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Archive for March, 2010

Why the HAMP “Enhancements” Won’t Help Stem Foreclosures

March 31, 2010 Leave a comment

It’s pretty clear that the housing crisis is a huge part of this economic downturn.   In my foreclosure prevention work, I have seen the difficulty homeowners are having as a result of job loss, reduction of income, medical expenses and other hardships.  About a year ago, the Obama Administration trotted out the Home Affordable Modification Program (HAMP).  The plan set forth a process for servicers to modify mortgages to help homeowners who suffered a hardship and were unable to make their full monthly mortgage payments.  HAMP is a voluntary program, but just about all the large banks and servicers signed up for it.  Despite participation by most of the big players, it’s also pretty clear that HAMP has been minimally effective at preventing foreclosures and will not come close to reaching its goal of assisting up to 3 to 4 millions homeowners by the end of 2012.

In an effort to  meet its goals, the Obama Administration offered several changes and additions to HAMP on March 26, 2010.  Details of the changes can be found here, but the basic changes are as follows:

  1. Temporary assistance for unemployed homeowners while they look for work
  2. Servicers will be required to consider principal write-downs
  3. Improving servicer procedures in order to reach more borrowers
  4. Help for homeowners who need to move to more affordable housing

I applaud the Administration for addressing the fact that increased unemployment is a large reason homeowners are struggling.  It’s also good to see that they are (sort of) addressing the need for more principal write-downs (being “required” to “consider” something is not very useful in my mind).  But here’s the problem:  These “enhancements” will do little to improve the effectiveness of HAMP.  Why?  Because the failure of HAMP is directly tied to the failure of the servicers to properly carry out the program and those problems have not been addressed by the recent changes to HAMP. 

Problem #1: Servicers have not hired enough people to work on modifications and those they have employed are overworked, underpaid and poorly trained.  Homeowners are waiting months to get answers to their modification requests.  It’s very difficult to get someone on the phone who can actually help a homeowner. Servicers are using incorrect financial information which is resulting in eligible homeowners being denied a modification.  Homeowners have also had a great deal of difficulty getting straight answers regarding their situation and the program when they contact their servicer.  If the servicers do not train their employees properly, the program will not work.  I don’t care how many enhancements you throw into it.

Problem #2:  The servicers are not being held accountable for the incompetence that is coming from their offices.  Servicers have been able to ignore the rules of the program and there are no negative ramifications.  Homeowners are ignored, given misinformation, and treated with gross disrespect by the servicers and there is little anyone has been able to do to stop this.  Until there is some way to enforce the rules, this program will not be successful.

Problem #3: Principal write-downs are not mandatory.  Principal write-downs are currently voluntary under HAMP.  The enhancement will require the servicer to run the homeowners through a program that forces them to look at principal write-downs.  But servicers can still decide not to offer write-downs to homeowner.  I don’t expect write-downs to become a common practice without the Administration penalizing servicers for not writing-down mortgages.  Under the enhancements, there are incentives for servicers that offer principal write-downs.  However, it doesn’t look like servicers respond to carrots.  They respond to sticks.  I don’t expect to see significant changes simply because the Administration is prodding the servicers to consider this option.

Problem #4: Treasury does not require that the servicers fully disclose the numbers and information that are used in the Net Present Value  Test (NPV).  The NPV is defined as the present value of the estimated future cash inflows minus the present value of the cash outflows.  The test is a crucial part of HAMP and is used by the servicers to determine whether they should modify a mortgage.  A positive NPV means that it is in the best interest of the servicer and investor to modify for the mortgage.  A negative NPV means that it is not in the best interest of the servicer and investor to modify the mortgage and they are free to deny that homeowner a modification.  Variables included in the NPV include the borrower’s monthly income, the unpaid principal balance of the mortgage, the current value of the home, home price appreciation forecast and many other numbers.  The numbers that are included in the NPV are crucial, but there is a lack of transparency regarding the numbers that are used.  There is also no one overseeing the process to make sure that correct numbers are being used in the calculation.  As a result, homeowners who are eligible for the program are being turned away because the servicers are using incorrect information.

Problem #5:  The program to help address the burden of second liens, the Second Lien Modification Program, or 2MP, has yet to have an impact.  The program was announced in 2009 but details have been slow to surface and servicers (Wells Fargo, J.P. Morgan Chase & Co., Bank of America and Citi) have only recently signed on to the program.  I don’t have much hope for the effectiveness of this program because 2MP will require coordination with HAMP.  How can a supplemental program be successful if the primary program has been a flop?

I hope I’m wrong about these problems persisting.  I hope these enhancements get the banks to provide more help to responsible homeowners who are just looking to get through a rough patch.  But I believe the servicers need to be held accountable for their failure to properly implement the rules of the program as they have been laid out by the Administration.  Until there are ramifications for failing to follow the rules, it will be difficult for this program to succeed.

Categories: Housing

5 Tips for Dealing with Money Roadblocks

March 29, 2010 Leave a comment

A couple weeks ago I was interviewed by Radio Disney on 910 AM which broadcasts in Detroit, MI.  I was asked to give some tips on how a person can eliminate debt.  I wasn’t able to get through all of my suggestions in the 30 minute interview so I’m posting them here.  These are some out-of-the-box tips to help people who know what to do but need some help with will power or motivation.

1) Form or join a support group. Most of us have grown up being very secretive about money.  We don’t share the fact that we’re having problems or let people know that we are in above our heads.  We often feel shame and let our debt spiral out of control.  One solution to this problem is to join a support group for people who are dealing with financial problems.  Many people find that participating in a small group helps them to address their financial demons and get on the right track.  They learn that they are not alone and that they are not bad people.  With support, they can put themselves on the right track.

2) Stop hanging out with people who will encourage you to sabotage your financial future.  You don’t have to dump your friends but if you tend to rack up debt because you and a particular shopping buddy encourage each other to spend until you drop, you are enabling each other.  Find a different activity for you and your friend.

3) Eliminate temptation.  If you’re the type of person who gets out of debt, just to get back in a couple months later, stop signing up for coupons and email lists for your favorite stores.  When they ask you for your email, say that you would rather not share it.  If you get put on their email lists anyway, unsubscribe right away.   Don’t sign up for sales website that will constantly email you about their latest bargain.

4) Determine if you are an abstainer or a moderator (this is from Gretchen Rubin of the Happiness Project.  Some people have more self control if they completely refrain from participating in an activity (abstainer) while some people have better self control if they allow themselves to indulge a little (moderator).  Knowing what type of person you are goes a long way in controlling your expenses and understanding why you’re spending.  I know that I’m an abstainer and knowing this helps me make decisions.  I’m not good at having a little bit of something and then moving on.  It’s best that I refrain from indulging in the first place.

5) Determine if you need to seek professional assistance with your internal financial demons.  For many people, reducing debt is not just about tracking your expenses and paying off your credit cards in a timely manner.  It’s often about internal issues that cause us to spend and rack up debt in the face of all things that tell us we shouldn’t be behaving in that manner.  Consider speaking with a therapist or a financial coach who can help you work through your attitudes toward money.

Categories: Cost cutting tips, Saving

Women in Finance Symposium

March 25, 2010 Leave a comment

As I’ve discussed in the past, your career is closely tied to your financial health.  I try to go to networking events and professional panels whenever I can so that I can strengthen my ability to develop skills and move forward in my career.  Since March is Women’s History Month, I’ve found that many organizations have hosted events specifically geared towards helping women develop skills to advance in the workplace. 

Well, it looks like the U.S. government is also providing some help in this area.  The U.S. Department of Treasury is hosting a Women in Finance Symposium on Monday, March 29 between 10 am and 2 pm.    The panel will include Treasury Secretary Tim Geithner, Federal Deposit Insurance Corporation Chairman Sheila Bair and many others.  The panel will discuss how they achieved success in the financial world and will answer questions submitted by students and young professionals.  Questions can be emailed to the panel at the following website: WomenInFinance@do.treas.gov.

You have until the close of business on Friday, March 26 to submit your question.  Treasury is also recommending that people gather for “watch parties.”   The symposium will be moderated by CNBC anchor Maria Bartiromo.

Categories: Uncategorized

Family and money (and Black Enterprise Magazine!)

March 25, 2010 Leave a comment

There are always questions about nature vs. nurture.  Why do we do the things we do?  Is it our genes or is it our environment?  I believe we are shaped by both genetics and our surroundings.   So I believe that the way I deal with my money is a function of what my parents have handed down to me through their genes and through the way they raised me.

There is an article about me in the April 2010 issue of Black Enterprise Magazine (click here to read it!).  The article profiles me and discusses some of my money tips and how I have managed my money.  The article also discusses the influence my parents and more specifically, the influence my dad has had on my money management.  I grew up watching my dad mind his money, restrain himself from buying extravagant things and maintain a modest life style so that he was able to support his family, pay for  retire at age 60.  I still call my dad when making financial decisions because I respect his money management style.

How have you been affected by the way your parents or the people around you have managed their money?  Do you feel like they passed along information or skills that have made you a financial success?  Or have you had to overcome some bad habits and lack of information?

No matter where you started out, remember that you can control your financial destiny.

Categories: Uncategorized