Mortgage and Foreclosure Law Blog

Over the past few months our TV news programs have been filled with Members of Congress or an Administration official placing blame on the Mortgage Meltdown in the hands of a financial company official whose poor decisions and greed resulted in huge financial losses and great suffering. Ironically, it is many of these Washington Officials who advocated the mortgage lending policies that led to the economic turmoil.

In the early 1990s, Fannie and Freddie came under substantial political pressure to lower lending and underwriting standards in order to help more people achieve the dream of becoming homeowners. In particular these behemoth lenders were coerced into lowering the size of down payments and the credit quality of borrowers. Lower down payments led to housing prices that outpaced income growth.

Once Freddie Mac and Fannie Mae lowered their lending standards, the open market had to follow pace in order to compete. When this happened, home prices became increasingly untethered from any kind of demand limited by borrowers’ ability to pay. Instead, borrowers could just make smaller down payments and take on higher debt, allowing home prices to continue their unrestrained rise. Some statistics help illustrate how this occurred. Between 2001 and 2006, median home prices increased by an inflation-adjusted 50 percent, yet at the same time Americans’ income failed to keep up.

Fannie Mae and Freddie Mac were leaders in risky mortgage lending. Fannie and Freddie purchased $1.9 trillion of mortgages made to borrowers with credit scores below 660, one of the definitions of “subprime” used by federal banking regulators. This represents over 54% of all such mortgages purchased between 2002 and 2007.

Part II: Remember the Credit Crisis? Banks are required to hold a certain amount of cash in there reserves. Back in 2007 and 2008 banks were constrained from lending money by their reserve requirements. Now with all the money infused into bank's reserves the lending has begun and will continue over the next few years. Why? That's what banks do, they increase their liabilities in the hopes of increasing their quantity of money over time.

The faster the banks make these loans, the faster the quantity of money in circulation grows. With the credit crisis all but over and an increased trust in the banking system demand for money has and will continue to dwindle. This will be exasperated by higher unemployment and lower spending overall in the economy as well. Reduced demand for money with a rapid growth in the money supply results in inflation and high interest rates. The higher interest rates will further reduce the demand for money and result in greater inflation. The cycle strangles itself.

The solution for this problem would be for the Fed to reduce the money supply. In order to do this they would have to sell bonds. Unfortunately this would put the Fed in competition for selling bonds with the Treasury. This competition would result in failed auctions and lower bond prices. This isn't going to happen. That is why you should plan now for high interest and inflation, it is coming.

Howdy Readers. In today's two part series I'd like to begin to explain, what I believe to be a very difficult topic. That task is to explain why the Federal Reserve Bank's huge infusion of money into the banking system will end up causing double digit inflation and interest rates, not unlike the seventies.

In September 2008 the Federal Reserve began a phase to drastically increase the monetary base. The monetary base is made up of currency in circulation, member bank reserves held at the Fed, and vault cash. They increased the monetary base by almost $1 trillion. This percentage increase is the largest in the past 50 years by a factor of 10!

The currency-in-circulation component of the monetary base (which, prior to the expansion was 95% of the monetary base) has risen by a little less than 10%, while the bank reserves have increased almost 20 fold. Now the currency-in-circulation component of the monetary base is less than 50% of the whole thing.

This means that bank are holding huge reserves of money. What do banks do with this money? They find way to lend it. Tune in tomorrow and I'll explain why the huge reserves the bank will be lending out over the next two years will cause skyrocketing interest rates and inflation.

Hi Readers! Here at SJ Mobley & Associates we end up with a lot of questions from confused clients regarding charge offs of their second mortgage. Let me give you an example of what I'm talking about. Let's say you have two mortgages; the first is for $300,000 and the second is for $50,000. For simplicity let's say you bought your house two years ago and the house was worth $400,000. Thus two years ago you would have had $50,000 worth of equity in your home.

Let's jump forward to today. Now, in this housing market, your home has dropped in value and is only worth $250,000 (a very realistic situation for too many people). You now have no equity in your home. Now, finally let's say you can't afford to pay both your first and second mortgage. We offer solutions for lowering payments on both; but sometimes people get into a situation where they have to stop paying their second mortgage entirely.

This is a situation where your second mortgage would charge off as bad debt and become unsecured debt. The reason is that there is no equity in the home to foreclose on. Two years ago, in this situation, the holder of your second may have decided buy out the first mortgage and sell the home to recoup their $50,000. Now, that doesn't make financial sense. So in this situation, if you don't pay your second for at least 6 months, it will charge off as bad debt; but what does that mean?

That means the holder of your second makes an accounting entry and "writes off" the $50,000 you owe them as a loss. However, they will continue to collect on this debt. Usually they send it to debt collectors who will harass you for months. Eventually, if you are employed, they are likely to send the debt to a law firm to sue on, for collection.

So what have you done by letting it charge off? Most likely you have just bought some time. If you are judgment proof (no assets and either no job or living off retirement) then you have essentially rid yourself of this debt. If you are not judgment proof, like most of us, then this is not a good route to take. If you are in a situation where you can't afford your mortgage; but want to stay in your house, you need to get help. We consult for free everyday. The best options for most people include Mortgage Modification, Bankruptcy, and debt settlement. Call us for ideas on all three 303-488-3405.

And, still, the foreclosures keep coming. It's nearly Christmas and while some lenders have put a moratorium on foreclosures till after the holidays, others keep plugging along. I am defending a client whose sale date is December 23, 2008. And, again, I am asking myself what is it going to take to help homeowners? Today I want to give a brief kudos to the government who may have taken a baby step in the right direction.

Fannie Mae provided information and guidelines to its servicers regarding the implementation of a streamlined modification program (SMP). The SMP is designed to be a streamlined process for modifying the loans of a large number of borrowers who are delinquent in their mortgage payment. This will hopefully fend off some foreclosures. It is also hoped that this program will set standards in the mortgage servicing industry for conducting loan modification programs on a large scale as a foreclosure prevention measure.

Under the program, borrowers who meet certain eligibility criteria and demonstrate financial hardship may be eligible for a loan modification that reduces their monthly principal and interest payment. The streamlined process sets a new monthly payment during a three-month trial period, and sets forth the modification terms that will take effect after the homeowner has made the three payments during the trial period. However, the program only applies to people who are 90+ days delinquent.

Like I said, it's a baby step. Let's see where it goes from here.

Hello all,

Welcome to S.J. Mobley & Associates, LLC's blog! This is our first post so I'd like to introduce you to our Firm and primary areas of practice: mortgage law and foreclosure defense. Whether you intentionally found us while searching for foreclosure and mortgage information or you randomly clicked on this link out of boredom, we hope when you sign off you're glad you visited. I'll keep this post short and sweet and hopefully leave you wanting more...in which case, stop by in a few days because we'll be posting several times a week! Be assured, the posts will have more substance than this one does. But for now, I just want you to get a feel for who we are, what we do, and why we do it.

First, about our Firm. We are a group of consumer advocate attorneys who entered the legal profession with the goal to help people and improve society. Yes, I'm sure that's what all attorneys are supposed to say, but we live by these principles; each of our attorneys has a passion for volunteering, working with charities, and helping others (children, elderly, animals...you name it). The legal profession IS about the law, but even moreso it's about you, our client. We develop a personal relationship with each of our clients and put our all in every matter we touch. Nothing makes us happier than to hear a client say how comfortable they are with us. That's the way an attorney-client relationship should be. Enough about us...

So, what is mortgage law? Most of my friends who know I practice mortgage law think I deal with foreclosures day in and day out. Granted, in this economy we have our fair share of clients facing foreclosure, but mortgage law is much more than foreclosure defense. Mortgage law is a fairly complicated field because it deals with many areas of law: contracts, securities, landlord/tenant, collections, and most importantly federal and state consumer protection laws. We even occasionally run into mortgages that require us to look at criminal statutes or wills/trusts. Every day brings a new challenge and an opportunity to help people in need. We examine loan documents and conduct loan document audits, looking for federal and state violations to use in foreclosure defense or leverage in loan modifications. We negotiate with General Counsels for all the major lenders and work out solutions to let our clients stay in their homes. There's a lot of long days but it's all worth it when we see the look on our clients' faces when we tell them their house is no longer in foreclosure or that we just saved them hundreds of dollars on their mortgage payment.

That's just a bit about us. We would love for you to stop by the Firm or drop us an email so we can learn a bit about you. During the next few weeks I'm going to address the mortgage crisis: how we got here, why we aren't getting out, and when we can expect it to go away. We hope to see you back here often!

(Hmm....so much for short and sweet. Hey, I'm an attorney what do you expect?) Have a great day!