The 2009 Mortgage Tea Party 01 02 2008 Revision

8/9/2019 The 2009 Mortgage Tea Party 01 02 2008 Revision

1/44

The 2009 Mortgage Tea Party**By David A. Pereira

** AKA: The get me away from all the politicians, lenders andcounselors who think they know what is best for me book.

On the evening of December 16, 1773, a group of men calling themselves the"Sons of Liberty" went to the Boston Harbor. They boarded three British ships

and dumped forty-five tons of tea into the Boston Harbor.

In 2009, reminiscent of the Sons of Liberty, liberated Americans across the

country should walk away from their over encumbered homes after being

deceived and lied to by politicians, lenders and counselors who have promised

real relief in the form of modifications only to find the only assistance offered

helped the lenders and made headlines for the politicians.

(c) 2008, David A. Pereira, all rights reserved.


2/44

ABOUT THE AUTHOR

David A. Pereira is resident of the Sacramento area. He has an MBA in Finance and iscurrently finishing up his law degree. He has been a licensed real estate broker since1979 but his career has been more specialized in mortgage lending related activities.

Currently, he is the owner of Mortgage Litigation Consultants located in Elk GroveCalifornia. In this role, he assists homeowners and the legal community withdetermining loan defects in loans that can be pursued against lenders in litigation.

He is court qualified expert in mortgage based litigation. He currently holdscopyrights in computer software that deals with the mathematical calculationsassociated with consumer loans.

Prior to Mortgage Litigation Consultants, he handled legal disputes for one of the topten national banks. Prior to that, he was the CEO of a major software company thatdeveloped software for financial institutions that addressed consumer compliance.

--------------------------------------------------------------------

Mortgage Litigation Consultants is primarily in the business of finding defects in loansand IS NOT in the loan modification business. This booklet is provided to consumersto assist them with making their business decisions. While some of the informationcontained has some legal implications, none of it should be construed as legal adviceand relied upon as legal advice. If you need legal advice, contact a practicing attorneyin your locale.

This booklet is provided at no cost to consumers. If you need assistance with any ofthe concepts contained in it, you may contact our office for a paid for consultation.

Our first hour of consultation is $250.00 and then $150.00 per hour after that. If youhave a set of loan documents you want us to review, we will review your loantransaction for a defect for free. Contact us for the more information.

You may reach Mortgage Litigation Consultants and David A. Pereira as follows:

Mortgage Litigation Consultants9245 Laguna Springs Drive, Suite 200

Elk Grove, CA 95758Phone: (916) 275-0907Fax: (916) 244-7006

Email: [email protected]: www.loandefects.com


3/44

License to Use This Copyrighted Material

This LICENSE is issued by David A. Pereira, hereinafter referred to as Pereira,as licensor, to the general consumer public of the United States of America,hereinafter referred to as Licensee.

Pereira hereby grants to the LICENSEE a non-exclusive, non-transferrable,royalty free limited LICENSE to use this copyright material for their ownpersonal use. Licensee may print the material for their own personal use andnot for distribution.

RESTRICTIONS ON USE:

Licensee may not copy and/or distribute this material for any commercialpurpose in which a payment, by whatever means is involved.

Licensee may only distribute to other consumers for their own personal use. No modifications, changes, additions or deletions of the original material are

permitted.

ASSIGNMENT OR TRANSFER OF LICENSE:

The LICENSEE may not assign, delegate, sublicense or otherwise transfer thisLICENSE or any rights or obligations under this LICENSE to any other party,except with the prior written consent of Pereira.

LICENSE TERMINATION:

Pereira reserves the right to terminate, without cause, this LICENSE uponthirty (30) days written notice to the other party at any time.

DISCLAIMER:

Nothing contained in this booklet should be construed as legal advice orspecific advice related to any persons individual situation. If you require legaladvice, you need to contact a practicing attorney in your area. Furthermore,since the author does not control the application of anything contained in thisbooklet, use of any concepts or processes is done without warranty and doneso at the users own risk.

VENUE AND JURISDICTION:

This LICENSE shall be governed by the laws of the State of California. Venuefor all legal proceedings arising out of this LICENSE, or breach thereof, shall bein the state or federal court with competent jurisdiction in Sacramento,California.


4/44

Table of Contents

Chapter 1 ..................................................................................................................................................................................... 1

Current affairs and what has caused us such difficulty. ............................................................................................... 1

Chapter 2....................................................................................................................................................................................... 4

Lenders, Politicians and Counselors Desire..................................................................................................................... 4

(assisted by the media).............................................................................................................................................................. 4

Chapter 3....................................................................................................................................................................................... 6

The Scam Artists Arise .............................................................................................................................................................. 6

Chapter 4..................................................................................................................................................................................... 10

The Securitization Problem.................................................................................................................................................... 10

Chapter 5..................................................................................................................................................................................... 15

The Important Part Left Out by the Lenders,................................................................................................................... 15

Politicians, Counselors and the News Media .................................................................................................................... 15

Chapter 6..................................................................................................................................................................................... 17

The Real Estate Industry Deception ................................................................................................................................... 17

Chapter 7..................................................................................................................................................................................... 21

Shame on you! You have a personal obligation............................................................................................................... 21

to live up to your contractual obligations. ........................................................................................................................ 21

Chapter 7..................................................................................................................................................................................... 23

Your Plan - Your Steps............................................................................................................................................................ 23

Chapter 8..................................................................................................................................................................................... 29

Lets see if they did something wrong. ............................................................................................................................... 29

Chapter 9..................................................................................................................................................................................... 31

Litigation and Bankruptcy Options..................................................................................................................................... 31

Chapter 10 .................................................................................................................................................................................. 33

Last resort, maybe talk to your lender ............................................................................................................................... 33

Chapter 11 .................................................................................................................................................................................. 35

When all else fails, walk! ........................................................................................................................................................ 35

Chapter 12 .................................................................................................................................................................................. 36

Now whose problem is it really? ....................................................................................................................................... 36


5/44

The 2009 Mortgage Tea Party (c) 2008 David A. Pereira

__________________________________________________________

Page 1

Chapter 1

Current affairs and what has caused us such

difficulty.The real reasons for this crisis are complex. The crisis involves a number offactors in both housing and credit markets, factors which took years to create.Some of those causes include:

Inability of homeowners to make their mortgage payments Poor judgment by borrowers Poor judgment by lenders Poor judgment by Wall Street Speculation and overbuilding during the boom period Risky mortgage products High personal and corporate debt levels Financial products that distributed and perhaps concealed the risk of

mortgage default Federal monetary policy Government regulation (and lack thereof).

Low interest rates and large influx of foreign funds created very easy creditcircumstances for several years prior to the current crisis. Home ownershiprate increased from 64% in 1994 (about where it had been since 1980) to an

all-time high of 69.2% in 2004. The introduction of subprime lending was amajor contributor to this increase in home ownership rates.

This rise in demand fueled rising house prices and consumer spending.Between 1997 and 2006, the price of the typical home increased byapproximately 124%. Median home price ration changed dramatically:

During the two decades that ended in 2001, the national median homeprice ranged from 2.9 to 3.1 times median household income.

Ratio rose to 4.0 in 2004 Ratio rose to 4.6 in 2006.

This housing bubble resulted in quite a few homeowners refinancing theirhomes at lower interest rates. In addition, many homeowners increasedconsumer spending by taking out second mortgages secured by the priceappreciation.
http://en.wikipedia.org/wiki/Housing_bubblehttp://en.wikipedia.org/wiki/Second_mortgagehttp://en.wikipedia.org/wiki/Second_mortgagehttp://en.wikipedia.org/wiki/Housing_bubble


6/44


__________________________________________________________

Page 2

USA household debt as a percentage of annual disposable personal income was127% at the end of 2007, versus 77% in 1990.

Household debt grew as follows:

$705 billion in 1974 and 60% ofdisposable personal income $7.4 trillion at yearend 2000 $14.5 trillion in 2008 and 134% of disposable personal income.

This credit and house price explosion led to a building boom.

Easy credit, and a general belief that house prices would continue to climb,made many borrowers opt for adjustable rate loans. These mortgages enticedborrowers with a below market interest rate for a few years followed by market

or greater interest rate. The payment shock was in the magnitude of 1.25 to 2times their original payment overnight. Borrowers who could not make thehigher payments once the initial grace period ended typically would turn to arefinance.

However, once prices stopped their increase and then actually started todecline, refinancing became more difficult. Borrowers trapped by these loansbegan to default.

By September 2008, average U.S. housing prices had declined by over 20%from their mid-2006 peak. This decline meant that many borrowers wouldhave zero or negative equity in their homes: meaning their homes are worthless than their mortgage balances.

As of March 2008, approximately 11% of all homeowners had negative equity intheir homes. Borrowers facing such negative equity were motivated to "walkaway" from their mortgages and homes. This tough decision was madeknowing that it would damage their credit rating for a number of years.

This was fueled by the fact that residential mortgages are non-recourse loans:meaning that once the creditor has foreclosed on the property they have nofurther claim against the defaulting borrower's income or assets. As moreborrowers defaulted and walked away, foreclosures and the supply of homesfor sale increased.
http://en.wikipedia.org/wiki/Disposable_personal_incomehttp://en.wikipedia.org/wiki/Disposable_personal_incomehttp://en.wikipedia.org/wiki/Negative_equityhttp://en.wikipedia.org/wiki/Nonrecourse_debthttp://en.wikipedia.org/wiki/Nonrecourse_debthttp://en.wikipedia.org/wiki/Nonrecourse_debthttp://en.wikipedia.org/wiki/Negative_equityhttp://en.wikipedia.org/wiki/Disposable_personal_incomehttp://en.wikipedia.org/wiki/Disposable_personal_income


7/44


__________________________________________________________

Page 3

This placed greater pressure on house prices, which further loweredhomeowners' equity. This decline also impacted mortgage backed securities onWall Street. Banks were unable to sell their originated paper which reducedtheir value. This vicious cycle of lack of credit, declining home prices, borrowerdefaults, declining equity, increase in home inventory, more foreclosures and

lack of liquidity in the mortgage market is truly the heart of the crisis.At this moment, our economy is locked deeply into this current toxic cycle.Nothing to date has been effective about changing the cycle.
http://en.wikipedia.org/wiki/Negative_equityhttp://en.wikipedia.org/wiki/Vicious_cyclehttp://en.wikipedia.org/wiki/Vicious_cyclehttp://en.wikipedia.org/wiki/Negative_equity


8/44


__________________________________________________________

Page 4

Chapter 2

Lenders, Politicians and Counselors Desire

(assisted by the media)

On the surface, lenders and borrowers may both benefit from avoidingforeclosure. The process is costly and lengthy. Borrowers have been stronglyencouraged to contact their lenders to discuss alternatives by the media andpoliticians. Bowing from the political pressure, some lenders have offeredtroubled borrowers changes to their current mortgage terms (i.e., refinancing,loan modification or loss mitigation).

Politicians, lenders, trade groups, and consumer advocates recently have citeddata on the numbers and types of borrowers assisted by loan modificationprograms. There is disagreement regarding the data and how effective themodifications have been so far.

The lending industry said that their data in January 2008 revealed thatmortgage lenders modified 54,000 loans and established 183,000 repaymentplans in the third quarter of 2007. Consumer groups claimed thesemodifications affected less than 1% of the 3 million ARM subprime mortgagesoutstanding as of the third quarter 2007. In addition, during that same period,there were 384,000 foreclosures initiated.

The Lenders View:

Consumers have failed to honor their commitments. Consumers freely enteredinto the loan transaction and if they had just done as they agreed, none of thiswould be before us all. They are the victim of you, the defaulting borrower.

The Politicians View:

On one hand, the lenders and Wall Street created this mess by aggressive loanproducts, lax lending standards and complex securities transactions. Now they

want tighter controls and oversight and they want lenders to modify loans andkeep consumers in their homes. However, they want borrowers to make theirpayments and honor their commitments.


9/44


__________________________________________________________

Page 5

While a loyalty to constituents, this has been complicated by a flurry of lobbyistactivity by lenders and Wall Street to not give tools to consumers such asallowing judges to modify loans in bankruptcy cases.

Consumer Counselors:

They think that lenders need to step up and modify all consumer loans toterms and balances the consumer can afford.

The Media:

No question, they report accurately on many of the problems but miss the mostimportant one. Lenders are the problem, not the solution. The mediapromotes their agenda, send borrowers back to their lenders expecting theywill do the right thing. So far it has failed. For whatever reason, the mediahas not understood the complexity of the problem and why sending consumers

back to their lenders really may not be in their best interest.

A reality

What may be best for the individual consumer may not be in the best interestof lenders, politicians, consumer groups and Wall Street. If your best interestis not really on their agenda, you have to ask yourself, who really is protectingyou? The answer is quite simple you.


10/44


__________________________________________________________

Page 6

Chapter 3

The Scam Artists Arise

Many oftodays loan modification companies for the most part appear to bemore of a scam then a legitimate business. My observation of the people in theloan modification business are mainly former loan officers who are trying tofind some method in which to obtain similar fees to what they were chargingfor the originating of loans.

Many of those same loan officers selling loan modifications were the same loanofficers who sold the public terrible loan products that led to the financialcrisis. These included products like sub-prime loans, Payment Option ARMs,Pick-a-Pay loans all which led the way into one of the most serious free falls ofreal estate values since the Great Depression. Reminds me of the old saying:

Burn me once, shame on you, burnme twice, shame on me!

Unfortunately, the complexity of loan modifications is not about selling butrequires important financial and legal analysis that is beyond the scope of atypical loan officer use to selling a loan product. For consumers today, theyneed help. Most loan modifications are important contracts that not onlychange the loan terms, such as balance, interest rate, terms but includesettlements and recourse ramifications (all discussed later).

Equally important is just how lawful most are operating? Clearly someonefrom out-of-state attempting to do loan modifications in California, is highlyprobable that they are breaking the law. Many of the loan modificationcompanies in the California area are also not operating lawfully. This issupported by the article on the California Department of Real Estates web siteat:

http://www.dre.ca.gov/mlb_adv_fees.html.

Many loan modification companies have some severe obstacles/problems toovercome. First, they must have a real estate license to NEGOTIATE for

consumers on their behalf with a lender. A major exception to this requirementis, of course, an attorney can represent a consumer with the lender. The trendseems to be having an attorney connected to the loan modification firm, butthat does not qualify as being represented by an attorney and get around thelicense requirements.
http://app.streamsend.com/c/2013471/32/djMqErQ/CHXr?redirect_to=http%3A%2F%2Fwww.dre.ca.gov%2Fmlb_adv_fees.htmlhttp://app.streamsend.com/c/2013471/32/djMqErQ/CHXr?redirect_to=http%3A%2F%2Fwww.dre.ca.gov%2Fmlb_adv_fees.html


11/44


__________________________________________________________

Page 7

Any loan modification company that does employ staff who handlesnegotiations with you and/or your lender who does not have a real estatelicense is violating the law. Former loan officers of banks and mortgagebankers who do not have a real estate license are highly suspicious.

Loan modification companies that collect large fees up front are collecting whatis known as an advance fee. They may do so if they have an approved advancefee agreement approved by the California Department of Real Estate. Thecurrent list maintained by the California Department of Real Estate is less than20 companies in the whole state who have their advance fee agreementsapproved.

Most advance fee agreements require the funds need to be placed in a trustaccount and unused fees should be returned when the services have not beencompleted or the consumer wishes to cancel. Fees can only be withdrawn

upon the completion of specific services.

Most loan modification companies promote extensive skills of negotiation andhave great success with certain lenders as part of their sales techniques. It ishighly probable that they are being deceptive. If they tell you that they have aspecial relationship with lenders that gives you an advantage by going withtheir company that would be a red flag for deception. In marketing talk, that is"puffing", they cannot do any better than a consumer can get directly fromtheir lender.

Note: Contacting your lender may not be the right choice, discussed later.

The myth is that loan modification companies negotiate with your lender. It isnot a true negotiation. You must QUALIFY for the lenders (servicers) programsthat are already established. You either do or dont, they do not haveflexibility. In fact, most of the loan modification departments at a lender havevery limited authority and are staffed by relatively low level staff that have verylittle decision authority.

Further complicating matters for loan modification companies is theircontinual promises and non-compliance with the law related to consumers inforeclosure. If a consumer is in foreclosure, NO ONE CAN COLLECT A FEE INADVANCE FROM A CONSUMER EVEN IF THEY HAVE AN AGREEMENTAPPROVED BY THE DEPARTMENT OF REAL ESTATE! A special law protectspeople in foreclosure (attorneys exempt). This contradicts the most outrageous


12/44


__________________________________________________________

Page 8

promise made to consumers by loan modification companies, they will saveyour home from foreclosure.

Many loan modification companies promise they conduct forensic audits thatreveal a variety of RESPA and fee disclosure problems. Most of these claims,

while sounding great, have statute of limitations problems (RESPA is one year).Such forensic audits are more of a sham to make you feel good about writingthem such a big check.

Loan modification is only a single solution path which may or may not be in aconsumers best interest. The mortgage crisis has revealed a complex problemfor consumers of which some aspects of a loan modification can make sense,albeit rare. The main problem of loan modification companies (besides manyare operating illegally), since a loan modification is only one choice, a consumerexperiencing difficulty should investigate all of their options and not just thatone.

For example (discussed in greater detail elsewhere):

You may need to talk to a lawyer about a bankruptcy.o A second that is completely unsecured due to loss of value may be

completely eliminated in a bankruptcy so why modify it? You may have legal remedies due to errors in the loan documentation

that may allow you to rescind your loan. You may be so under water on your loan that no modification is possible

or the terms are worthless. Consider:o Loss of jobo Too much debt.

A payment option arm that the modified payment does not warrantkeeping the property.

A deed in lieu of foreclosure may be a better choice. In many cases it maybe better than a short sale!

Sometimes a cash for keys arrangement can be done in which aconsumer deeds the house in exchange for leaving it in good condition(lenders do pay for this at times).

If you did a stated income loan and/or your income was exaggerated inany way, you should not give any information to your lender, you should

immediately seek legal advice.

Looking closely at these other options that should be considered, a loanmodification company will not be collecting any fees for those. Of course, it isnot in their list of recommendations.


13/44


__________________________________________________________

Page 9

Loan modification service companies seem to charge fees that are in the$2,500.00 to $5,000.00 range. That size of a fee is absurd. For example, abankruptcy attorney is limited to a maximum of $3,500.00 to file a Chapter 13bankruptcy (subject to limited adjustments) in the Sacramento court (and most

other bankruptcy courts in California). Comparing the "fee for services" of aloan modification to a full blown attorney fee shows you just how ridiculous theamounts they charge are! Most loan modification firms employ former loanofficers who are now peddling loan modifications instead of loans. You don'tneed to be sold, you need real help.


14/44


__________________________________________________________

Page 10

Chapter 4

The Securitization Problem

This is a very complicated topic. I promise you that if you take the time to readthis you will have a deeper understanding of why loan modifications are notreally working and why getting short sales approved is so difficult.

Myth:The United States Government recent bailout will allow them to buytroubled loans and modify them by reducing the loan balance and lowering theinterest rate helping consumers.

Fact:The government is purchasing mortgage backed securities and notindividual loans. Most loans closed by financial institutions are immediatelyplaced in mortgage backed securities (MBS) and the individual loans are in thepool with other investors. Since they are merely buying mortgage backed securityinterests, this does not give the government the ability to modify the individualloans in the pool.

The decision to modify mortgages in the mortgage backed securities rests withthe servicing agent (typically the usual players such as Countrywide, WAMU,etc.). The servicing agent performs the day-to-day tasks related to the mortgagesowned by MBS such as collecting payments, handling paperwork, foreclosing,and selling foreclosed properties.

Myth:The servicing agent (Countrywide, WAMU, etc.) has the authority tomodify the loan so if the value has gone down, they can easily reduce the loanbalance to the property value or lower the rate to whatever makes sense.

Fact:The servicing agent can only carry out their duties according to what isspecified in their contract. This contract is known as a "pooling and servicingagreement" or PSA. PSAs frequently have heavy restrictions on the servicingagent's ability to modify mortgages. Sometimes modifications are forbidden,sometimes only certain types of modifications are permitted, and sometimes the

total number of loans that can be modified is capped (typically at 5% of the pool).

Making matters even more complicated, the servicing agent frequently is requiredto purchase any loans they modify at par (100 cents on the dollar)if they do notfollow the PSA to the letter. In effect, this creates more of an "anti-modification"


15/44


__________________________________________________________

Page 11

incentive. All PSAs prohibit the servicing agent from undertaking any action,including many modifications, which would threaten the MBS's pass-thru taxstatus.

For servicing agents to engage in large scale loan modifications, it is necessary to

amend the PSA; a servicing agent that does not comply with a PSA risks beingsued by the MBS holders.

Logically, it would seem that servicing agents would be asking for their poolingand servicing agreements to be modified so they can be more effective with

modifications and comply with the governments "encouragement" to modify moreloans. PSAs cannot easily be modified. This is to preserve pass-thru tax statusfor the trust in order to avoid double taxation; to preserve the bankruptcyremoteness of the trust, so that the trust's assets cannot be seized by creditors ofthe mortgages' originators; and to protect the MBS holders from liability for thetrust's actions.

To date, servicing agents have granted few significant modifications for severalreasons:

Contractual limitations (discussed above); Understaffing for the volume of modification demand; Lack of properly trained personnel; Fear of suit by MBS holders who believe that modifications hurt their

investments;

Misaligned incentives (why risk having to buy back a loan at par when it isonly worth 50 cents on the dollar today?).

Generally, to modify a PSA requires 2/3rd majority of the holders of themortgage backed securities. As one can imagine going to the investors andasking 2/3rd of them to vote to take huge losses by reducing the value of theirloans in the pool to 50 cents on the dollar is a near impossible task.

Myth:The servicing agent (Countrywide, WAMU, etc.) is best served by workingwith the borrowers than to foreclose on another property.

Fact:Foreclosures are frequently more profitable to servicing agents than loanmodifications. Therefore servicing agents are incentivized to foreclose rather thanmodify loans, even if modification is in the best interest of the MBS holders andthe homeowners. Yes, I did say foreclosure is more profitable. The fees they can


16/44


__________________________________________________________

Page 12

charge to foreclose and manage the REO are much more profitable than doing aloan modification and then merely collecting a servicing fee each month forcollecting the payments.

The First Problem for the Government:

The U.S. Government will need to have a 2/3rds interest in the entire mortgagebacked security to modify the pooling and servicing agreement to grant theservicing agent to modify the underlying mortgage loans.

The Second Problem for the Government:

PSAs prohibit any modification of the underlying mortgages that would changethe scheduled cash flow to a MBS holder, absent the holder's consent. PSAs

contain this provision to comply with the Trust Indenture Act of 1939. In effect,the United States Government would have to incur all of the losses itself if itwished to engage in modifications.

The U.S. Government would not only be bailing out the financial institutionswho sold their MBS holdings to the government, but also the investors in thepool that did not sell, as their positions would be protected by the lossesabsorbed by the government.

The Third Problem for the Government:

Assuming the government is willing to absorb all the modification losses itself,how will the government be able to purchase the necessary two-thirds of MBSissued by any particular pool in order to have the authority to alter the PSA?This will be a difficult task as there might be thousands of MBS from a singlepool and these MBS might be held by investors world-wide.

Some may be held by entities from which the Treasury Department will not beauthorized to make purchases (foreign government agencies). Others may beheld by entities that choose not to sell to the government.

The Securities Firms Made It Even More Complicated!

Enter collateralized mortgage obligations (CMO), second mortgages, andmortgage insurance. CMOs or re-securitization seriously impedes thegovernment's ability to purchase a sufficient number of MBS's for any


17/44


__________________________________________________________

Page 13

particular pool in order to ultimately engage in modification of the underlyingmortgages.

MBS's issued are typically "tranched" or divided into different payment prioritytiers, each of which will have a different dividend rate and a different credit

rating. Because the riskier tranches are not investment grade, they cannot besold to entities like pension plans and mutual funds.

These CMOs and their different tranches are often re-securitized even furtherinto more securities. The senior tranches can receive investment grade ratings,making it possible to sell them to major institutional investors. The non-investment grade components of CMOs can themselves be re-securitized onceagain into what are known as CMO2s. This process can be repeated, of course,to what seems an endless number of times and complicating things evenfurther.

So, to be clear (hopefully I have not lost you yet), to control a sufficient share ofan MBS to alter a PSA, the government will frequently also have to own asufficient share of CMOs to alter the CMOs' PSA and of CMO2s to alter theCMOs PSA in order to alter the MBS PSA. Thanks securities firms, its hardenough to explain can you imagine how complex this is to analyze withthousands of loans in a pool all being sliced and diced by this process.

In the end, it will be incredibly difficult for the government to purchase asufficient amount of MBSs to ultimately be able to modify the underlyingmortgages.

Oh Wait! What about the insurers of the pool?

The income from the mortgages in the pool can exceed the dividends it mustpay certificate holders. The residual value of the income after the certificateholders are paid is called the Net Interest Margin (NIM). The NIM is typically re-securitized separately into many NIMS, and the NIMS is insured by a financialinstitution. This NIMS insurer holds a position similar to an equity holder forthe pool. The NIMS insurer's consent is thus typically required both formodifications to PSAs and modifications to the underlying mortgages beyondlimited thresholds. NIMS insurers financial positions are very similar to juniormortgagees - they are unlikely to cooperate unless you pay them something asthey have nothing to lose. This will and has complicated mortgagemodifications.


18/44


__________________________________________________________

Page 14

Then there is the PMI (private mortgage insurance) on the individualloans in the pool.

Many mortgages are insured by private mortgage insurance (PMI). This can bepurchased either by the borrower or by the lender. PMI protects MBS investors

from losses and greatly enhances the value of MBS. PMI policies typicallyprovide for the termination of the insurance upon a loan modification. Thetermination of private mortgage insurance would greatly reduce the resalevalue of loans for the government.

Litigation and Bankruptcy offer some relief?

It appears that only bankruptcy law changes can require the trust to go alongwith a loan modification and deal with junior lien problems. Already Chapter11 bankruptcy is used for this purpose. Because of the Trust Indenture Act, itis very difficult to engage in a consensual modification of corporate bonds. As a

result, businesses that need to restructure their bonds often find it necessaryto do it in bankruptcy. Amending the Bankruptcy Code to permit modificationof all mortgages would also make voluntary modifications more likely, becausea trust could defend any lawsuit by asserting that the borrower could havegotten the same deal (or one less favorable to the trust) in bankruptcy. Thus,permitting bankruptcy relief may well cause it to be unnecessary in manycases. Today, filing suit against a servicer and the MBS by a borrower seemsmuch more beneficial as a settlement of a lawsuit offers the servicing agentgreater protection from litigation with underlying MBS holders.


19/44


__________________________________________________________

Page 15

Chapter 5

The Important Part Left Out by the Lenders,

Politicians, Counselors and the News MediaWhat is good for them is not very good for you. If you follow their advice, theywant you to honor your commitment even if you have difficulty supporting yourfamily, or meeting other more important obligations.

Many think it is a very poor idea to speak to your lender at all, especially undersome circumstances (misstatement of income for example). Lets be frankabout what they are not telling you and the tension between your interests andtheirs.

Logically, if they told you the truth, it would wreak further havoc in theeconomy. Can you imagine if the President of the United States publicallystated that walking away from your mortgage makes sense? If you think thestock market is bad now and the financial institutions are in deep troublesuch a proclamation by our government would worsen the situation at levelshard for us to even comprehend. What does that mean to you??? Simple,every time they speak, they are giving advice that is not best for you but bestfor preventing an overall collapse. They have decided that your interests areunimportant, only preventing a collapse is important to them. YOU are left tofind the truth yourself and be skeptical of what our government, lenders andmedia say.

Its Your Future:

It cannot be stressed enough that your primary responsibility is towards yourfamily. You may have small children in which you want and need to take careof their future, their education, their health and welfare. You may have aspouse or responsibilities for other family members.

When looking to the mortgage on your home, shelter is important, not themortgage. Sometimes just renting achieves your objective for shelter at a lowercost and keeps your family the most important responsibility. Anyone whoattempts to get you to put your mortgage ahead of those priorities needs to beignored.


20/44


__________________________________________________________

Page 16

It is not unusual that as part of a loan modification or short sale, the lenderwould ask you to liquidate your 401k . Here you are totally underwater onyour home and they want you to liquidate your future and incur tax liability tomake payments to them.

Legal Trouble:

If you received a stated income loan or if your income was exaggerated byyourself or your mortgage broker at origination, this could spell big problemsfor you. If they suspect that you did not tell the truth at origination, they areobligated to file a SAR on you.

SAR stands for Suspicious Activity Report. It originally was created by theFederal government for the purpose of catching money launderers tied toorganized crime and drug dealers. It has been expanded into several areas,one being mortgage fraud. Anytime a financial institution has a suspicion that

mortgage fraud has occurred on any loan they do, they are REQUIRED to file aSAR.The real kicker about a SAR is the financial institution cannot tell you theyhave filed one or will file one, even if you ask. SARs are reported to theFinancial Crimes Enforcement Network of the U.S. Department ofTreasury. Their website is located at: http://www.fincen.gov. They haveprovided an extensive report on the types of mortgage activities they investigatein the following:

http://www.fincen.gov/news_room/rp/reports/pdf/MortgageLoanFraud.pdf

This document is a must read for anyone concerned about mortgage fraud.
http://app.streamsend.com/c/?redirect_to=http%3A%2F%2Fwww.fincen.gov%2Fhttp://app.streamsend.com/c/?redirect_to=http%3A%2F%2Fwww.fincen.gov%2Fnews_room%2Frp%2Freports%2Fpdf%2FMortgageLoanFraud.pdfhttp://app.streamsend.com/c/?redirect_to=http%3A%2F%2Fwww.fincen.gov%2Fnews_room%2Frp%2Freports%2Fpdf%2FMortgageLoanFraud.pdfhttp://app.streamsend.com/c/?redirect_to=http%3A%2F%2Fwww.fincen.gov%2F


21/44


__________________________________________________________

Page 17

Chapter 6

The Real Estate Industry Deception

Now you are looking around for help. Your lender, after they were unable tohelp you, may suggest that you can do a short sale. Sometimes you may talkto your local real estate agent and they may recommend a short sale as well. Ashort sale is where your property is sold by a real estate agent for its fairmarket value and then you ask the lender to accept less than the amount youowe them to complete the sale.

On the surface, it sounds like a good deal as you are getting out from underyour loan. But who wins and who loses?

The real estate agentWINNER!o

They get a commission on a sale.o No question, the work they will do to complete a short sale will beextensive. They will work very hard for that commission.

However, not doing a short sale means they make no moneyand they need you to agree to do a short sale so they can makeat least something in this terrible market.

The lenderWINNER!o They get rid of a loan that would most likely end in foreclosure

without all the hassle.o They get the homeowner and the real estate agent to do all the work.

You the homeowner/borrowerLOSER!o The credit hit for a short sale is not that different than a foreclosure.o You will have to give all of your financial information to the lender of

which they will try and get you to liquidate every asset they can getyou pay to them (which you do not have to do in a foreclosure).

o You will work hard getting all of the information together and be in fora difficult and frustrating approval process.

o They may ask you to assume the loss as an unsecured obligation(which you do not have to do in a foreclosure).

The Credit Impact:

Most experts in credit matters agree that the credit impact between aforeclosure and short sale is not that different. Most agree the impact is asfollows:


22/44


__________________________________________________________

Page 18

Foreclosure or Deed-in-Lieu of Foreclosure

The defaulting homeowner will take a hit of 200 to 300 points, depending onoverall condition of credit. This means that if your FICO score beforeforeclosure was 680, it could dip as low as 380.

Generally, a defaulting homeowner who wants to buy another home afterforeclosure will end up waiting about 24 to 72 months before being eligible.

Short Sale

The effect of a short sale on a homeowner report is almost identical to that of aforeclosure. The reporting on your credit will show up as a pre-foreclosure inredemption status. The short sale will result in a loss of 200 to 300 points.This means a short sale with a pre-short sale FICO of 680 could see it fall to380 as well.

The major difference between the foreclosure and short sale impact is morelikely that the defaulting homeowner will have a shorter period of time to beeligible for a loan to buy a new home. The period would most likely be 24 to 48months.

However, the overall credit score would still have to improve to being withinguidelines.

Giving Financial Information to the Lender:

I have mentioned a few times that this is can be very dangerous and unwise. Ifyou have taken out a stated income loan and/or the information on youroriginal loan application is exaggerated, giving the correct information to thelender now could have civil and criminal implications. Your lender has a legalrequirement to report you with a SAR (discussed elsewhere).

When they look into your financial status, they will most likely not approveyour short sale if you have assets that can be contributed to their loss. Inother words, they want you to clean out your savings account. If you have aforeclosure, they will not have access to any of your savings.

When they look at your income, they will most likely not approve your shortsale if you have sufficient income to make your mortgage payment. They willbe looking for a hardship and if you dont have one, the chances of themhelping are slim.


23/44


__________________________________________________________

Page 19

In conclusion on the financial information, only give information if you do nothave legal exposure and only if you really have a hardship. If you have anyconcerns about legal exposure, seek out the advice of an attorney immediately.

Doing all the leg work:

What is the benefit to you? If you talk to any real estate agent or consumerwho has done a short sale they will tell you that the process is long, demandingand difficult. The lender bureaucracy is high and they will make you feel prettylousy about it all. You may feel that you are doing the right thing but they willmake you feel pretty bad about it all and will use that feeling to get you toexhaust every asset you have.

What do you get from it? Good credit? No. A quick resolution? No. Preserveyour assets? No. A less painful resolution? No.

Think about the pain you will endure. You would think that they wouldappreciate all that you are doing, but they dont and you will feel it.

They may ask you to assume the loss as an unsecured obligation after the

closing:

Many lenders will have you sign a short sale agreement at the closing thatincludes you agreeing to pay the loss as an unsecured obligation. This is theicing on the cake for your troubles.

You have to watch this closely as the document with this language typicallyappears at the closing of the sale where it is dropped on you at the last minuteafter a complex process and with pressures from everyone to sign and close.No matter how much pressure you are under to close PLEASE READ THEDOCUMENTS FROM THE LENDER CLOSELY.

They will try and get you to agree to something that you have no obligation forif they foreclosed. What if your loss is over $100,000.00? Do you want them toget a judgment and collect from your future earnings? Do you want to setyourself up to be forced into a bankruptcy?

I cannot stress this enough dont do this.

# # # # #


24/44


__________________________________________________________

Page 20

The advantage of a foreclosure is the one form of action rule in many states,California being one. Defaulting could make you subject to a deficiencyjudgment for the difference between the loan amount and the amount paid. Ingeneral, a foreclosure sale wipes out the right to a deficiency.

Also, in California (and other states), most purchase money loans are notsubject to deficiency judgments as well. However, equity loans and refinancescan be, such as second that was wiped out by a first mortgage foreclosure.

The lender has sole discretion whether to pursue a deficiency judgment inthose instances when the judgment is permitted. To determine whether apending foreclosure or short sale is subject to a deficiency judgment, talk to areal estate lawyer.

In conclusion, do not put your interests second to the lender or the real estateagent. Put your familys interests first.

Please Note:

A real estate agent has a legal obligation to disclose all material facts thatinfluence your decisions to act. However, most do not tell their clientsthat the risks stated so far in this chapter even exist. A good real estateagent will. A poor one wont because they dont know, dont care or areafraid that telling you the truth will result in the loss of a commissionthat they dearly need to make.

In a defensive move, many agents will hide behind the fact that such risksare legal in nature and they are not lawyers. Real estate agents areexperts in real estate matters and need to identify risks, disclose those

risks and inform their clients to get legal advice for those risks. DO NOTWORK WITH AGENTS THAT COP-OUT ON THEIR RESPONSIBILITIES.
http://homebuying.about.com/od/financingadvice/qt/Equityloans.htmhttp://homebuying.about.com/od/financingadvice/qt/Equityloans.htm


25/44


__________________________________________________________

Page 21

Chapter 7

Shame on you! You have a personal obligation

to live up to your contractual obligations.

Since you are reading this, like many homeowners you are most likely facingsome difficult financial times. You are looking for solutions and you are beingtold by the media and politicians to seek assistance from your lender. You doit and what does your lender do? Make you feel bad or make you feel that youare some sort of dirt bag because you have gotten into trouble.

Shame on you? No! Shame on them, you called for help and that is nothelping. You would never expect to dial 911 and they would not help. Lendersare not 911!!!

Your personal obligation is to first support your family. Anyone, and I meananyone, who attempts to put your family first is your personal enemy. A harshstatement bred in reality. If your lender wants you to exhaust your savingsaccount, cash in your kids college fund, your 401k or try to get you to committo payments that cause you extreme distress, DONT LISTEN TO THEM.

When someone is talking down to you like that, consider this quote from LouisArmstrong:

I got a simple rule about everybody. If you don't treat me right -- shame on you!

In the world of shame, this current crisis, there is plenty of shame to goaround. The very lender (or their agent) has been a major contributor of thisshame. Dont lose sight of their shame in your decision processes. Theyloosened the lending standards so much that the housing bubble got so bigthat it has collapsed and destroyed the real estate market for now and for sometime into the future.

Focusing all the energy, by all parties to this crisis, on blame serves nopurpose. In your world, you have a problem and you need help. Someone thatwants to make you feel bad is not someone you need help from.

I have been someone that has spent a lot of time understanding people thathave faced many challenges in life. One of those people I have learned from isa former Nazi concentration camp survivor and psychologist, Viktor Frankl. Acore philosophy he has taught is life has unavoidable misery, deal with it with


26/44


__________________________________________________________

Page 22

dignity. To some extent, your problems with your home are pretty miserablein the spirit of Viktor Frankl deal with it with dignity. Stand proud and dealwith it. DO NOT LET SOMEONE MAKE YOU FEEL BAD.

As far as contractual obligations, we have laws to address them. Act within the

law. There are neither debtor prisons nor public humiliation for goodintentions that go wrong. In fact, the law even allows all of us to filebankruptcy if our troubles get so bad. They want to make this personal, but itis just business. In a time in which many financial institutions are getting bailouts, there are none for the public. Your personal decisions are about family,protect them, the situation with your house is a business decision.

In conclusion, they do not have your interest at heart and they will use thetools of shame to get you to do what they want, even at the risk of yourfamily empower yourself dont let them.


27/44


__________________________________________________________

Page 23

Chapter 7

Your Plan - Your Steps

Step One: Stop listening to lenders, politicians and counselors.

These are not people who are really watching out for you, they are watching outfor themselves.

Step Two: Be Quietsay nothing, give nothing and cooperate about nothing.

Until you know what your plan is, do not give any information to anyone who isnot on your side. Financial advisors, tax advisors and attorneys you may need

to consult are on your side. Lenders, real estate agents, politician, media andthe counselors they employ, generally, are not on your side (yet) so dont givethem any information. If you do not give information, they cannot use itagainst you.

Step Three: Get a plan! Start with how much you can afford.

You plan begins with collecting facts. When you have facts in front of you, youcan make a plan that is best for you. At the end of this chapter is form thatsummarizes the steps we discuss next. Use the form to give yourself a quickview of YOUR facts.

Step Three - A: How much money do you make?

Its reality time. You need to sit down and really look at how much you makeeach month. Two numbers you want to look at:

Gross Income in your household: A1: $_______________________

Net income in your household: A2: $_______________________

Your gross income is the income you earn before any taxes, insurance or otherdeductions from your paycheck. The net income the actual amount you getpaid each month after all deductions.

Step ThreeB: How much of a payment can you afford?


28/44


__________________________________________________________

Page 24

No matter what anyone tells you, forget about your payment for a moment andfocus on what you really can afford. Its a different number for each family,however, it should not exceed these guidelines:

40% of your gross income (A1 times 40%): A3: $________________________

60% of your net income (A2 times 60%): A4: $________________________

Step ThreeC: How much is your payment really?

The complex loan products today make this a difficult thing to determine. Ifyou have a pick-a-pay loan (sometimes known as a payment option arm), yourmonthly statement should have a payment option that is labeled theamortized payment. This is the payment you are looking for.

If you are unable to determine how much your amortized payment is, call yourlenders customer service department and ask them.

Amortized Payment: A5:$_________________________

Tax and Insurance (if not already included): A6:$_________________________

Total of A5 and A6: A7:$_________________________

If A7 exceeds either A3 or A4 circle FAIL. If A7 is less than A3 or A4 circlePASS.

STEP THREE: FAIL PASS

Step Four: How much are you underwater on your home?

How much is your home really worth. A starting point would be from a coupleof sources. If you have access to the internet, you can go to www.zillow.comand put in your address and it will give you a zestimate. My experience is theirestimate is about 10% too high. So you may want to adjust it. Another sourceis to ask some real estate friends to give you a realistic idea. Finally, call onsome of the houses for sale in your neighborhood. If the figures you have


29/44


__________________________________________________________

Page 25

gotten from zillow and real estate folks is greater than the houses listed (whichhave not sold) adjust the value of your home even slightly lower than the oneslisted. If the listings are greater, DO NOT ADJUST YOURS HIGHER.

Value of your home: B1: $______________________________

Reasonable Fluctuation (10% of B1): B2: $______________________________

You need to look at how much you owe on your home. You need to look atyour mortgage statements (including seconds and lines of credit on the home)and get a loan balance.

Loan Balance: B3: $______________________________

Next, you need to add to your loan balance any unpaid property taxes and anydelinquent payments.

Loan Balance Add-ons: B4: $______________________________

Total Indebtedness (add B3 + B4): B5: $______________________________

If B5 is less than B1 go to the end of this step and circle PASS!

If B5 is greater than B1, complete the following:

Underwater amount (B5B1): B6: $______________________________

If B6 is greater than B2 circle FAIL. If B6 is less than B2 circle PASS.

STEP FOUR: FAIL PASS

Step 5: Summarize the facts for your plan!

Fact: If you have a fail in Step 3, honestly, you cannot afford your home.

Fact: If you have a fail in Step 4, honestly, every time you make a payment youmay be throwing good money after bad.

Another real important element is other debt you have. Car payments andother debts are eating into the balance left over each month in your income.You can change some of that by selling that car with too big of a car payment


30/44


__________________________________________________________

Page 26

or if you debts are too large, you can file a bankruptcy or arrange a work outplan with the creditors. You will need to resolve that as part of your plan.

Step 6: Now for the hard part.

If you cannot afford the payments on your home, you need to change that. Livewithin your means for housing. Renting is an option.

If you owe more than the home is worth, you have to really look at that amountand decide if it is worth it for you to pay that underwater amount to keep yourhome. You should look at the amount as being unsecured debt. I have seensome consumers that are $200,000.00 under water. For them, I think thedecision to walk from that is easy. As a general guide based on my opinion,this is my chart for pain:

0 to $20,000.00 Not worth walking

$20,000.00 to $40,000.00 Depending on value of property, may want togive some consideration to waling from theproperty.

$40,000.00 to $75,000.00 Walking is making a lot of sense.Greater than $75,000.00 Walking makes total sense

What does walking really mean?

It means different things for different people. Before you consider walkinglets see if they did something wrong make sure you carefully review Chapter 8titled Lets See If They Did Something Wrong.

MAKE YOUR PLAN!

Ok, now you understand your circumstances. What is your plan? My fatherwas an investment advisor. Retired today at 88, I still remember the simplestadvice he ever gave me, your best lost is your last one. When I was young, Idid not get it and figured it was one of those things your parents say that doesnot make any sense. Today, it makes complete sense. Do not throw goodmoney after bad. If you are overextended on house payments or so farunderwater that it makes no sense, make the loss your best one by making it

stop now. You may have to lose today. That is ok. Lose and get it over with,and whatever you do DO NOT REPEAT IT!

Keep your home??


31/44


__________________________________________________________

Page 27

It is time for you to be honest with yourself. Can you really afford your homebased on the above? Maybe a bankruptcy is needed to help you put it together.Also, look to the section on whether your lender did something wrong becausethat may help you stay in your home and force the lender to compromise withyou.

You need to exercise good judgment. How far are you underwater on yourmortgage? If the loss is too big, what are you fighting for?

Walk from your home?

If possible, do it on your terms.

Bank the money. If you make the decision to walk, every payment youwere going to make should be put into a bank account for your future.

Take steps to isolate the problem to the mortgage. Pay all of your othercredit on time.

o This way, a couple years down the road you can easily explain thatyou became a victim of the mortgage melt down.

As you are getting close to the end of the foreclosure process, negotiatefor a cash for keys arrangement.

o You will give them the property without any hassle, in decentcondition in exchange for a $3,000.00 to $5,000.00 cash payment.

o Usually you give them the keys, garage door opener and the keysto the mailbox.

o You leave all the appliances and fixtures working and fully intact.o You do not leave the property with a lot of trash or debris.

Buy as much time as you can by every delay you can think of. Talk tothe lender and suggest you want to work things out if they will delay theforeclosure process. Have them send you the info on every program theyoffer. However, do not proceed with them unless it is an advantage toyou.


32/44


__________________________________________________________

Page 28

PAYMENT AFFORDABILITY ANALYSISDetermine your gross and net income:

Gross Income in your household: A1 $Net Income in your household: A2 $Gross income is the income you earn before taxes, insurance or other deductions from your paycheck.

The net income is the actual amount you get paid each month after all deductions.How much of a payment can you afford:40% of your gross income (A1 times 40%) A3 $60% of your net income (A2 times 60%) A4 $

What is your true payment:Amortized payment A5 $Taxes and insurance (if not already included) A6 $

TOTAL PAYMENT (A5+A6) A7 $PAYMENT AFFORDABILITY TEST

If A7 exceeds A3 or A4 circle FAIL If A7 is less than A3 or A4 circle PASS

FAIL PASSPROPERTY VALUE AND EQUITY ANALYSIS

Property Value:Value of your home B1 $Reasonable Fluctuation (10% of B1) B2 $

Indebtedness on Property:Loan Balance(s): B3 $Other balance add-on (delinq. taxes, etc) B4 $

Total Indebtedness B5 $

If B5 is less than or equal to B1 skip rest of this section and circle PASS belowIf B5 is greater than B1, complete the following:Underwater amount (B5B1) B6 $If B6 is greater than B2 circle FAIL below. If B6 is less than B2 circle PASS.

PROPERTY VALUE AND EQUITY TEST FAIL PASS

If you have a fail in the payment affordability test, you cannot afford the payments on yourhome and you should look for a way to get out from under those payments.If you have a fail in the property value and equity test, the business analysis of this test is thatit does not make sense to keep your property. However, that is an individual decision. Reviewchart below as weighted direction recommendations.0 to $20,000.00 Not worth walking$20,000.00 to $40,000.00 Depending on value of property, may want to give some consideration to wakling from

the property.$40,000.00 to $75,000.00 Walking is making a lot of sense.Greater than $75,000.00 Walking makes total sense


33/44


__________________________________________________________

Page 29

Chapter 8

Lets see if they did something wrong.

Honestly, before doing anything, this is the most important analysis that needs

to take place. As a consumer, you are protected by various laws. If any ofthose laws apply, you may have remedies.

Remedies for these wrongs come in many forms.

Remedies against the real estate agent that sold you the house. Remedies against the loan broker that did your loan. Remedies against your current lender.Remedies against the real estate agent that sold you the house.

Your real estate agent had many duties to protect you when you bought yourhouse. The most important thing they were was your fiduciary. As afiduciary, case law states they have an obligation to step into your shoes, actin your best interest, while using their knowledge and experience.

Some experts believe that if your agent did not watch the activities of your loanthroughout your purchase transaction and failed to advise and counsel you onthe advantages and pitfalls of the financing you obtained, they breached theirduty. I happen to be one of those persons.

Your real estate agent was the expert in the transaction. Hiding behind othersis an attempt to delegate their duty to someone else. That may be their desirebut that most likely will fail.

If your property just went down in value, that is life. However, if you cannotafford your loan because an agent allowed you to get into an option arm or astated income loan without advising you of the pitfalls, you may be able to takeaction against the real estate agent.

Assemble the facts and discuss it with a attorney who has litigation experienceagainst real estate brokers. A word to the wise, do not chase pipe-dreams.

Many real estate agents are losing their own homes as business is that bad. Ifyou cannot collect against an agent, forget it, dont spend good money afterbad. (Another reminder of making your best loss your last one.)

Remedies against the loan broker that did your loan.


34/44


35/44


__________________________________________________________

Page 31

Chapter 9

Litigation and Bankruptcy Options

As previously discussed, if anyone did something wrong, that may open uplitigation.

Litigation is not cheap but if you have something as pretty basic as a rescissionviolation within three years, you may not be obligated to make any furtherpayments and money that would be used for payments can be diverted for legalfees to pursue those remedies. If you have a valid rescission, the legal fees arehighly likely to be returned.

A couple of strategies related to rescission based litigation to consider:

A great way to give the keys back to the lender without a credit hit.o If the court rules in your favor on the rescission, any negative

reporting on your loan must be removed as rescission is equal tonot ever having the loan at all.

o While they fight you over the rescission, when you prevail, you willbe able to give the keys to the house to the lender and not have tomake up any payments.

When they fight, getting a trial date could take up to two years. Whichmeans you could avoid making payments for up to two years while theyfight you.

Lets talk about bankruptcy. Generally, you cannot wipe out loans on yourhome in bankruptcy. We have some interesting exceptions:

Underwater seconds (junior and equity lines of credit) that fully notcovered by the value in the property.

o For example a house that has a first of $200,000.00 and second of$75,000.00 but the value of the house is $175,000.00. The secondis considered unsecured in a bankruptcy context.

o The entire second can be eliminated in a bankruptcy as anunsecured debt.

Rescinded loans may be treated as fully unsecured in a bankruptcy.If you are delinquent on your loan, a Chapter 13 plan could allow you to makeup those back payments over a 60 month period. Many lenders will makeagreements with you on much shorter time putting you under extreme


36/44


__________________________________________________________

Page 32

pressure. If a lender who wants you to become current in a short time, lookinto a Chapter 13 bankruptcy to improve your cash flow position.

While you may take a hit on your credit for filing the bankruptcy, do not forgetwhere you are at you are delinquent on your mortgage and you already are

taking a credit hit.

These options should be explored as part of your process.


37/44


__________________________________________________________

Page 33

Chapter 10

Last resort, maybe talk to your lender

Before you talk to your lender, make sure you have taken all of the steps toempower yourself:

Have you have looked for defects in your loan and could not find any? Have you have looked into the information provided about your income

when you got your loan and determined that you do not have any legalexposure for the information?

o If you have legal exposure for false or exaggerated information atloan application, follow legal advice from the attorney youconsulted.

Have you gotten your answer regarding if you can afford the currentmortgage from a payment perspective?

Have you gotten your answer regarding how much you are underwateron your home?

Have you gotten into the right mindset regarding personalresponsibility?

o Your contact is about businessdo not let anyone make you feelashamed.

Stick to your plan. Do not tell your lender your plan but use your plan as yournegotiation tool indirectly.

If you are walking from your home, do not tell them. Instead, do everythingpossible to buy as much time as you can. Do not lie but do not volunteerinformation either. Do more listening than talking. If you have to take a credithit, maximize the cash to you.

If you are walking:

Try to get more time so you can bank payments. If you get to the end, try to secure a cash for keys payment to return

the property with little hassle.o While you are at it, try to tie in deleting the credit trade-line in

exchange for your cooperation.

If you want to stay:

Ask if they will reduce your loan balance. Be armed with your analysis.


38/44


39/44


__________________________________________________________

Page 35

Chapter 11

When all else fails, walk!

Throughout this booklet we have discussed walking often. Its a hard decision.You have to move, you have friends and family around. There is some stigmato the process.

Lets say you owe $450,000.00 on a house that is worth $250,000.00 today. Ineffect, you have a secure debt of $250,000.00 and you have an unsecured debtof $200,000.00.

If I came to you and said you have this $200,000.00 unsecured debt I wantyou to pay me back now or I will report you to the credit bureaus. Whatwould you do? Change it a little, if you had a major accident that injuredsomeone way beyond your insurance coverage and you were now going to beliable for $200,000.00. What would you do?

Looking at it in that context, the answer is simple; most of us would make thetough decision to file bankruptcy.

In this case, you are making a similar decision but bankruptcy, for the mostpart, is not your decision, foreclosure and walking away is.

Remember what my Father told me, your best lost is your last one. Face it,dont take cash advances from your credit cards to put off your loss, face it

now, and make it your last one, once and for all.


40/44


__________________________________________________________

Page 36

Chapter 12

Now whose problem is it really?

I have to tell you, I have been dealing with consumers and this mortgage crisisfor some time now. I am really struck by whose problem this really is. Frommy view, even though you see this as your problem, I dont.

After all of this, you must think I am crazy to say that. I can assure you, I amnot (well maybe a little but not about this). You have choices (lenders dont)and the impact to you generally comes in the form of impacting your ability tosecure credit for a while. If a lender could pursue you for any deficiency, forthe most part, a bankruptcy cures that. So, while you make take a credit hitfor a while many people do that and survive it quite well with nothing morethan inconvenience.

So, whose problem is it?

The bank or the investors in Wall Street who really own your loan are the oneswith the real problem here. When you walk and they take the property back,either through litigation, negotiation or foreclosure, when they sell the house,the actual dollar loss to them is real and right then.

As more and more folks choose to walk away from their homes, their losses getbigger and bigger.

Which takes us back to the title of this mini-book, The 2009 Mortgage TeaParty. For whatever reason, the lenders across this country think they are incontrol of this problem. They are not truly addressing loan modifications thatare helpful to consumers and they place blame on all of this on you. Fact is,collectively, consumers are the ones in control. When the Sons of Libertystarted dumping all that tea into the Boston Harbor, they sent a message.Lower the taxes on tea or we wont drink it and you will not make any money.

Consumers need to respond in big numbers. If lenders will not provide realassistance, our collective message should be we will stop making paymentsand you will lose millions and billions of dollars.

Adding insult to injury, it is a self-perpetuating problem. As more people walkfrom their homes and have credit dings that prevent them from buying, that isless folks available to buy homes in the next 5 years making the lendersproblems continue and worsen. As that situation worsens for them, then even


41/44


42/44


__________________________________________________________

Page 38

Chapter 13The Last Word

If you have decided to walk or let your lender foreclose something quite

annoying will take place they will call you with debt collection calls. You canstop them.

You can assert your rights under Section 805 of the Federal Fair DebtCollections Practices Act and the California Rosenthals Fair Debt CollectionPractices Act in that you can request that you wish that all communicationscease in relation to the debt except those allowed by statute. Foreclosurenotices required by law are good examples of communications allowed bystatute.

Some banks will say that the Federal Fair Debt Collection Practices Act does

not apply to them. That may be true sort of. Every state is a little differentbut California is what this author knows best.

California Civil Code 1788.17 (part of Californias Rosenthals Fair DebtCollection Practices Act) incorporates the Federal provisions of 15 U.S.C. 1692-1692j in the following:

1788.17. Notwithstanding any other provision of this title, every debt collector collecting orattempting to collect a consumer debt shall comply with the provisions of Sections 1692b to1692j, inclusive, of, and shall be subject to the remedies in Section 1692k of, Title 15 of theUnited States Code.

The state law defines debt collector to include anyone collecting a debt, eventhe owner of the debt. 15 U.S.C. 1692c, which is referenced in the Californiastatute, has a provision for ceasing communication. Phone calls to a borrowerafter giving notice to terminate communication to collect the debt are clearlyrestricted by 15 U.S.C. 1692c:

CEASING COMMUNICATION. If a consumer notifies a debt collector in writing that theconsumer refuses to pay a debt or that the consumer wishes the debt collector to ceasefurther communication with the consumer, the debt collector shall not communicate furtherwith the consumer with respect to such debt, except(1) to advise the consumer that the debt collectors further efforts are being terminated;

(2) to notify the consumer that the debt collector or creditor may invoke specified remedieswhich are ordinarily invoked by such debt collector or creditor; or(3) where applicable, to notify the consumer that the debt collector or creditor intends toinvoke a specified remedy.


43/44


__________________________________________________________

Page 39

The statute has some real teeth too. The statute allows for actual damages,statutory penalty of up to $1,000.00 and attorney fees. Dealing with this issimple:

Send a letter (sample to follow)o Send the letter via certificate of mailing (not certified.

Certificate of mailing is provided by the post office whereinthey acknowledge receipt of the letter. That is good enoughfor a court of law.

Keep a log of each call when they call.o Tell them you have sent the letter and tell them to stop callingo Do not waive your rights but discussing the debt, just tell them

know and ask if they need you to fax the letter to them. After about ten violations, contact an attorney.

o If attorney does not understand the issue, have them contact uswe will educate them for a small fee.


44/44

The 2009 Mortgage Tea Party (c) 2008 David A. Pereira(Date)

Lender

Lenders AddressLender City, State and Zip

RE: Loan No. xxxxxxxBorrower:Address:

To Whom It May Concern:

Please be advised that pursuant to my rights under Section 805 of the FederalFair Debt Collections Practices Act and the California Rosenthals Fair Debt

Collection Practices Act I am advising you that I wish that all communicationscease in relation to the debt except those allowed per the statute.

This request includes the termination of all phone calls, letters or physicalcontact of all kinds.

Sincerely,

John Q. Consumer

The 2009 Mortgage Tea Party 01 02 2008 Revision

Documents

Transcript of The 2009 Mortgage Tea Party 01 02 2008 Revision