Ten Lessons learned from a real estate coach
Sometimes people who feel they have something to say communicate far more by their actions than their words.
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, author and trainer with over 1,000 published articles and two best-selling real estate books. She recently wrote about her experience obtaining a loan modification, and it contains many valuable lessons for anyone considering following her path.
What it takes to climb out of a credit mess
by Bernice Ross, Feb 16
When you or your clients find yourself in a financial mess due to circumstances beyond your control, you have a number of options. Do you walk away from your home when your mortgage exceeds its value? Do you default on your credit cards and/or declare bankruptcy? Alternatively, do you stay the course and do your best to climb out of the mess?
Lesson 1: Come up with a sob story that justifies your actions
A sad backstory blinds many people to the fact you are unfairly getting something they are not; therefore, everyone needs a sad backstory that provides justification for special treatment that is otherwise undeserved.
When I had six surgeries in a 12-month period coupled with the recession, our 42-year-old business partner dying of cancer, and a 20 percent drop in our property value, we were facing the same hardships so many Realtors and their clients faced. Even when people can show hardship, however, obtaining a loan modification can be a daunting proposition.
Lesson 2: Project nefarious motivations on those who don’t give you what you want
In the real world, we all must face that we don’t always get what we want. This isn’t a grand conspiracy designed to single out individuals for particularly bad treatment: it’s just life. To further justify any undeserved special treatment or explain any bad actions, it helps if you characterize those who don’t succor to your pleading as nefarious people with evil motives.
Cleaning up the mortgage mess
In our case, the jumbo loan market had dried up completely in the summer of 2007 just as we were completing construction on our new home. The lender couldn’t sell the loan on the secondary market. Thus, even though we had an 800 credit score, 20 percent down and a written pre-approval, the lender tried various maneuvers to avoid funding the loan.
Nobody was maneuvering to avoid funding. Why would they? Lenders are in the business of loaning money. Whenever someone makes a statement that’s bogus on its face, you know there is more to the story than they are letting on.
Further, a real estate coach should know that a pre-approval letter doesn’t mean much. Until you go through the full underwriting process, you don’t know how much you actually qualify for. Realistically, the lender probably worked feverishly to close the deal, and when the borrower’s finances didn’t qualify them for the rate they wanted, the lender found a loan program they did qualify for with a higher rate.
Lesson 3: Set yourself up as a victim
Lessons 1 and 2 are the precursor for casting yourself in the role of a helpless victim that needs a higher authority to intervene on your behalf. If you want to get bailed out, don’t be one of those self-reliant people who makes their own way in the world and accepts responsibility for the consequences of their decisions.
Two weeks before closing, the lender gave us one choice of accepting its predatory loan terms or we would have lost our entire down payment that had been advanced to the builder.
The characterization of the terms as predatory is her interpretation. As with any loan, you either take it or leave it.
If she wanted to provide real advice to someone in real estate, perhaps she should tell them to negotiate with multiple lenders and don’t leave yourself at the mercy of one at the last minute where you might be forced to accept a deal that you don’t want.
Lesson 4: Use your victim status to justify breaking your agreements
In the case of this author, rather than accept that she entered into the best agreement available to her, she convinced herself she was a victim who was forced to accept a bad loan. Since she was cajoled into a predatory loan (her characterization), she is justified in immediately working to change the terms to her liking. I assume she advocates this for others as she is leading by example.
Over the last five years, I have continued to pursue modifying our predatory loan.
Lesson 5: Imply it’s a conspiracy against you
When thwarted in your pursuits, portray it as a broad conspiracy of evil people all working to make your life hell because it generates more sympathy.
I was bounced from department to department, all with the same answer: This has to be handled by a different department. I finally learned that the loan was part of a group of mortgage-backed securities and supposedly could never be modified.
A consumer attorney advised us that we had a strong case against the lender for predatory lending. The challenge was that we were past the five-year limit for filing a case.
The attorney told her what she wanted to hear in order to reinforce her perceived victim status, then revealed to her that she missed an important deadline she should have researched and known about herself. She had five years to learn this fact. How did it escape her notice?
I then heard about the Consumer Financial Protection Bureau. I filed a complaint with them and that brought the lender to the negotiation table.
Lesson 6: Interpret prudent lending guidelines as part of the conspiracy against you
Remember, there is no reasonable “no.” When someone interprets a guideline in a way that doesn’t favor you, label the interpretation as bad or foolishly misguided, otherwise you look like a fool for continuing to pursue your goal that has little or no chance of a successful outcome.
We were referred to the lender’s Home Preservation team, but, despite the reams of documentation, the underwriter couldn’t qualify us for a 2-3 percent loan modification. The reason? It couldn’t make our loan payment “affordable” since we were self-employed.
Many self-employed are in sales, and their income fluctuates, sometimes wildly. Think what would happen if the self-employed were allowed to obtain loan modifications when their income declined.
If loan modifications were granted to all self-employed, they would all apply after a bad year and fail to tell about good years to keep their payment artificially low. Everyone would game the system. Further, the collective consequence of this would be to drive up rates on loans to all self-employed borrowers to compensate lenders for the cost of loan modifications, or more likely, loans simply wouldn’t be underwritten to the self-employed at all.
Basically, this guideline is in place for a good reason, and she simply doesn’t want to accept it.
Lesson 7: Imply you’re being punished for being an upstanding citizen.
What’s laughable is that our current payment is more than double what the “affordable” payment would have been. I suspect part of our challenge is that we have never fallen behind on our payments.
To top this off, the underwriter required us to set up an escrow account to collect property taxes monthly before it would consider the modification. That raised our monthly payments by 45 percent without the benefit of the loan modification. Moreover, we may be unable to remove the impound account.
Impound accounts are a great way to manage payments. If people don’t set aside some money each month, they don’t have the taxes or insurance payments when they come due. Now that the lender is aware that this borrower is facing financial difficulties, the lender is protecting itself, as it should.
Lesson 8: Feign ignorance to the fact you simply can’t afford your house
When a lender denies a loan modification for lack of verifiable income, it’s their way of saying you need to sell your home because you can’t afford it. That was the story of the single mother making minimum wage who wanted to keep her house after her divorce. She and her husband were originally qualified based on both their incomes. (She’s a great speller too)
Loan modifications are not a mechanism to make houses affordable to people who have a major life change but want to keep their former level of entitlement.
We submitted more documentation and then received another rejection. Apparently, the underwriter did not understand the permanent changes we had made that directly impacted our profit and loss statement (P&L);
Lesson 9: Imply the carelessness or shoddy work of others is the cause of your suffering
Never admit you create your own problems. If you must rely on other people to get what you want, and if you don’t get it, accuse them of being careless or slipshod in their work. This implies you would have gotten your way if they had been more diligent and skillful. This further gives you hope that the error could be corrected if only good people with the proper skills were assigned to help you.
its drive-by appraisal was also $70,000 low…
The home preservation team advised us it would be happy to resubmit the loan if we had more income, if its drive-by appraisal was too low, or if there were some other change in our circumstances.
Bonus Lesson 9A: Never admit defeat when dealing with others
Like most short sales during the downturn, persistence is the name of the game. We will appeal and ask for a different underwriter who hopefully has a better understanding of our business P&L. Even so, I suspect our merry-go-round ride is nowhere near being finished.
She is probably right. This futile effort will go on as long as she wants it too. Unless she abandons her sense of entitlement, her victim identity, and her righteous indignation at the poor treatment she alleges she received, she will continue to fight and struggle for a special break she does not deserve.
Lesson 10: Advise others to follow your course without a moment of self reflection
The first thing that homeowners who go for a loan modification must understand is that any error in your submission package will result in a denial. Second, you must carefully document everything. Any discrepancy can result in a denial. Third, the lender will most likely do a drive-by appraisal that will probably be low. You will be charged for a second appraisal.
Woe is she.
And she’s not alone.
Other Loan Mod News
A year ago I wrote HAMP loan modifications will become permanent housing subsidies. The basic premise of the post was simple: the government will not foreclose on anyone in the HAMP program, and if necessary, they will amend these loans over and over again. Therefore, it should come as no surprise that the GSEs are laying the groundwork for more loan modifications.
Mortgage giants say move in anticipation of rising interest rates that could affect some borrowers
Mortgage-finance companies Freddie Mac and Fannie Mae on Tuesday said they are changing the way they modify some loans in anticipation of an influx of borrowers struggling to make payments on loans with rising interest rates. …
Since those modifications typically lowered borrowers’ interest rates for five years before the rates tick back up, some observers have worried that rate resets could send some borrowers back into default. …
In a statement, a spokesman for the Federal Housing Finance Agency, which regulates Fannie and Freddie, said the agency “worked with Freddie Mac and Fannie Mae to ensure that borrowers who may be facing hardship as a result of an interest rate reset on their HAMP loan modification have options that allow them to remain in their homes. In most cases, keeping borrowers in their homes is the most beneficial outcome for all involved, including taxpayers, and we will continue to monitor these loans and make adjustments as necessary.”
They will continue to modify these loans until the borrowers are no longer underwater, then the loan modification entitlement will be rescinded as prices near the peak.
Maybe there is yet hope for the real estate coach.