2010 was an excellent year for the Steve Mun Group (SMG). We helped a lot of clients and many of them were distressed homeowners fighting foreclosures in our capacity as San Jose Short Sale Agents. We are grateful that were able to play a small role in fighting foreclosures here in Silicon Valley.
If you need a top producing, award winning team to help you fight foreclosure, we will be honored to serve your needs.
A company called Local Market Monitor (LMM) tracked home sales activities in cities with populations over 500,000 and then “analyzed key economic factors that directly affect housing markets: unemployment and job growth rates, as reported by the Bureau of Labor Statistics.” They made predictions about which would be top 10 cities where home values would increase in 2011 and which would be the bottom 10 cities where home values would decrease in 2011.
Well with Facebook and Google going on a hiring rampage, it seems not very surprising that the largest city in Silicon Valley would come out performing well on this survey, but what was surprising was that San Jose came out in the number one position. California performed very well by placing top three cities, while Florida performed very poorly by placing 7 cities in the bottom 10.
See the list of cities in the link below.
The good news is that this was a reduction in number: we were at 10.9% in November. Obviously the bad news is that we are still in double digits when the nation as a whole was at 9.4%. We have a way to go when one out of 10 people on the street is out of a job.
However, we are better off than the rest of California which was at 12.5%.
The Governor this week vetoed SB 1178 (anti-deficiency legislation) which passed both the State Assembly and Senate and only required his signature to become law. This was an important bill which would have brought back the legal protection to homeowners who often did not know they were losing their legal protection when refinancing their mortgages to obtain lower interest rates.
Simply put, when you borrow money to buy your primary residence in California, the nature or the purpose of that money is called “purchase money.” Purchase money is protected and if, unfortunately, the house goes into foreclosure, the lenders cannot come after the borrower beyond the collateral or the house itself. This is with all mortgages, you don’t have to purchase this anti-deficiency protection, it is automatic. And most borrowers understand this to protection to a certain degree.
What most people do not understand is the moment they refinance their loans to take advantage of lower interest rates, that anti-deficiency protection is waived. Remember, you are not doing a cash-out refinance (this legislation does not protect cash-outs), you are simply re-financing the existing loan to pay off the home, except at a lower rate. So if the purpose or the nature of the money remains the same: for the purchase of the home, then why should the legal protection against deficiency change?
What does this have to do with interfering with existing contractual relationship as Governor Schwartzenegger claimed?
In these times where lenders are voluntarily freezing their foreclosure efforts due to improper verification of facts and where State Attorney Generals are stepping up their investigation of these matters, Governor Schwartzenegger should be looking out for California homeowners like the Senate and the Assembly, not siding with multi-national lenders.
He certainly played the role of Terminator this week.
Ally has suspended all foreclosure and eviction actions in 23 states (not California) because a single employee had signed tens of thousands of legal documents approving foreclosures throughout the nation without reviewing the necessary documents and had done so without the presence of notary public, as required.
This employee essentially falsified documents to push along foreclosures.
Now what is wrong with this picture? The 4th largest home loan originator had no systems of checks and balances in place and permitted just one person to sign off on tens of thousands of foreclosures all over the country? No one checked this single person’s work? Doesn’t this fact now taint the validity of the entire foreclosure process and not just the eviction process at this institution? One person’s actions or inactions responsible for taking the homes of tens of thousands of homeowners. It would certainly be interesting to see how many people were falsely foreclosed on by this employees actions.
The irony is that GMAC is 56% owned by the government (you and me), the same government which is pushing for many programs to keep people in their homes and avoid foreclosures. This is just another indication of how complex this whole foreclosure crisis has become.
What I consider to be the number one reason for people facing foreclosures is unemployment. The rate dropped from 11.5% to 11.2%. Heading in the right direction, but far from lending confidence to those who are having difficulty paying their mortgages. One thing that can cure everything about the current state of the economy: jobs, jobs, jobs.
It’s about time something like this took away these incentives which were often not disclosed to the borrowers. It is my humble opinion one of the major reason why we had the sub-prime and the Option ARM mess was primarily due to this practice: paying loan brokers a bonus for steering their clients into high risk loans which they knew would not benefit their clients. This was the classic case of agency going awry: the agent was looking out for his own interest to the detriment of his client. A serious conflict of interest.
My philosophy is simple: always know how people get paid to determine their motivation. My commission structure is written out in our listing contract; there is no room for undisclosed bonuses. My clients know exactly how I get paid, so they know my motivation from the start. Imagine if I got a huge bonus from the buyer’s lender if I chose their offer over another and steered my clients into accepting their offer, which was a less than favorable offer because I was influenced by said bonus. Would this be a conflict of interest and would the client have taken my advice if they knew of this secret bonus?
How did the Realtor Associations avoid this type of conflict of interest? By the use of the Agency Relationship Disclosure document(CAR form AD). This document laid out exactly the contractual obligation of the agent vis a vis his client. It states, I owe my sellers or my buyers (depending on whom I represent): “A Fiduciary duty of utmost care, integrity, honesty and loyalty in dealings with the Seller.” (or buyer, if I represent the buyer).
What does Fiduciary duty mean? According to dictionary.com fiduciary duty is:
“the legal duty of a fiduciary to act in the best interests of the beneficiary”
Best interest of the beneficiary, or my client. I have to put my client’s interest over my own. Hence, even if I were to be offered a secret bonus, I could not take said bonus if it would not be in the best interest of my client. Naturally, I could accept such a bonus if I revealed it to my client and they still thought said bonus would be in their best interest.
I am not saying all Realtors are angels, but because they had to sign these disclosures which contractually obligated them, it removed any temptations. The same can be said of loan brokers; I am not accusing all loan brokers of this despicable practice, I’m sure most didn’t engage in such practices. However, because there was no mandatory requirement for the use of such instrument as the Agency Relationship Disclosure, it made it tempting for those brokers who may have decided enriching themselves was more important than looking out for the best interests of their clients.
To control the practice of such steering, the Federal Reserve chose to simply remove the temptation by banning the practice of paying such bonuses all together. One way or another, the borrower’s best interest will now be better protected and that is a good thing.
I had written a little while back about Senate Bill 1178 to extend the anti-deficiency protection to those homeowners who sought to lower their interest rates by re-financing. Unbeknownst to them, that simple act of wanting to lower their monthly mortgage payments stripped homeowners of an important legal protection. CAR (California Association of Realtors) sponsored the bill and issued a consumer alert and prompted consumers to contact their local representatives to voice their opinion.
It seems consumers heard and contacted their local politicians. Now it needs to pass the State Assembly. This bill would truly address an inequity which needed to be addressed. People should not lose their homes and still be indebted to banks just because of their desire to lower their monthly payments by re-financing their mortgages.
C.A.R. issues consumer alert on refinanced mortgages
C.A.R. issued a consumer alert yesterday warning borrowers of the liability associated with refinanced mortgages. To help protect consumers, C.A.R. is sponsoring Senate Bill 1178 by State Sen. Ellen Corbett (D-San Leandro) to extend anti-deficiency protections to homeowners who have refinanced “purchase money” loans and now are facing foreclosure. The Senate may vote on the bill as early as next week.
Currently, if a homeowner defaults on a mortgage used to purchase their home, the homeowner’s liability on the mortgage is limited to the property itself. While this law has helped protect borrowers since its inception in the 1930s, it does not extend the protection for purchase money mortgages to loans that refinance the original purchase debt—even in cases where the loan was refinanced to achieve a lower interest rate.
The above is an alert issued by C.A.R. (California Association of Realtors)
Most of the clients who come to me to discuss short sales do a lot of research online and come with the knowledge that California is a Non-Recourse State. This means the lenders cannot come after the homeowners beyond the property itself (for any deficiency) if the original intent the mortgage was to purchase the property, as mentioned above.
What most borrowers do not realize is that the moment they re-finance to take advantage of lower interest rates, the intent of the money changes to their detriment. Whether the borrower took advantage of a lower interest rate, or cashed out to pay down credit card bills, or to use as down payment on a second property, or to start a business, the nature of the money changes and the protection disappears. Most loan brokers who were pushing re-finances during the past few years did not inform their clients of the elimination of this important legal protection. To be fair, most loan brokers or real estates agents probably were not even aware of such consequences. But the fact remains, that for many borrowers, if they were aware of such protection disappearing, perhaps they would not have been so quick to refinance.
SB 1178 is designed to extend that protection once again. This truly is something that all of us consumers must rally behind, it is simply the right thing to do. A homeowner should not lose this important legal protection because they want the opportunity at qualifying for lower monthly payments when times are tough. But guess who is fighting against this measure: the Banks and their lobbyists.
Contact your local State Senator and make sure your voice is heard. Take back your legal protection.
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