Copyright 2008, Take Charge America, Inc. All rights reserved. Help! (For Homeowners) Presented by Michael Sullivan, Ed.D. Take Charge America, Inc. February,

Copyright 2008, Take Charge AmeriCopyright 2008, Take Charge America, Inc. All rights reserved. ca, Inc. All rights reserved.

Help! Help! (For Homeowners)(For Homeowners)

Presented byPresented by

Michael Sullivan, Ed.D.Michael Sullivan, Ed.D.

Take Charge America, Inc.Take Charge America, Inc.

February, 2008February, 2008


Defining The Defining The ProblemProblem

Median household income was Median household income was $48,200 in 2006.$48,200 in 2006.

Median household income was Median household income was $49,244 in 1999.$49,244 in 1999.

(both adjusted for inflation)(both adjusted for inflation)

U.S. Census Bureau, 2007U.S. Census Bureau, 2007


What’s The What’s The Problem?Problem?

Housing should cost no more than Housing should cost no more than $1,054 per month (35% of net)$1,054 per month (35% of net)

Average in 2005 was $1,264.Average in 2005 was $1,264.

Transportation should cost $452 Transportation should cost $452 (15%)(15%)

Average in 2005 was $695.Average in 2005 was $695.


What’s The What’s The Problem?Problem?

Food should cost $301 per month Food should cost $301 per month (10%)(10%)

Average in 2005 was $494.Average in 2005 was $494.

Health care should cost $150 (5%)Health care should cost $150 (5%)

Average in 2005 wasAverage in 2005 was $222.$222.


Savings?Savings?Americans saved (in billions):Americans saved (in billions):

20032003 20042004 20052005 20062006310.5 186.7 310.5 186.7 -180-180 -205.5-205.5

U.S. Department of Commerce, 2007U.S. Department of Commerce, 2007


Home Equity?Home Equity?Homeowner Value, Debt and EquityHomeowner Value, Debt and Equity(in trillions of dollars(in trillions of dollars))

Year 2000 Year 2006Year 2000 Year 2006 Home Value 11.4Home Value 11.4 20.3 20.3

Mortgage Amount 4.8 9.3Mortgage Amount 4.8 9.3

Home Equity 6.6 11Home Equity 6.6 11

Percent of Equity 58%Percent of Equity 58% 54% 54%

Ownership Ownership

© © 2006 Richard Benson2006 Richard BensonSpecialty Finance GroupSpecialty Finance Group


Borrow?Borrow?

CONSUMER CREDIT OUTSTANDING CONSUMER CREDIT OUTSTANDING (in billions of dollars(in billions of dollars))

Year 2003 2007Year 2003 2007

20782078 2505.42505.4

TERMS OF CREDITTERMS OF CREDIT 12.73%12.73% 14.35% 14.35% (Interest Rates)(Interest Rates)

Federal Reserve, 2008Federal Reserve, 2008


How Many Houses How Many Houses Are Lost?Are Lost?

Preforeclosures: 358,037Preforeclosures: 358,037Sheriff sales: 22,646Sheriff sales: 22,646Foreclosures:Foreclosures:171,428171,428Bankruptcies: 282,595Bankruptcies: 282,595FSBOs: 50,501FSBOs: 50,501Tax Liens: 632,483Tax Liens: 632,483Total Listings: 1,517,690Total Listings: 1,517,690((28,19028,190 foreclosed properties for March of 2005, foreclosed properties for March of 2005, 18,01218,012 for March 2004) for March 2004)

Foreclosure.com January 11, 2008Foreclosure.com January 11, 2008


How Many Houses How Many Houses Might Be Lost?Might Be Lost?

30% of borrowers with subprime or Alt –A 30% of borrowers with subprime or Alt –A ARMs or 365,000 are at least 30 days ARMs or 365,000 are at least 30 days past due even though they have not past due even though they have not seen a reset.seen a reset.


Why Are So Many Why Are So Many Houses Lost?Houses Lost?

Subprime mortgages:Subprime mortgages:2001 20062001 2006

$160 Billion $600 $160 Billion $600 BillionBillion

7.2% of mortgages 20.6%7.2% of mortgages 20.6%

Inside Mortgage Finance, 2008Inside Mortgage Finance, 2008


Why Are So Many Why Are So Many Loans Subprime?Loans Subprime?

Because more borrowers are Because more borrowers are subprime, and brokers can earn subprime, and brokers can earn more by designating folks as more by designating folks as subprime. subprime.


The Cost?The Cost?Foreclosures mean:Foreclosures mean:

Lost credit and equity to borrowerLost credit and equity to borrower

Loss of $$ to lenderLoss of $$ to lender

Lower property values in neighborhoodLower property values in neighborhood

Lower investment value for mortgagesLower investment value for mortgages

All that equals fewer dollars for spendingAll that equals fewer dollars for spending


Other Problems?Other Problems?

Student loan defaults are upStudent loan defaults are up

Auto loan defaults are upAuto loan defaults are up

Bankruptcy filings increased 40% in 2007Bankruptcy filings increased 40% in 2007


Who Loses?Who Loses?

Lenders have write-offsLenders have write-offs

Consumers have credit destroyedConsumers have credit destroyed

Property values decrease for Property values decrease for everyoneeveryone

Crime increasesCrime increases


What Happens?What Happens?

When payments are 90 days late, the When payments are 90 days late, the lender may file a notice of default with lender may file a notice of default with the county and send a letter saying the county and send a letter saying that the foreclosure process will start that the foreclosure process will start unless the missing payments are unless the missing payments are made.made.

Usually, this notice includes substantial Usually, this notice includes substantial fees to cover legal costs.fees to cover legal costs.


What Happens?What Happens?

The notice of default is generally The notice of default is generally reported to the credit bureaus, reported to the credit bureaus, making refinancing the loan making refinancing the loan extremely difficult.extremely difficult.


What Happens Next?What Happens Next?

Borrowers usually have 90 days Borrowers usually have 90 days from the notice of default to from the notice of default to make up the deficit before the make up the deficit before the lender sends out a notice of sale, lender sends out a notice of sale, which sets a sale date for the which sets a sale date for the house (typically within 30 days).house (typically within 30 days).



Some lenders will allow you to keep your Some lenders will allow you to keep your original loan if you can make up the original loan if you can make up the missing payments plus any late fees missing payments plus any late fees and legal charges. and legal charges.

Others will insist you refinance with Others will insist you refinance with another lender. another lender.



You can also halt the foreclosure, at You can also halt the foreclosure, at least temporarily, by filing a lawsuit or least temporarily, by filing a lawsuit or filing for bankruptcy. For either legal filing for bankruptcy. For either legal option to work, you'll have to be able option to work, you'll have to be able to come up with a payment plan to fix to come up with a payment plan to fix the deficitthe deficit


What Are Lender Solutions?What Are Lender Solutions?

Temporarily reducing or waiving Temporarily reducing or waiving payments.payments.

Setting up short-term repayment plans Setting up short-term repayment plans to help you make up the deficit.to help you make up the deficit.

Adding the unpaid balance to the Adding the unpaid balance to the principal of your loan and increasing principal of your loan and increasing your payments slightly to cover the your payments slightly to cover the extra amount.extra amount.



If you have a mortgage insured by the If you have a mortgage insured by the Federal Housing AdministrationFederal Housing Administration, you , you may qualify for an interest-free (and may qualify for an interest-free (and payment-free) loan to get your payment-free) loan to get your mortgage current. The money doesn't mortgage current. The money doesn't need to be paid back until you pay off need to be paid back until you pay off the mortgage or sell the house.the mortgage or sell the house.



An estimated 240,000 families can avoid An estimated 240,000 families can avoid foreclosure by refinancing their foreclosure by refinancing their mortgages using the mortgages using the FHASecureFHASecure plan. plan.



A new partnership between mortgage A new partnership between mortgage companies and non-profit housing companies and non-profit housing counselors called HOPE NOW is counselors called HOPE NOW is available. Their mission is to reach out available. Their mission is to reach out to homeowners who may be having to homeowners who may be having difficulty paying their mortgages. For difficulty paying their mortgages. For more information or to see if your more information or to see if your mortgage company is a member of this mortgage company is a member of this coalition go to coalition go to www.hopenow.comwww.hopenow.com. .



Project Lifeline Project Lifeline is a program developed in conjunction is a program developed in conjunction with lending mortgage lenders to help homeowners with lending mortgage lenders to help homeowners facing foreclosure. facing foreclosure.

This will delay foreclosure proceedings for 30 days allowing This will delay foreclosure proceedings for 30 days allowing homeowners to have more time to contact their lenders homeowners to have more time to contact their lenders and see if they can catch up on the past due payments, and see if they can catch up on the past due payments, refinance, short sell the home or modify their loan. refinance, short sell the home or modify their loan.

Homeowners must be 3+ months past due. Homeowners must be 3+ months past due. Not just for people with subprime loans.Not just for people with subprime loans.


What About Talking To The What About Talking To The Lender? Lender?

Lenders can make it tough to get to Lenders can make it tough to get to the right people. the right people. You want to talk to You want to talk to the loss mitigation department. But the loss mitigation department. But many lenders won't route borrowers to many lenders won't route borrowers to there until they've missed several there until they've missed several payments. Until then, you might be payments. Until then, you might be dealing with the lender's collections dealing with the lender's collections department, which typically cannot department, which typically cannot negotiate. negotiate.


What About A Solution With What About A Solution With The Lender? The Lender?

If you agree to a lender's workout or If you agree to a lender's workout or loan modification solution and fail to loan modification solution and fail to make agreed-upon payments, you'll make agreed-upon payments, you'll have fewer options the second time have fewer options the second time around. Most likely, the lender will around. Most likely, the lender will simply accelerate the foreclosure simply accelerate the foreclosure process. process.


What About A Solution With What About A Solution With The Lender? The Lender?

Even if you can't work out an Even if you can't work out an agreement, keeping in contact is agreement, keeping in contact is usually a good idea. usually a good idea.


How Well Do Solutions With How Well Do Solutions With The Lender Work? The Lender Work?

10% of work-outs in October 10% of work-outs in October involved a change in terms. involved a change in terms.

545,000 subprime borrowers were 545,000 subprime borrowers were put on a repayment plan in put on a repayment plan in second half of 2007. second half of 2007.


How Well Do Solutions With How Well Do Solutions With The Lender Work? The Lender Work?

The federal government (OCC) The federal government (OCC) does not encourage cooperation does not encourage cooperation with states. with states.

Wells Fargo and J.P. Morgan Chase Wells Fargo and J.P. Morgan Chase refused to provide data. refused to provide data.


What’s The Plan? What’s The Plan?

1.1. Make a budget.Make a budget.

Prepare a spending plan for the next six Prepare a spending plan for the next six months. See how much money you months. See how much money you can reasonably expect to have for can reasonably expect to have for home payments. home payments.



2. Get help.2. Get help.

Start with credit counseling. Then seek housing Start with credit counseling. Then seek housing counseling. If you have a VA loan, call (800) 827-counseling. If you have a VA loan, call (800) 827-1000 to get a referral to a financial counselor .1000 to get a referral to a financial counselor .

Call Hope Now at 1-888-995-HOPE for a quick link.Call Hope Now at 1-888-995-HOPE for a quick link.



3. Check refinancing 3. Check refinancing options.options.

If you have equity in your home, your credit rating is If you have equity in your home, your credit rating is relatively intact and your lender hasn't yet filed a relatively intact and your lender hasn't yet filed a notice of default, you may be able to get another notice of default, you may be able to get another loan with more affordable payments. loan with more affordable payments.



4. Get organized.4. Get organized.

If you are going to try for a loan modification, you'll If you are going to try for a loan modification, you'll need to prepare a small mound of documentation. need to prepare a small mound of documentation. Typically you'll need details of your financial Typically you'll need details of your financial situation, a budget, documentation of your situation, a budget, documentation of your hardship (a letter from your doctor explaining an hardship (a letter from your doctor explaining an income-reducing illness, for example, or your layoff income-reducing illness, for example, or your layoff notice from your employer) and a hardship letter notice from your employer) and a hardship letter that describes the circumstances that led you to that describes the circumstances that led you to fall behind and the improved prospects that will fall behind and the improved prospects that will allow you to get your financial life back on track.allow you to get your financial life back on track.



5. Make a decision.5. Make a decision.

IfIf youyou can’t get a work out or refinance, can’t get a work out or refinance, you should prepare to lose the house.you should prepare to lose the house.


What Are The Options? What Are The Options?

1.1. Sell the house. Sell the house.

If you have enough equity in your home to allow If you have enough equity in your home to allow you to pay off your mortgage in full, after you to pay off your mortgage in full, after deducting any real estate agent deducting any real estate agent commissions, then a quick sale is usually commissions, then a quick sale is usually your best option.your best option.



2. Offer the deed in lieu of 2. Offer the deed in lieu of foreclosure.foreclosure.

If you can't sell the house for what you owe, but If you can't sell the house for what you owe, but you're not deeply "upside down" on your you're not deeply "upside down" on your mortgage, you can offer to hand over the mortgage, you can offer to hand over the deed to your home and your lender agrees to deed to your home and your lender agrees to release you from your mortgage.release you from your mortgage.



3. Negotiate a short sale.3. Negotiate a short sale.

If you owe substantially more on your If you owe substantially more on your home than it's worth, you can ask the home than it's worth, you can ask the lender to accept less than owed by lender to accept less than owed by negotiating a sale of the house for negotiating a sale of the house for whatever you can get, and getting the whatever you can get, and getting the lender to agree to accept the proceeds lender to agree to accept the proceeds and not go after you for the deficit.and not go after you for the deficit.



4. Allow the foreclosure to 4. Allow the foreclosure to proceed.proceed.

This is not always the worst choice, although in This is not always the worst choice, although in some circumstances, the lender can even go some circumstances, the lender can even go after you in court for any deficit between after you in court for any deficit between what the house eventually sells for and what what the house eventually sells for and what you owe. An attorney or housing counselor you owe. An attorney or housing counselor can let you know if that's a possibility.can let you know if that's a possibility.



5. File for bankruptcy.5. File for bankruptcy.


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Copyright 2008, Take Charge America, Inc. All rights reserved. Help! (For Homeowners) Presented by Michael Sullivan, Ed.D. Take Charge America, Inc. February,