 2009 – 1:54 am

There are a lot of people who have gotten “unlucky” recently, in one way or another, and are finding themselves unable to make payments on their debt because their income and expense equation is no longer what it used to be (i.e., their income is down, or their expenses are up). Of the millions of homeowners currently not making their full monthly mortgage payments, it’s hard to tell which ones were unlucky, who got defrauded or lied to, and who just plain made a stupid (intentional or unintentional) mistake and bought something they couldn’t really afford.

So who – of the large number of people that aren’t able to make their currently monthly housing payments – should get to keep their home and who shouldn’t? This is more than a million dollar question and we’re having a helluva time as a nation trying to answer this question, in policy and in practice, fairly, systematically and timely.

There are currently a myriad home retention programs implemented across dozens of servicers nationwide, and if I had to pick one word to describe the current landscape of options made available to troubled borrowers, I would pick “complicated”.

I think if we could come up with a simple common sense rule of thumb to answer this key question, we would be much further ahead in stabilizing our housing market. So in the spirit of proposing solutions instead of criticizing current approaches, here’s my simple solution to this problem:

If you can afford the home you currently live in at its current market price with loan terms based on current (historically low) market housing rates….you should get to keep it. If you can’t, you should move on and find rental housing that you can afford based on your current financial reality.

How would I achieve the above if I were designing our national housing programs? I’d keep it pretty simple (although I acknowledge that making it so would be rather complicated and time consuming…with no guarantee of success):

1. Do principle write-downs to current market value for all troubled borrowers who can afford their home on current market terms…but in return for this (massive) accommodation…require them to give up 75% of future home equity appreciation back to the investors who took the loss resulting from the initial principal write-down…until the investors are made whole. After that point, allow the homeowner to keep any remaining equity upside.

2. Allow every other owner occupied troubled borrower to sell their property via a servicer offered short sale accompanied by a cash payment to help the family move to affordable rental housing. Forgive the “deficiency” for these borrowers including any tax that might be owed on the amount forgiven (most families in trouble can’t afford a hefty tax payment anyways, so this would only push them further into the hole)

3. Allow every other non-owner occupied borrower to sell their property via a servicer offered short sale, but with no cash payment and no automatic forgiveness of deficiency

Would we likely require a new governmental entity/group to track the details on the principal write-downs and resulting future home equity appreciation share on behalf of impacted investors? Yes.

Is this simple proposal difficult to gain agreement on? Yes…very difficult. But no more difficult than it will be to deal with the millions of avoidable foreclosures that we will experience otherwise.

Tags foreclosure crisis, foreclosure prevention policies, housing crisis, short sales, systematic short sales, US housing market | Comment (1)

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REOMAC Update: REO Brokers Are Hungry For A Better Way

April 9, 2009 – 11:01 pm

I had the privilege of participating on an exciting panel on the future of short sales at the REOMAC semi-annual conference in Palm Springs this week. REOMAC is the non-profit trade organization for REO industry participants – realtors, servicers, lenders, asset managers and other service providers –who focus on the (tough) job of helping Banks manage and sell properties they have acquired through the foreclosure process.

The panel included 2 experienced industry leading REO brokers Patrick Bartolic and Earl Gervais, Ron Garber from Short Sale Plan, Todd Wilson from Prospect Mortgage and myself, was moderated by Art Acosta (another top REO agent and REO industry leader), and was a big success. The room – which was packed with 500+ of the (real estate) professionals most familiar with the emotional and practical human toll of foreclosures – was inspired by the vision of the panel and hungry for a foreclosure alternative that works!

While the panelists started by lauding the efforts of the Obama administration to try to help as many people as possible retain ownership of their homes via loan modifications that reduce their monthly housing costs significantly, they also acknowledged the practical reality on the ground: that many if not most families in trouble have experienced a significant reduction in their income and are unlikely to be able to continue to afford the homes they once thought they could.

The focus of the panel was on this segment of consumers who don’t qualify for or fail a loan modification and the solution presented was systematic, lender offered short sales. Such short sales are very different from the typical borrower-requested short sale seen in the market today, and most everyone in the room agreed this systematic emerging solution should be THE preferred alternative for troubled borrowers living in homes they cannot continue to afford.

As an ardent advocate for systematic short sales (As previously discussed on this very blog, I believe this program is THE missing loss mitigation and foreclosure prevention initiative in our current national approach to the housing crisis), I admit I was pleased to see how unanimously the room agreed this solution is necessary and likely inevitable.

There just aren’t a lot of practical housing crisis solutions available that can simultaneously benefit consumers, the US housing market, investors and servicers, and which don’t come with a heavy taxpayer price tag….except systematic short sales!

Systematic short sales like the ones described by the panel (i.e., those offered to all owner occupied borrowers who fail to qualify for or succeed at a loan modification right when the loan modification decision is made) reduce the emotional and credit impact for borrowers by preventing foreclosure while providing the borrower significant (non-taxpayer funded) financial assistance to help move to rental housing. By accelerating the timing of asset sale in a declining home price environment in a manner that is amicable for the borrower, such short sales help stabilize the housing market faster and at higher levels than foreclosures would. And finally, systematic short sales significantly reduce investor losses and servicer advances…..positively affecting a key pain point in the housing and financial markets today.

So why isn’t this ‘no-brainer’ solution already widespread in the industry? The panel discussed two key reasons. One, this is the first time in the nation’s history that circumstances (including tax law) have collided to make this a no-brainer solution for all involved including the consumer (e.g., prior to some 2007 amendments to tax law, consumers owed taxes on any deficiency forgiven by the lender in a short sale). Second, practically speaking servicers just aren’t set up (yet) to execute on this key opportunity from an organizational, process/techology, and policy/guideline standpoint.

So what’s next? It seemed pretty clear to all in the room that systematic short sales are the right answer. Key panel members – including me – stated they considered this a big policy and business opportunity and were working to help key servicers develop and implement systems, policies and procedures to implement this alternative. So stay tuned for more on that front.

The bottom-line for now, though, is good news in my view. Key REO industry leaders believe it is just a matter of time before systematic, lender offered short sales become a viable foreclosure alternative for borrowers in trouble who currently have no option but foreclosure…..and the REO realtors who deal with foreclosures every day are standing first in line hungry for this solution.

DISCLAIMER
This blog is intended to be a general discussion only and should not be considered legal or tax advice. Your use of it does not create an attorney-client relationship. Any liability that might arise from your use or reliance on this article or any of its links is expressly disclaimed. This blog is not legal, accounting or tax advice, is not to be acted on as such, it may not be current, and is subject to change without notice.

Tags certified short sales, foreclosure prevention, foreclosures, housing crisis, lender assisted short sales, pre-approved short sales, REO, REOMAC, short sale panel, short sales, systematic short sales | Comment (0)

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One Key Missing Piece: Early Thoughts on the Obama Plan for At-Risk Homeowners

March 6, 2009 – 1:00 am

I am pleased to see the Obama administration attempting – much more aggressively than the Bush administration ever did – to help (3-4 million) at-risk homeowners stay in their homes through a variety of loan modification initiatives and incentives which are designed to lower the at-risk homeowners’ payments to levels they can afford to sustain going forward. Creative and aggressive loan modifications are absolutely a critical part of any well designed foreclosure prevention and housing market stabilization program, and the Obama team’s plan included 2 additional elements I liked:

1. A clear stated definition of who the plan is not designed to help: Speculators. This is important because the American taxpayer cannot afford to help everyone, and everyone – particularly speculators – doesn’t deserve help. If anything, I wish the administration had made a further differentiation in treating homeowners who used their homes as a piggybank (by taking out cash and spending it) vs. those who didn’t (these latter borrowers are the most responsible group of at-risk homeowners)

2. Focus on a key practical issue – the lack of standardization (across Banks) on both the loan modification program guidelines (which the Obama plan says they will standardize) as well as documentation/forms (which I assume they will standardize consistent with the new standard guidelines). I cannot emphasize how important an issue this is and will continue to be from an execution standpoint. Just last week, I was in a discussion with a Los Angeles non-profit focused on foreclosure prevention, whose employees were telling me what a barrier to success it is to have different documentation requirements at each Bank.

I don’t know how well the programs the administration is trying to get implemented will work, but I know attempting this is absolutely the right thing to do…and if the administration and others involved in execution remain focused and flexible, they will learn and adapt from early experiences to re-design or enhance the programs to be most successful.

The above being said, I think the Obama plan as announced thus far fails to address what would happen to a critical, real and very large number of at-risk responsible borrowers: those that don’t qualify for a loan modification for their primary residence even under the expanded framework.

This set of borrowers would be particularly heavily concentrated in high cost regions such as California where I live, where the market (in the boom days) was heavily non-conforming and where as a result, refinance options will continue to be scarce despite the Obama plan. Also, there are just a lot of people, particularly from the financial services, real estate and mortgage industries who will just not make the kind of money they used to make during the boom days…anytime soon.

The right answer for these borrowers is not foreclosure; nor is it to keep them in homes they cannot afford anymore. We can and should help these borrowers avoid foreclosure and adapt their housing costs/reality to their new economic reality in a manner that is respectful and graceful – by aggressively implementing short sales programs that work (the short sales process currently practiced is broken and must be fixed).

In order to work, a short sale program must be systematic (just like loan modification programs are)…with clear guidelines, documentation requirements and approval/execution timeframes. Designed right, these programs save the Banks enough money (relative to the foreclosure option) that the Banks should be able to give the homeowner a helping hand (cash) to help them with their move and new rental.

And the best part? There’s no need for additional bailout money needed to “bridge the gap” and help prevent foreclosures even for those responsible homeowners that didn’t qualify for a loan modification or refinance.

Tags foreclosure prevention, lender assisted short sales, loan modification, making homes affordable, obama housing plan, obama making homes affordable plan, short sales, systematic short sales | Comments (2)

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Why it Never Makes Business Sense For a Bank to Foreclose on an Owner Occupied Home

February 26, 2009 – 4:47 pm

I believe that in the current housing and economic environment (with declining home values nationwide) it never makes economic sense for a Bank/Servicer to foreclosure on an owner occupied home. In a declining home price environment, a foreclosure is always the least attractive option for a Bank economically, as the time and cost of foreclosure result in lower economic returns compared to other pre-foreclosure options. As a result, I believe we can successfully and rightfully place a temporary nationwide foreclosure moratorium on homes occupied by cooperative owners/borrowers – if we design such a moratorium right and support it with appropriate private sector initiatives.

A foreclosure should only be necessary if and when the borrower (individual or family) doesn’t return the Bank’s phone calls or respond to the Bank’s letters and is otherwise uncooperative on the issue of how to address their housing costs and reality in a way that is sustainable for them and the Bank longer term. This in my mind is a key concept: the goal of all foreclosure prevention initiatives should be to adapt the borrowers economic reality with their housing reality.

In simple terms, here’s how we can avoid foreclosures in a way that is consistent with good business and good policy:

1. Loan modifications to make housing costs affordable: Maximize the number of borrowers whose loan is modified such that their housing costs are consistent, on a go forward term basis, with their go forward monthly income. The Obama administration has announced several initiatives to expand current loan modification programs to help achieve this goal.

However, loan modification cannot work for everyone. If an individual’s earnings are down a lot with no immediate prospect of returning to previous higher levels (which is the case for many people in the housing, real estate and mortgage sectors)…then they really cannot afford to stay where they currently are. For example, if a realtor previously earned $500,000 per year and is living in a $3 million dollar home but is now only making $100,000 per year then loan modification just isn’t an option for them. A different solution is required.

2. Servicer assisted short sales: For every individual who does not qualify for a loan modification, a servicer assisted short sale should be pursued right at the point the loan modification decision is made. In a servicer assisted short sale, the (troubled) borrower works with the servicer as a partner instead of adversary. The home is sold for market value, the difference between the amount of the home sale proceeds and the loan amount is forgiven (and current law waives any tax liability associated with this forgiven amount), and the servicer can even afford to pay the borrower to help make their move to more affordable housing smooth, graceful and respectful.

This type of short sale program is and should be the industry standard – and I and HausAngeles are enthusiastically working with a leading servicer to pilot and refine this program in Los Angeles (so it can quickly be rolled out nationwide).

The above foreclosure prevention strategy – implemented in a coordinated and well communicated manner – can effectively eliminate foreclosures for all cooperative troubled borrowers while actually reducing servicer/Bank losses on these troubled assets.

Can doing the right thing be good business? On the issue of owner occupied foreclosures I believe the answer is yes – as long as all parties are polite, respectful and realistic.

Disclaimer: This blog is not intended to provide legal or tax advice to anyone and merely reflects my personal understanding and opinions on this issue. Individuals should consult with their tax advisor before taking any action based on the above.

Tags foreclosure moratorium, lender assisted short sales, loan modifications, los angeles foreclosures, los angeles short sales, loss mitigation programs, loss mitigation strategies, preventing foreclosures, servicer assisted short sales, short sales | Comment (0)

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Foreclosure Prevention & Housing Market Stabilization: Thoughts from the Ground Level

February 5, 2009 – 6:30 pm

Please find below a brief proposal I have put together on the issue of foreclosure prevention and housing market stabilization based on what I and the team at HausAngeles as well as our colleagues, clients and strategic partners are actually seeing (and not seeing) on the ground in Los Angeles/Southern California. I and we do not claim to have all the answers on this “massive issue”. Nor do we claim all of the ideas below are mine or ours (please see footnote 1: acknowledgements). However, refining and executing on some or all of these ideas will be a key focus for me and the team at HausAngeles for the foreseeable future and until the housing market stabilizes. Our primary geographic focus is Los Angeles, but we plan to share learnings and information widely and freely to maximize impact at the ground level.

Preventing Foreclosures, Helping Consumers and Accelerating the Stabilization of the US Housing Market

Background and Context

I am the former Chief People/Administrative Officer and CEO Chief of Staff of Indymac Bank, who found herself at the epicenter of the mortgage and housing crisis since mid-2007. I resigned from Indymac after the FDIC placed the company into conservatorship, but decided to continue to focus on the housing/real estate sector where I saw and continue to see tremendous opportunity for positive impact, both personal and professional.

As I have gotten deeper into the real estate market and understood the reality on the ground on foreclosures[1], I have discovered numerous untapped and under-tapped opportunities to better help consumers manage their financial issues/life transitions, prevent foreclosures, reduce lender/investor losses, and help the housing market “find its bottom”. I strongly believe the housing market reaching bottom (or close to it) will mark a crucial turning point in our economic recovery.

Two interesting and important characteristics that I believe many of these opportunities share are:

1. Many (if not most) of the proposed initiatives actually help consumers, lenders/investors and the US economy. This alignment of interests is historic as these stakeholders often have competing objectives, especially in times of crisis;
2. Many of these opportunities require government coordination and support to work effectively and expediently, as key implementation challenges are common across industry players and/or require government support/regulatory changes.

Untapped and Under-tapped Opportunities to Help Consumers, Reduce Loan Losses and Accelerate the Bottoming of the Housing Market:

1. Ensure every homeowner in trouble who can realistically afford to continue to own their home with a modified loan, gets one as soon as possible

* One of the big reasons a large percentage of borrowers in trouble currently don’t get timely help via a loan modification is literally because they don’t respond to letters from their Bank. It’s not difficult to understand this behavior: consumers delinquent on payments are scared to open/respond to letters from the very organization that they owe money to (which they are not sure they can pay back as promised).
* On the other hand, there are thousands (likely millions) of licensed professionals (e.g., realtors, financial advisors/planners) already living in the same communities as the borrowers in trouble…who are not being leveraged to solve this communication problem.
* So let’s leverage these licensed professionals on the ground to ensure we have evaluated every borrower who is behind on their mortgage to see if there’s a way to realistically help them retain ownership of their home[2].

2. Turn more owners into renters:

* In times of crisis, it’s critical to prioritize what’s most important. My belief is that safety and family are more important for homeowners in trouble than ownership, given the seriousness of the crisis we are facing.
* As a result, I believe we should implement programs that turn some current homeowners into renters without making them move e.g., by transferring ownership of the homes they are living in and love to investors who are looking for income earning assets.

3. Implement systematic, lender supported short sales:

* Where it is not possible for the current homeowner to continue to own their home, we should avoid the foreclosure process (which is painful, time consuming and expensive) and instead facilitate the sale of the home with the borrower and lender working as partners instead of adversaries.
* As someone in the real estate business I can tell you that getting a short sale executed right now is nightmarish. There are no industry standards and most lenders are not set up internally to properly approve/manage short sales. Yet short sales nip the foreclosure process in the bud and are better for homeowners (who would have the opportunity to adjust their housing reality to their economic reality and prospects with greater dignity and respect), lenders and the US economy[3].
* Since systematic, lender assisted short sales are a lower cost option to foreclosure, it may be possible to divert some of the cost savings back to consumers to help them with their life transition (e.g., for relocation and/or other expenses related to their move/life change)

4. Implement rent to own programs to expand demand
* For families who do not have enough saved to make a down payment or qualify for a conventional mortgage but who have jobs/steady monthly income there is an opportunity to create future home ownership opportunities through creative rent to own program designs

5. Expand the nation’s affordable housing stock:
* In many cities across the country there is currently an acute shortage of affordable housing and the existing affordable housing stock is in poor condition. In Los Angeles (where I am personally involved), as an example, we are embarking on a 25 year plan to redevelop our ~10,000 public housing units. Such redevelopment and development programs will take decades and cost billions.
* Why embark on that costly and time consuming process, when we have an excess supply of housing nationwide already? Instead, let’s turn some of these currently empty/lender owned properties into affordable housing and bring hope to those that sit at the bottom rung of the economic ladder in our society.
* I believe Fannie Mae and Freddie Mac REO’s (which are currently being held on these entities’ balance sheets due to recent foreclosure moratoriums), or a significant portion of them, are likely best suited for this purpose. Some of this newly created affordable housing could be transferred to public housing authorities across the nation for management/administration, while some could be sold to investors as income-earning Section 8 or other affordable housing.[4]

Thoughts on Implementation

Given the seriousness of the current housing and economic crisis and my view that housing reaching a bottom will mark a crucial turning point in our economic recovery, I believe a cross-functional, multi-agency, multi-lender task force/team should be put together with a goal of clearing the market of the current total inventory of bank/lender/investor owned single family properties over the next 12 months.

In other words, let’s do whatever we can (after agreeing on some basic principles and philosophies) to try to have the housing market bottom by the end of 2009/early 2010. Once the current inventory has been cleared, we can focus on efficiently clearing the market only of new inventory (which should hopefully be at lower levels with the help of the President’s job creation plan and the effect of some of the above described programs).

Concluding Thoughts

I believe there are 2 key flaws in our current approaches on foreclosure prevention and clearing the market of troubled real estate inventory. First, foreclosure moratoriums, although well intentioned, only “push the ball down the road” to be dealt with at a later time i.e., these moratoriums are reducing supply today and are likely to prolong the duration of home price declines. Second, I believe there is an excessive focus on home ownership as a primary goal, whereas I believe we are ‘beyond ownership’ as a country. Dealing with the housing crisis should be about safety and family, and about reflecting American families’ actual economic reality in their housing reality (as gracefully and kindly as possible). These core principles are a foundation of this proposal.

[1] My views/ideas on foreclosures, REO’s and the real estate market reflect key input and insights from: Tony Ebers, Chief Operating Officer (Indymac), Eric Friedman, SVP Default Management (Indymac), John Olinski, EVP (Indymac), Ron Bergum (CEO, Prospect Mortgage), and Ron Garber, CEO, shortsaleplan.com

[2] Note: The Hope Now alliance does not include individuals including licensed professionals

[3]For example: Short sales result in an ~2year credit impact for homeowners in CA vs. ~5 years for a foreclosure. Also, short sales are significantly less expensive than foreclosures (e.g., legal fees, home damage) and don’t have the reputational stain of foreclosures. Finally, short sales in a declining home price environment result in significantly less loan losses by accelerating the timing of asset sale

[4] I should note that I believe any new affordable housing created should come “with strings” i.e., individuals and families should be committed to learning and earning their way out of government subsidized housing within a defined period of 3-5 years to be eligible to move into the new housing.

Tags foreclosure prevention, foreclosures, housing bottom, housing crisis, housing market crisis, housing market stabilization, loan modifications, short sales | Comments (4)

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A Roof Over Every American’s Head: Addressing the Core of our Current Crisis of Confidence

January 12, 2009 – 4:50 pm

What is the #1 worry that most Americans have when they get laid off? I believe it is that they might lose the roof over their and their families’ heads in a worst case scenario (i.e., if they are unable to find adequate alternate sources of income).

Now imagine if the government of this country was able to promise all of its lawful citizens this: “No matter what, you and your family will always have a roof over your head. We know we are in the middle of the greatest economic downturn since the 1930’s and we also know that there has been overbuilding in the housing sector. We have put these two realities together to make a unique promise to all Americans today so that you may feel secure and confident about their family’s safety.”

Do you think the above promise would help the nation stabilize (and possibly even start an economic recovery)? I believe it might because it addresses the very heart of the problem in America today: a lack of confidence in our future and a deep worry (almost and actually a panic in many people) about what this future will bring.

Now, I am not one who believes that every American can and should own a home (even though I do strongly believe in the societal and familial benefits of home ownership). Nor do I believe that we should subsidize home ownership for current home owners any more than we would subsidize it for new homeowners. But we do have plenty of housing available in America today….and the government can and should do more to help those Americans who suddenly find themselves in an economically precarious situation.

The US government already provides rent subsidy at varying levels to the lowest income in our society…primarily through the Section 8 and public housing programs (Disclosure: I am on the Board of the Los Angeles Public Housing Authority, which owns/administers both programs in Los Angeles). So why not expand this concept to stabilize our families in a manner that is sensible, fair and proactive? This might just be the type of bold action we need given the times we are experiencing currently.

Tags crisis of confidence, economic crisis, economic recovery, foreclosures, housing crisis | Comment (1)

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Transparency and Tradeoffs: The Missing T’s in The Healthcare Industry

December 23, 2008 – 10:30 pm

AV’s recent inpatient surgery experience – she had a cervical dystectomy (relatively common neck surgery) – reminded of how fundamentally flawed our US healthcare system is. Almost every industry/market that’s “efficient” functions on some basic common principles/dynamics: Customers make purchasing decisions based on cost, quality and service and producers/companies compete on the basis of these 3 core product/service “differentiation” dimensions.

Let’s take the retail industry as an example. Walmart is all about being low cost and has build a business model that continuously wrings cost out of the entire supply chain for the goods they sell. A store like Nordstrom on the other hand tries to be more upscale, so it competes on service and to a lesser extent quality (by carrying brands perceived to be higher quality). And Louis Vitton, Tiffany, and other luxury brands compete largely on quality only (with quality being defined as a combination of style/perception, brand value, material, cut, etc.).

The key to the above tradeoffs occuring, of course, is information (transparency) about the 3 differentiating dimensions, particularly quality and cost….to enable consumers to evaluate different companies and make their decision based on what matters most to them. But none of this is possible in healthcare – an industry that is almost a fifth of US GDP!

In healthcare, you make a decision with no idea of what it will cost you and really no way/system of getting such a cost estimate without significant effort. And quality is an entirely different matter. Where cost is difficult but not impossible to assess, quality is. There is absolutely no data available to consumers to help them understand the experience level and output/performance (aka “outcomes” in healthcare) of the doctor they choose to go with. And did I mention there’s no systematic way of finding a doctor that meets your needs? The whole system of finding a doctor is primitive – you ask around to see if anyone you know (including other doctors one might know) have a recommendation (which is again, largely based on perception/reputation and not facts).

I am definitely a believer that government led investment in infrastucture is a key tool to help get the US out of the current economic crisis (while making sensible investments which will pay off and are required for our long term health). I would love to see the Obama administration address some of the issues above to help get the US healthcare industry more nimble, competitive and no doubt efficient.

Tags health outcomes, healthcare, healthcare cost, healthcare efficiency, healthcare quality, tradeoffs | Comment (0)

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Untapped and Under-tapped Foreclosure Prevention Strategies: “Let a Hundred Flowers Bloom”

December 16, 2008 – 8:39 pm

There is widespread agreement among key national political, economic and housing stakeholders (the government and regulators, consumers and Banks among others) on the need to help prevent foreclosures, keep as many people as possible in their homes, and “clear the housing market” of troubled assets quickly and fairly. This would help the housing market find a bottom more quickly – which housing market bottom will mark a turning point in our nations’ economic recovery.

In the spirit of Barney Frank’s statement “Let a Hundred Flowers Bloom”, I have put together this foreclosure prevention vision (including feedback and insight from Ron Garber, CEO of Short Sale Plan and Eric Friedman, SVP of Loss MItigation at Indymac Bank).

The housing market and economy are facing problems larger than any individual or organization….and it is in this spirit that I am publicly sharing this vision. I would welcome feedback from anyone who has experience in foreclosure prevention and any of the related strategies/areas.

I will be pursuing some or all of these strategies for Los Angeles and perhaps nationally in my capacity as CEO of HausAngeles, and in partnership with Ron Garber, who has spent the last 2 years developing and refining systematic short sales knowledge, education/training, processes/documentation and infrastructure….believing that they are the preferred alternative to foreclosures for all parties involved.

Tags foreclosure prevention, foreclosures, housing crisis, housing market bottom, rent to own, short sales | Comment (0)

Capital and Risk-Sharing: Smart Crisis Fighting Tools That Should Be Used Much More

November 30, 2008 – 10:23 pm

I’m glad to see the government is finally using 2 “smart” tools – capital and risk sharing – to help address the financial institution panic and resulting failures we have seen since earlier in 2008 which have seriously escalated the financial and economic crisis facing the US and global economies today. While these tools don’t comprehensively address the myriad of financial and economic issues facing the US or the world today, they:

· Help stabilize Banks when no other 3^rd party can/will do so: this is critical to stabilizing consumer sentiment, the markets and economy

· Are leveraged in their impact to the real economy: Because Banks typically lend $10 to $20 for every dollar in capital they hold

· Help minimize the tax-payer bill from all this government investing and intervention: by acknowledging the uncertainty around where the housing and credit/financial markets will bottom out, and putting a “cap” on the maximum losses a private investor can incur on an investment

· Help establish a floor for asset values (by limiting downside risk for investors): and therefore support and encourage the return of private investors into the capital markets

The need for government provided capital was obvious to me months ago at Indymac since such a significant capital infusion would likely have prevented the Bank’s failure and no private capital was available for the job. Every investor who had invested capital into any financial institution in the 12 months leading up to Indymac’s failure had lost all or a big portion of their money by the summer of 2008, so this lack of private capital was a rational market outcome. And risk sharing can and should reduce the size of the loss the government creates by selling Indymac’s assets as it will help mitigate the negative financial impact of the fact that Indymac’s assets are being sold by the government into the worst housing asset market since the Great Depression.

A wise man once said it was possible to “transform a breakdown into a breakthrough” and I think the tools above can be powerfully applied to the global economy today. After all, no large company is just a “US” company today. All major American companies are generally global in the markets they serve, the organizations they work with, and the workforces they leverage (even “little Indymac” which only operated in the US supported over 1000 employees in India). So by supporting US Banks and Financial Institutions the US government is already supporting the global economy (not just the US economy).

Why not do this more directly and on a bigger scale worldwide? As someone who is optimistic about the global economy’s long term prospects, I think we should. The US taking an ownership stake in a wide array of businesses all over the world could indeed help turn this breakdown into a breakthrough.

Tags economic crisis, financial crisis, government capital, government risk sharing, indymac | Comment (0)

Life People Politics Public Policy World World Affairs

Redefining the War on Terror

November 28, 2008 – 10:33 pm

The Mumbai “terrorist” attacks are a clear message to President Elect Obama, us, and the rest of the world. The problems of the world aren’t just economic….they are equally urgent, social and extend deeply into our homes and places of worship.

The Bombay attacks are highly symbolic in their location/s, organization-level and timing. And they hit home. I definitely feel the significance of these particular attacks personally. The violence was directed at the heart of India’s financial system where my (our) friends hang out, my (our) colleagues stay when they visit India, and our companies establish offices when they enter the Indian market (the 5 star hotels Taj and Oberoi in Bombay have been the India office for many a blue chip multi-national corporation). The targeting of westerners by the attackers is particularly galling since it targets a big source of support and growth for India and it’s democracy, philosophies and people. India is getting more integrated with the west and the global economy, and the attacks sought to strike at the core locations and symbols of this progress.

So what? Since change is in the air, here’s the 2 key changes I’d like to see made immediately in our”war on terror”:

1. Rename it in a way that reflects what it is. In some ways I think we have glorified what is really going on, by allowing this global problem to be named a “War on Terror” fought against Terrorists. Certainly the acts can and do bring terror into people’s hearts. But why not (at least) try to take away this terrible power? There is clearly no moral equality in this war, and the battleground is people’s minds and hearts (not a physical battlefield). The truth is these so called terrorists are generally pathetic (and often unlucky) losers perpetrating violence in the name of God. Calling their movement what it is will go a long way towards accelerating it’s end, in my view…and also helping make it less and ultimately non-violent.

2. Acknowledge that this is not only about Islam and is truly global/multi-national. Violent Islamic fundamentalists are certainly creating massive problems worldwide, but the problems extend beyond Islam. In my (our) lifetime the forces of religious fundamentalism have risen dramatically across the globe in reaction to the forces of globalization, westernization and modernity….and many outside Islam are also perpetrating violence in the name of their God. Broadening the focus beyond Islam will, I think, help address it more quickly in Islam also…as it will remove the ego and pride barrier created by the perceptions of denouncing an entire (and majorly important and large) religion.

Tags india and pakistan, islam, mumbai attacks, terrorists, war on terror | Comment (0)

Life Politics Public Policy

Equality for all: US Supreme Court Decision and Timing

November 18, 2008 – 12:36 am

I am a strong believer that civil rights issues should be resolved through the legal (not political) process and feel it is only a matter of time until the US Supreme Court strikes all the discrimination that has been “constitutionalized” during the last 8 Bush years on the issue of gay marriage (sadly, fully 30 states now “ban” gay marriage via their constitutions). I was feeling like a naive optimist after a conversation over brunch this past weekend, where a (clearly very smart) lawyer made a strong argument that the US Supreme court wouldn’t do what I say it will…at least not for the next 20 years!

Then today I saw 2 key arguments/quotes that give me hope that every individual and family will have equal rights and equal protection under the law in the USA sometime soon (despite the recent and unfortunate voter approval of the discriminatory Proposition 8 in California):

I was reading a fascinating article on the Princeton alumni website today entitled: “Her husband bakes, Scalia sings: Ginsburg describes the lighter side of the Supreme Court”. Here’s a direct quote from the article:

As she examined a small booklet with the text of the Constitution, she described her “favorite provision:” the end of section one of the 14th Amendment. She read aloud from it. “… (N)or shall any state deprive any person of life, liberty or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”

You can click here for the full article: http://www.princeton.edu/main/news/archive/S22/48/08A80/

Then, I saw an LA times opinion piece by Brian Gray, a Professor at UC Hastings College of Law in San Francisco, which draws a parallel between the arguments against Prop 8 and a decision made by the US Supreme Court on a Colorado proposition, which had (and I quote): ‘barred the state and its political subdivisions from adopting or enforcing any law “whereby homosexual, lesbian or bisexual orientation, conduct, practices or relationships” are the basis of a claim of discrimination.’

Here’s what happened on the Colorado issue (and I quote again):

“Following the enactment of Colorado’s Amendment 2, its opponents filed suit claiming that it unlawfully singled out gays and lesbians as a class to deny them rights that other citizens not only possess but take for granted. These rights include access to housing, government services, public accommodations and public and private employment opportunities without regard to an individual’s race, sex, religion, age, ancestry, political belief or other characteristic that defines each of us as a unique human being. Amendment 2, the opponents argued, therefore denied gays and lesbians the equal protection of the laws, which is a guarantee of the 14th Amendment to the U.S. Constitution.

To the surprise of many, the U.S. Supreme Court agreed.”

Click here to read this fascinating LA Times article: http://www.latimes.com/news/opinion/la-oe-gray17-2008nov17,0,1425883,print.story

How long do you think it’ll be before all individuals, gay or not, have full equal rights in the USA?

Tags equal rights, equality, gay marriage, prop 8, supreme court | Comment (1)

Public Policy World World Affairs

A New Focus for American Foreign Policy: Human Rights

October 24, 2008 – 10:40 pm

One of the fatal flaws of the Bush approach/policy framework that I would love to see Barack Obama change…is this idea that it is America’s job to spread Democracy around the world. As a student of Democracy and child of the largest Democracy in the world (India), I do believe in and love Democracy. However, just like Capitalism….Democracy, too, is a flawed, chaotic, and imperfect system and I just don’t think it’s America’s job to tell other countries what political system is best for them.

In fact from a purely theoretical standpoint, I believe a ‘benevolent autocracy’ is likely the best political system to help efficiently/quickly advance a society economically and socially. The only issue is, those benevolent/enlightened autocrats are really difficult (virtually impossible) to come by….and power corrupts, so this too is a slippery slope.

In any event, to get back to the original point of this blog….I believe America needs to officially change this stated policy of spreading Democracy….and focus primarily on spreading/ensuring basic human rights for every human being. Even if you disagree with my point on Democracy….I think most should agree safety comes before politics…and the problems the people of the world face in so many countries (including the Middle East) are still about safety.

Let’s work on the basics, and get to politics later.

Tags democracy, foreign policy, international affairs, middle east, obama, Politics | Comment (0)

rayman mathoda

Category Archives: Public Policy

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Untapped and Under-tapped Foreclosure Prevention Strategies: “Let a Hundred Flowers Bloom”

Redefining the War on Terror

Equality for all: US Supreme Court Decision and Timing

A New Focus for American Foreign Policy: Human Rights

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