We need a bailout to help the many folks losing their homes today. Kristi Schofield and her husband Paul are losing their New Hampshire colonial on 2.5 acres because they could not afford to keep paying their mortgage. According to the Salem, NH Eagle-Tribune, the Schofields enjoyed a six-figure income, bought a home that was apparently 3 times the median house price in New Hampshire at the time, and they have lost their home to foreclosure.
If the upper middle class is losing their homes, things have gone too far. Hillary's right - we need a bailout.
I propose that we help homebuyers and homeowners. I have a specific plan for helping these folks.
1) Lower taxes. Even Warren Buffet says he pays less in taxes, proportionally, than his employees. Eliminate the AMT. Taxes have become much too large a percent of GDP, and it's time governments share in the pain by learning to live on a frugal budget.
2) Increase education. If it comes down to cutting a history class from high school graduation requirements, fine, but Americans need some financial and life skills that they are generally not learning at home. When we have college graduates earning six-figure incomes that can't figure out that they cannot afford their home anymore - a home they bought 8 years ago, before the most unprecedented real estate appreciation in recent history - you have to admit that we have failed our education responsibilities.
Teach high school students about the importance of reading legal documents, teach them how to find legal help if they don't understand a contract, teach them about how compound interest works - on loans AND savings, teach them about renting and buying houses, cars, and personal property. Teach them that car salespersons and house salespersons don't have our best interests at heart. Teach them the life skills that we ALL need, that far too many Americans claim they don't have and, therefore, cannot be responsible for the outcomes they create in their own lives.
For people who have already graduated, put a blurb into the IRS forms and pubs reminding them that the government provides pamphlets on every imaginable subject, and telling us where to find those pamphlets, including the Consumer Handbook on Adjustable-Rate Mortgages.
3) Prosecute financial crimes and help the victims of fraudulent brokers through the crime victim assistance funds that are already available.
4) Fix predatory loan servicing. Predatory servicers sometimes "lose" timely payments, resulting in late fees. In states with poor consumer protections, these servicers can foreclose - with no real valid cause - in a jiffy. This is flat-out wrong, and should have been resolved a long time ago.
5) Eliminate taxes on forgiven debt. Right now, a homeowner whose house is "underwater" - worth less than he owes - faces a tax bill on the "forgiven debt" when the bank forecloses (the difference between what is owed and what the house is worth).
6) DO SOMETHING ABOUT CASH-BACK AT CLOSE AND CASH-OUT-RE-FI-THEN-WALK-AWAY SCAMS. There are fraud rings that specialize in buying homes for the cash-back-at-close and then walking away. Heck, Casey Serin, posterboy of all that was wrong in the housing bubble, used the cash back to live it up and perptrate even more mortgage fraud. THIS STUFF FALSELY INFLATES COMPS, WHICH STEALS MONEY DIRECTLY FROM THE POCKETS OF HONEST HOMEBUYERS.
7) Speaking of comps - REQUIRE MLS REAL ESTATE AGENTS TO DOCUMENT "CONCESSIONS" IN MLS, AND TO PROVIDE CONCESSION INFORMATION WHEN THEY PROVIDE A BUYER OR SELLER WITH COMPS. For non-MLS transactions, have the County Recorders collect that data and make it available in the same manner as they make other property data available.
8) There will be employment fallout from all of this. The AMT tax prohibits taxpayers from taking tax credits for things like energy efficiency improvements. Until the AMT is fixed, allow energy efficiency credits to be taken off the bottom line, without being reduced by AMT. This will increase investment in energy efficiency and create employment.
9) Fix the H1B visa and other guest worker programs. Eliminate loopholes and lack of oversight that are currently being used to strip Americans of their jobs.
For the folks who are losing their homes now, for whom most of these suggestions are too late - prosecute mortgage fraud. Expedite it, and create an expedited system for processing RICO claims against the convicted fraudsters. Have the Federal Citizen Information Center create a handbook on "Recovering from Foreclosure." Put some real privacy laws in place, so not EVERYONE can see your credit history. Raise the limits on 401k and IRA contributions to increase investments - to help foreclosees to rebuild, and to improve confidence in our capital markets.
Tuesday, August 14, 2007
Stop the Subprime Bailout
Stop the Subprime Bailout
An interesting take on the subject of mortgage bailouts.
Perhaps the best reason NOT to bailout mortgagees is that the folks who bought at the top of the housing market - a market driven to new heights by crazy lending and outright fraud - will be better off walking away rather than trapped in loans that are potentially hundreds of thousands of dollars underwater. 30 years of payments on $100,000 overpaid costs around $600 a month. More than many people put into their 401k.
If I entered the data correctly, that $600/month would be $300,000 in retirement savings after 30 years. Retirement Planner - MSN Money Why do we want to help people stay in overleveraged, depreciating "investments" that they cannot afford?
An interesting take on the subject of mortgage bailouts.
Perhaps the best reason NOT to bailout mortgagees is that the folks who bought at the top of the housing market - a market driven to new heights by crazy lending and outright fraud - will be better off walking away rather than trapped in loans that are potentially hundreds of thousands of dollars underwater. 30 years of payments on $100,000 overpaid costs around $600 a month. More than many people put into their 401k.
If I entered the data correctly, that $600/month would be $300,000 in retirement savings after 30 years. Retirement Planner - MSN Money Why do we want to help people stay in overleveraged, depreciating "investments" that they cannot afford?
MyDD :: Clinton Speaks, Homeowners Mourn - revised
MyDD :: Clinton Speaks, Homeowners Mourn - revised
Here's a different take from a fellow who was at Clinton's Derry, New Hampshire event (referenced below, re: Kristi Schofield's foreclosure situation).
Here's a different take from a fellow who was at Clinton's Derry, New Hampshire event (referenced below, re: Kristi Schofield's foreclosure situation).
Saturday, August 11, 2007
How's this for a bailout?
RICO ACT, Jeff Grell, Racketeer Influenced and Corrupt Organizations, RICO, Attorney at Law: "Any person who succeeded in establishing a civil RICO claim would automatically receive judgment in the amount of three times their actual damages and would be awarded their costs and attorneys' fees. "
The RICO act, drawn up for use against the Mafia, applies in cases where a pattern of criminal activity involving a group or organization. The group can be as small as an agent, an appraiser, and a mortgage broker. The key is the pattern of criminal activity. If an unholy triad of real estate professionals engages in a pattern of repeated sales involving the use of fraud - typically, defrauding the mortgage company - it could fall under RICO statutes.
A RAPID RISE: "With three months' experience, the agent who had never listed a home closed her first sale Jan. 27 in a working-class neighborhood. Her buyer paid $45,000 more than the asking price. It stunned her peers." ... "Some of the money wasn't going to the sellers. It was going to a third party with ties to Molen, sometimes without the knowledge of the lenders or the sellers. Federal and state laws require full disclosure to lenders detailing where the money goes."
Mortgage fraud. Mail fraud. Tax fraud. Wire fraud. Violation of professional ethics. What did I leave out?
What does this have to do with a bailout? Treble damages. We know - the press is beginning to report on it, but bloggers have been highlighting fraud cases and fraud rings for years - that there was a lot of fraud in this market. We know that there were agents who would handle these deals, appraisers that would "meet the numbers", mortgage brokers who would, at best, look the other way, and at worst, falsify the numbers on the mortgage app. And we know people were hurt by all of this. Lots of people.
The people who were damaged were the buyers who used those homes as comps, the owners who spent more than they otherwise would have spent on remodeling, the neighbors now suffering with multiple abandoned homes in their neighborhoods, attracting vagrants, mischievous children, and sometimes worse. With the possibility of treble damages, homeowners should be pushing for prosecution of these crimes, and looking for lawyers who will file the RICO claim.
This is a more fair, equitable, reasonable kind of "bailout". People who were truly harmed - innocent buyers and homeowners - already have a path to recovery. There is no need for a new government bureaucracy handing out cash - the government is so good at giving cash ONLY to the deserving, after all - the mechanisms for recovery are already in place. Use them.
If you're an affected homeowner, how do you know if a sale was fraudulent? It's usually fairly simple - it's the sale everyone in the neighborhood was commenting on, saying "can you believe it?" But here's a site that shows some forensic appraisal cases, with the data used sniff out the fraud. You have to click the links and review the evidence yourself to really grasp the case being laid out, but it's an interesting read and worth the extra effort:
Aug Forensic Appraisal Blog: "Jumpin' Jim Beauprez It just gets curious-er and curious-er. I originally published this item April 13th, 2006. 2 other mortgage fraud transactions involving Jim Beauprez are reported here and here. As per MLS, this property sold in December, 2005. Denver Assessor's Office confirmed the sale and identified the buyer as James Beauprez and the lender as Lehman Brothers. I am now convinced that James Beauprez is the son of Bob Beauprez, United States Congressman and now the Republican candidate for Governor of Colorado."
The RICO act, drawn up for use against the Mafia, applies in cases where a pattern of criminal activity involving a group or organization. The group can be as small as an agent, an appraiser, and a mortgage broker. The key is the pattern of criminal activity. If an unholy triad of real estate professionals engages in a pattern of repeated sales involving the use of fraud - typically, defrauding the mortgage company - it could fall under RICO statutes.
A RAPID RISE: "With three months' experience, the agent who had never listed a home closed her first sale Jan. 27 in a working-class neighborhood. Her buyer paid $45,000 more than the asking price. It stunned her peers." ... "Some of the money wasn't going to the sellers. It was going to a third party with ties to Molen, sometimes without the knowledge of the lenders or the sellers. Federal and state laws require full disclosure to lenders detailing where the money goes."
Mortgage fraud. Mail fraud. Tax fraud. Wire fraud. Violation of professional ethics. What did I leave out?
What does this have to do with a bailout? Treble damages. We know - the press is beginning to report on it, but bloggers have been highlighting fraud cases and fraud rings for years - that there was a lot of fraud in this market. We know that there were agents who would handle these deals, appraisers that would "meet the numbers", mortgage brokers who would, at best, look the other way, and at worst, falsify the numbers on the mortgage app. And we know people were hurt by all of this. Lots of people.
The people who were damaged were the buyers who used those homes as comps, the owners who spent more than they otherwise would have spent on remodeling, the neighbors now suffering with multiple abandoned homes in their neighborhoods, attracting vagrants, mischievous children, and sometimes worse. With the possibility of treble damages, homeowners should be pushing for prosecution of these crimes, and looking for lawyers who will file the RICO claim.
This is a more fair, equitable, reasonable kind of "bailout". People who were truly harmed - innocent buyers and homeowners - already have a path to recovery. There is no need for a new government bureaucracy handing out cash - the government is so good at giving cash ONLY to the deserving, after all - the mechanisms for recovery are already in place. Use them.
If you're an affected homeowner, how do you know if a sale was fraudulent? It's usually fairly simple - it's the sale everyone in the neighborhood was commenting on, saying "can you believe it?" But here's a site that shows some forensic appraisal cases, with the data used sniff out the fraud. You have to click the links and review the evidence yourself to really grasp the case being laid out, but it's an interesting read and worth the extra effort:
Aug Forensic Appraisal Blog: "Jumpin' Jim Beauprez It just gets curious-er and curious-er. I originally published this item April 13th, 2006. 2 other mortgage fraud transactions involving Jim Beauprez are reported here and here. As per MLS, this property sold in December, 2005. Denver Assessor's Office confirmed the sale and identified the buyer as James Beauprez and the lender as Lehman Brothers. I am now convinced that James Beauprez is the son of Bob Beauprez, United States Congressman and now the Republican candidate for Governor of Colorado."
Friday, August 10, 2007
Hillary to the Rescue!
Hillary Clinton is looking to bail out homeowners facing foreclosure. She chose as her poster child… Kristi Schofield of New Hampshire (address below), who could not afford to continue making $6,000 monthly mortgage payment on savings and unemployment. Hillary sure has the common man’s back, saving folks from their $6,000 mortgages being foreclosed. Since the victims of "predatory lending" were the poor, the uneducated, and minorities, I am not sure why the Schofields fit the bill for putting a human face on the problem... but do read on.
At the time this poster child bought her home about 8 years ago, the median house in New Hampshire cost $133,000; the Schofields must have paid at least $420,000. According to Baron Mortgage Corporation, New Hampshire lead the real estate bubble – the poor, overburdened Schofields could have sold their luxury home for a substantial profit. Over the past 8 years, interest rates dropped to historic lows. The Schofields could have refinanced. How does this represent predatory lending? What I'm betting - and I hope someone in the press will get the cojones to investigate and prove me wrong (or right) - is that the Schofields pulled almost half a million dollars out of their house - that's how a $2,400 monthly nut grows to $6,000. That's tax-free income, baby, 'cause loans don't count as income unless/until you default on 'em.
Clinton proposes $1 Billion in new taxes to save these folks. No word on whether real estate investors (commonly called “flippers”) and borrowers who overstated income will be excluded from the bailout.
Do me a favor, folks - plug the Schofield's numbers into your favorite mortgage calculator. Interest rates on ARMs were about 5.6% in 1999. What kind of loan do you have to take out to pay $2,400 a month at 5.6%? My calculator says $420k - add in 10-20% down, and you've got something like a half million-dollar home. 3-4 times the median home price in N.H. at that time.
Fast forward 8 years. The poor, devestated Schofields lost their home because they couldn't afford the $6,000 monthly payment. Go back to your mortgage calculator, kiddies - what kind of interest rate would require a $6,000 payment on $420k? My calculator says that's 17%. As in, there's no way - unless there's a LOT more to this story than Hillary's telling us - that the Schofields' mortgage climbed to $6,000 all by itself.
New Hampshire had the second largest housing price appreciation in the country during the bubble. The Schofields had two good, solid options to get out of a toxic mortgage - if that's what really caused their payment to climb. They could have sold their home for a very nice profit (somewhere around half a million dollars, most likely) or they could have refinanced. Any reasonable person would have gotten out of an ARM that was adjusting to 17% in an era of 5% mortgages.
It appears, based on publicly available web info, that the Schofields lived at 44 Collins Drive, East Hampstead, NH. East Hampstead is just across the border from Massachusettes, and some folks consider it to be a commuter town or bedroom community of Boston.
According to Paul Schofield's linkedin.com profile (which matches other details publicly disclosed about Kristi Schofield's husband), he was employed until 2006. His CV, includes positions with companies such as Agilent Technologies (M&A Risk Management), HP (Senior IT Engineer), BJs Wholesale (InfoSec Project Manager), Liberty Mutual, and Verdisys. This is the kind of family us taxpayers want to rescue - people with high-paying jobs in homes priced at least 3 times the median home price. Poor fellow - he can't be expected to save some of his salary, or downsize to a house he can afford, or otherwise take care of himself. He's just a computer security engineer in cutting-edge implementations - he can't be smart enough to understand stuff like mortgages.
If anyone out there knows the Schofields, please let us know - are we exaggerating the luxury of their home? Of their lifestyle? Did they really spend the half million dollars in equity appreciation on a sick parent? Or did they drive a couple of newer luxury cars and give their kids "nothing but the best"?
At the time this poster child bought her home about 8 years ago, the median house in New Hampshire cost $133,000; the Schofields must have paid at least $420,000. According to Baron Mortgage Corporation, New Hampshire lead the real estate bubble – the poor, overburdened Schofields could have sold their luxury home for a substantial profit. Over the past 8 years, interest rates dropped to historic lows. The Schofields could have refinanced. How does this represent predatory lending? What I'm betting - and I hope someone in the press will get the cojones to investigate and prove me wrong (or right) - is that the Schofields pulled almost half a million dollars out of their house - that's how a $2,400 monthly nut grows to $6,000. That's tax-free income, baby, 'cause loans don't count as income unless/until you default on 'em.
Clinton proposes $1 Billion in new taxes to save these folks. No word on whether real estate investors (commonly called “flippers”) and borrowers who overstated income will be excluded from the bailout.
Do me a favor, folks - plug the Schofield's numbers into your favorite mortgage calculator. Interest rates on ARMs were about 5.6% in 1999. What kind of loan do you have to take out to pay $2,400 a month at 5.6%? My calculator says $420k - add in 10-20% down, and you've got something like a half million-dollar home. 3-4 times the median home price in N.H. at that time.
Fast forward 8 years. The poor, devestated Schofields lost their home because they couldn't afford the $6,000 monthly payment. Go back to your mortgage calculator, kiddies - what kind of interest rate would require a $6,000 payment on $420k? My calculator says that's 17%. As in, there's no way - unless there's a LOT more to this story than Hillary's telling us - that the Schofields' mortgage climbed to $6,000 all by itself.
New Hampshire had the second largest housing price appreciation in the country during the bubble. The Schofields had two good, solid options to get out of a toxic mortgage - if that's what really caused their payment to climb. They could have sold their home for a very nice profit (somewhere around half a million dollars, most likely) or they could have refinanced. Any reasonable person would have gotten out of an ARM that was adjusting to 17% in an era of 5% mortgages.
It appears, based on publicly available web info, that the Schofields lived at 44 Collins Drive, East Hampstead, NH. East Hampstead is just across the border from Massachusettes, and some folks consider it to be a commuter town or bedroom community of Boston.
According to Paul Schofield's linkedin.com profile (which matches other details publicly disclosed about Kristi Schofield's husband), he was employed until 2006. His CV, includes positions with companies such as Agilent Technologies (M&A Risk Management), HP (Senior IT Engineer), BJs Wholesale (InfoSec Project Manager), Liberty Mutual, and Verdisys. This is the kind of family us taxpayers want to rescue - people with high-paying jobs in homes priced at least 3 times the median home price. Poor fellow - he can't be expected to save some of his salary, or downsize to a house he can afford, or otherwise take care of himself. He's just a computer security engineer in cutting-edge implementations - he can't be smart enough to understand stuff like mortgages.
If anyone out there knows the Schofields, please let us know - are we exaggerating the luxury of their home? Of their lifestyle? Did they really spend the half million dollars in equity appreciation on a sick parent? Or did they drive a couple of newer luxury cars and give their kids "nothing but the best"?
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