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Our Law Blog

November 24

It's a Wonderful Life
If you want a great commentary on the current mortgage crisis you need not look at any cartoon in the New Yorker. It's this time of year to whip out the old movies that bring up the holiday spirit. And one in particular brings to light the current mortgage debacle in start detail: It's a Wonderful Life.

Yes, I know that movie is about George Bailey and his trip through life and his ultimate lesson to hang on to what is important. However, the first half hour of the movie is about his dad's struggle with managing a Savings and Loan and his disputes with the tyrannical Mr. Potters. Just as a background, Savings and Loans were the old way borrowers would borrow money to build or buy a house. They borrowed from some local businessman they trusted. The Savings and Loan would know the borrower and the borrower's ability to repay. As is brought out in the movie, loans were given based on this knowledge. Mr. Potters disparages George Bailey's father for giving out a loan to a 'nice fella' who does not have the ability to repay. Mr. Potters reminds everyone that you can't lend money on good will.

George Bailey stands up for his father's memory (after his father passes away) to Mr. Potter. George argues that what good is all the money if you have no good deeds that goes along with it. Why should people wait to save the money when they can borrow and build today. What should people wait for, as they will never have the chance to build.

As is pointed out in the movie, Mr. Potters only cares about his fiscal responsibilities and sense because he has no family or anyone to share the money with. If he did have a family he would understand what the common worker goes through to provide for his family. The common worker supports the whole town's economy, and deserves a chance to build.

Now, obviously in the movie, Mr. Potters is the bad guy while George and his father are the good guys. We root for the idealists and the do-gooders. However, what should be noticed is that the great depression followed the bravado as the showdown between Mr. Potters and George took place toward the end of 1928 (and the great depression started in 1929).

It's a Wonderful Life is a movie. Therefore, the idealist must win. However, common sense is important, too. Banks were pressured for many years to lend money to the underprivileged and that helped attribute to this great mortgage debacle we are in the middle of. In real life we need common sense. To ask the banks to hand out modifications, to voluntarily allow those who clearly cannot afford their houses and lack the important fiscal responsibility to remain in their homes is ridiculous; at least from a financial and economic standpoint. Over extending loans helped get us into this mess. Slicing bank's profits and income on mortgages will not likely get us out.

There are two important differences, however. First, banks are not with clean hands. Banks did overextend loans, but they used the self-destruct formula. Charging higher interests rates to those with lower incomes and credit scores. In turn, that raised the monthly payments on the loans and made it harder for the poorer borrowers to repay the loans. If the interest rates were lower and monthly payments more affordable, we would not need modifications to begin with.
Second, banks do not stand to win by forcing foreclosure on every home that cannot produce income. The more homes the banks own the lower property values go, the harder it is for struggling borrowers to sell their homes to repay mortgages. As unemployment rises and incomes decline, and expenses rise along with penalties, fees, and interest rates on those who cannot make their payments, banks will own more homes. Owning a home costs thousands of dollars a year for the banks. These homes are not selling.

Therefore, it stands to reason, both economically and sensibly, that banks should inject a bit of George Bailey's love for fellow man, and modify the mortgages of the struggling, so that the banks will have some income from the home, and homeowners can enjoy the holiday season.

Happy Thanksgiving.

7:18 PM GMT | Read comments(0)

November 07

Modification Update
October 30, 2009 saw another change the Homeowner Assistance Modification Program (HAMP) that the government put out. This is a very frustrating change. Change means more processing time by the banks and the HOPE team that is helping push the modifications along. Toward the end of the summer the big banks put out a press release that they are over six months behind in processing applications for modification because of the changes to the government modification programs. The banks were optimistic that they would be able to catch up. Now there is a further change. This can only mean more delays.

In fact, there really has been on big change on October 30, 2009 or any time, since March 2009 to the government's modification programs. The requirements stay the same. However, President Obama seems to love to campaign for things. He is a great campaigner. His amazing campaign won him the presidency. And he has campaigned continuously since he came into office: for the passing of the Stimulus Plan, Socialized Healthcare, 2012 Olympics for Chicago, and Governor John Corzine's reelection in New Jersey. Campaigning can be good. However, it does not help homeowners.

Luckily, my office continues to be able to cut through the clutter. If you know you, you can slice right through and push modifications along. We meet the frustration so you don't have to. It would be nice if this process would get easier. I just do not see that in the horizon.

6:38 PM GMT | Read comments(0)

May 07

Banks are Still Not Being Helpful

Yes, it has been a while since I posted my last blog. Because I personally oversee all of my clients' modifications and foreclosure defenses, I have been a bit busy. I am taking the time now to share one thing that I learned that has changed in regards to how banks deal with modifications over the past eight months. Nothing. Sure, the lenders changed their automated phone system, to allow an option for "loss mitigation" and for "Obama's Homeowner Affordability and Stability Plan." The lenders also changed their call waiting time from 10 minutes to 55 minutes. However, the lenders did not change their policy on modifications.

You can argue all day about how the bank will be getting a mortgage it will actually collect from. These arguments fall on deaf ears. The old methods and practices of moving cases to foreclosure still exist as it did in early 2008. This is because lenders think that if you need a modification it means you will default on the modified terms. No financial documents or calculations will change their minds. If and borrower defaults on a modified mortgage the lender's remedy in a foreclosure action just got worse. Instead of collecting $350,000 of outstanding mortgage, plus interest and fees of 11%, the lender can only collect $300,000. Lenders lose position once they modify, because the loan has value so the ammunition in court is weaker.

Can you modify your mortgage?

Yes. You need someone that knows how to push, will push, and will push hard. Someone how knows the system really well and how to get the lenders to the table and agree on modifications. Someone, you can say, who is too busy handling his clients' modifications to write a blog consistently.

6:49 PM GMT | Read comments(0)

March 24

Have We Made Headway with the Homeowner Stability and Affordability Plan?
It is quite a good question. Recently, we were privileged enough to hear President Obama talk about this plan on Jay Leno's Tonight Show. Good idea or bad idea for a President to be on a pop-culture, late night, network TV show?

The answer is out of the scope of this blog. What is important, is if the stimulus plan is helping homeowners. The answer is yes and no.

Yes, because the idea of the plan has really helped banks open up their hearts and minds toward helping borrowers. No, because the idea of the plan has still not resulted in any actual modifications. To explain, banks and lenders have now added to their call centers, and given instruction to their customer service reps, that there is this new plan that will help the banks modify terms for the borrower. There is now incentive to the banks to modify. Thus, they are taking more applications for modification. However, as no money has been given yet, no modifications actually resulted.

The money will come and it will help. However, when it will come is uncertain. Applications need to be filed, and processing needs to take place. Additionally, before any applications can even be filed, the procedures need to be ironed out and worked into the system. You see, the application itself needs to be designed. Therefore, to bottom line it for you: the stimulus money will eventually help, and its existence started to help, but no actual help will be given unless you go out there and take it yourself.

10:17 AM GMT | Read comments(0)

February 18

Homeowner Affordability and Stability Plan announced today!

If you had your ears open the past few weeks then you know that the federal government has been looking to pass a stimulus plan that will cost about $789 Billion. I am sure it will cost us, not even our children, a lot more in the coming years. But, to give the new president and two year old Democratic congress credit, it is meant to help. And a big part of the plan that will help homeowners is the new Homeowner Affordability and Stability Plan.

Will it help? Yes.

However, there is a catch: You must qualify. This will be a three-part blog. This first blog will discuss the first two points of the Homeowner Affordability and Stability Plan; the second blog will discuss the last part; and then in the third blog I will discuss how all of this pertains to you.

The plan is three-pronged.

First, help “4 to 5 Million Responsible Homeowners to Make Their Mortgage More Affordable.” This will be helped by subsidizing homeowners that have Fannie Mae and Freddie Mac loans more conforming to a normal loan structure.

As of today, there are laws (read procedures instituted by banks) in place that makes it hard for borrowers that owe more than 80% of their home value to refinance. This means, if you refinanced the past five years, even if all your payments are timely, you cannot refinance. It also means that if you borrowed when your house was “worth” $300,000 and made your payments timely, but now your home is only valued at $250,000 you will not have paid off 80% of your home’s value. Therefore, you cannot refinance to better terms. The Homeowner Affordability and Stability Plan will provide incentives to lenders to allow qualifying borrowers who owe more than 80% of their home’s value to refinance. Benefit: you may be able to refinance. Downside: it must be a Fannie Mae or Freddie Mac loan, you must qualify, and you are still responsible for all the new payments. No help if you later go into foreclosure.

Second, $75,000,000,000 is allocated in order to reach three to four million at-risk homeowners. Who are at-risk homeowners? The homeowner must be struggling with mortgage, you cannot sell the home because of market prices, you cannot afford the home due to lack of income resources, your mortgage payments are more than 50% of your gross monthly income, you are living in the home, and are not a speculator or home flipper.

The subsidy (which comes out to as much as $18,750 if only four million borrowers are helped and no money is taken for administrative costs) will help subsidize payments for up to three years. The subsidy will also give incentives to servicers and lenders to modify loan terms and relax interest rates. The subsidy will also be used for principal reduction. Additional benefit is that the borrower does not even need to be in foreclosure to qualify. However, the negative aspects are that $18,750 per homeowner is a paltry amount to do any real good (it comes out to only a year and half of $1,000 a month subsidy). This is because after the subsidy runs out the borrower is in the same situation unless the borrower’s income drastically improved. Additionally, if money is being given to lenders and servicers to help modify terms, the borrower is not seeing the full benefits. Also, if you can sell your home you will not qualify.

The obvious elephant in the room is that a big chunk of this money is going to borrowers who took out loans on houses they could not afford with taxes and insurance they cannot pay. It is a band-aid on a gushing wound. However, it does appear to be a start.

Next: Part three of the plan.

Part three of the blog: how all this applies to you and how you can help yourself to this money.

6:53 PM GMT | Read comments(0)

February 16

Stimulus package help only for those smart enough to take it

The $789 Billion question these days is: how will the stimulus package effect me? Importantly, the question really is: will the stimulus package effect you? The simple answer is: if you are a non-corporate individual, it will not unless you make it work for you.

What will the stimulus package do for homeowners? There is a lot of talk about plans in the package to help homeowners in mortgage debt. Yes, the final version signed will likely have such provisions. However, any long-term effect will not be felt unless you work to make it work for you.

The plan is two-pronged. First, provide the lenders with money so they have incentive to write off bad loans and be more lenient with borrowers in lowering the monthly payments. This will not work unless there is severe regulation and oversight by the government. We know, however, when government decides to run business, business does not do well. Lenders who are already struggling because of write offs due to bad mortgages will not be helped by strict regulation and oversight. Instead they will slow down, government regulation will hamper their business and they will be less able and inclined to help homeowners.

Second, the package seeks to help borrowers with several months of payments. The package can only allow for certain qualifying homeowners with several months of payments. When boiled down to nickels and dimes, this means a borrower will (a) have to qualify, and (b) only get help for a few months. This leaves most borrowers out of the aid package. It also does not help long-term for borrowers it is intended to help. A borrower who has trouble with repaying the mortgage will still have trouble a few months down the line.

Therefore, the stimulus package does not seem to help. Unless, you have an attorney represent you. An attorney, (such as my self, wink, wink), who is trained in this area can help represent the borrower against the lender and push for modification and twist arms so that the lender uses the write off money from the stimulus to help the client. Additionally, the extra few months of payments will allow the attorney time to negotiate with the lender for a modification so that when the free payments run out a modified loan is in place that the client borrower can afford.

2:32 PM GMT | Read comments(0)

February 11

New President...now what?

I will start by stating the obvious. We have a new president. This president stood for change. What has changed in the past month since our new president came to office?

As far as I can tell from here, we have had pretty much "more of the same." Yes, I understand that it has not yet been four weeks, and what can a president do in a month, anyway? Even Mr. Obama said that he does not expect to make significant change in four years. So why should any of us have hopes he would? The answer is, because we voted for him, and he has an obligation to stand behind his convictions.

I know, it sounds like I'm being super hard on him. You may tell me, no politician stands behind his or her convictions. But for me, that is the point.

Mr. Obama is a great campaigner. He is a charismatic speaker, he is engaging, and his elementary school political ideals of save the world without thinking about consequences won over the country. However, how good is Mr. Obama at actually doing something, other than texting on his government issued blackberry? When it became time for the president's office to address this stimulus package that Congress is passing, what did Mr. Obama do? The great campaigner went back on campaign. He started traveling the country talking up the need for the package. It was not because he forgot that he was president. It was because he is doing what he does best.

At this time, however, we need a president that does more than shout rhetoric. After all, rhetoric is for the bloggers, pundits, and talk show hosts.

This is a law blog after all, so let me get to what bothers me. Medicaid and Estate laws are in a transition period. The federal estate laws are about to "sunset" next year. This means that, as of now, if someone dies in 2010, no matter the worth of the estate, there will be no federal estate taxes. $10,000,000 will pass federal estate tax free to whomever. No planning necessary. That is good news for individuals and bad news for lawyers. That bad news, however, is not what has me concerned. On the contrary, because the federal estate laws will "sunset" and expire, congress will act to change them. Mr. Obama is very fond of the $250,000 number. I will not be surprised if he and his democratic party congress will lower the current $3.5 million exemption level to $250,000 next year. Lowering the estate taxes as such will rain havoc on estates, as many more estates will be hit with heavy taxes, leaving much less for the support of loved ones.

Medicaid laws also are on the cusp of change. As of now the limits have been raised quite some. For example the individual resource allowance went from $4,200 to $13,800. The individual income allowance is at $745. For couples those numbers are much higher. However, there is the allowance in the new Medicaid laws to limit the exempt amounts, as low as $20,000 for a couple’s resources.

With congress writing up a stimulus plan as if money was just a number on a computer screen and not actual greenbacks, and with the president on campaign trying to force-feed the country the idea that the way out of this crisis and debt is with the government expanding infinitely, taking control of private businesses, and spending itself into unrecoverable debt, it seems very likely that cuts to Medicaid qualifications and high raise in estate taxes are an obvious next step.

7:09 AM GMT | Read comments(0)

January 25

Speaking Engagement!
I am quite excited! I will be speaking this week, Wednesday, on one of my fondest topics: estate and Medicaid planning. It is so important to plan for your retirement and future. So many Americans miss the boat on this important subject. Do you know, more Americans every year are entering their "golden" years without the funds to retire? Less Americans have nest eggs so more have to work past the age of sixty-five. This is heartbreaking.

Do not make the same mistake as these individuals. Do not over extend yourself. Plan for retirement, today. What is the best way to plan for retirement?

Three easy steps.

1 - Estate planning. Manage your wealth and shelter your assets.

2 - Medicaid planning. Organize your assets so that you qualify for Medicaid and do not have to spend thousands of dollars a year on medical expenses as you get older.

3 - Create your nest egg. Guard it and do not give it away. Think long term.

Control your future!

5:26 PM GMT | Read comments(0)

January 12

Why do you continue struggling with your mortgage?

The $64,000 question really is: why do you continue to struggle with your mortgage?

There are two common answers. First, ‘I did not know there was help out there.’ Second, ‘how can you really help me? Aren’t you a scam like the others?’

Obviously, if you are reading this you know the answer to the first question. As to the second question, here is why we are not a “scam.” Even if being certified, licensed, and specially trained in two states to represent homeowners in their mortgage debt issues means nothing to you, the facts should.

We do not represent ourselves as a for-pay mediator. Mediation in NJ is free. In New York if you are in foreclosure, then you also get a mediation run by the courts called a settlement conference. Thus, we are not charging you for what is free. If law firms or mediators charge you for what is free, that is a scam.

Additionally, we have the knowledge and tools to work with lenders to knock down your payments and get you a modification you can afford. We will not stuff a modification down your throat that will cause you to foreclose in six months. For example, a forbearance where you have to pay a lump sum within four to six months. When you miss that payment you are back to square one. Another example, a payment plan that is adjustable to a rate you cannot afford; five percent for two years then jumping to eight percent. Unless you think you will be making a ton of more money in two years from now, that is a terrible plan.

Our advised modification plans will be what you can afford. If you cannot afford it, you are no worse off than you are now. If you can afford it, you will have saved thousands of dollars over the years, gained comfortable settlement in your home, and peace of mind.

6:44 AM GMT | Read comments(0)

January 08

Talking about Start Your Year Off With a Plan

This is a keen short article that will give you a small idea of why you are not too comfortable to not think about an estate plan.

Quote

Talking about Start Your Year Off With a Plan
There is perhaps no better way to start your year off right than with a plan. Planning makes all the difference. Sure, that may sound like a cliché but have you actually planned yet? Have you planned your vacation? Have you planned for retirement? Have you planned for unexpected and unwanted occurrences like disability, incapacity, and death? Plan now, sleep better.

A retirement plan is necessary. Not because the economy fell on hard times and we see more families that retire without money. Retirement planning is necessary because you want to avoid having to push off retirement because you can’t afford not to work. These days, families are finding it harder to retire. Parents help support children that are in secondary and graduate schools. Parents help children buy homes, pay their mortgage, balance their credit card debt, and take time off from work to go back to school. For instance, many orthodox Jewish families are supporting their children and son-in-laws as they stay in Talmudic academy. After they finish this, they then have to support their children until their children get their degrees, or earn enough on their own.

Anyone working individual, 25 and older, should start planning for the future. If you are married, have children, a home, and/or a business you must plan. The first step in retirement planning is estate planning.

Estate planning and last wills and testaments will make sure that you are taken care of in the future. It is the contingent plan that keeps you going so that those around you will be affected as little as possible (financially) by your passing. Wills are no longer for the aged only. You must be protected at any age if there are those that depend on you. Do not let your family get caught up in the nightmare of having to settle your estate without instructions. Plan ahead, now.

8:13 AM GMT | Read comments(0)

Law Offices of David M. Schlachter, LLC

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