My income level has changed, and I’ll share that with you. I love my work and I’m happy that I’m helping people to save their biggest investment, and I have a new found passion and I’m excited about it. I have a lot of knowledge about it, and I’ve been doing it for years and years. Part of where I come from is that I’ve been in the private mortgage sector for the last twelve years, and I’ve done over twelve thousand different real estate transactions and mortgage transaction. So, I know a lot about mortgages.
I get why the country is in the condition it’s in and the beauty of that is that out of all of those transactions, I’ve only ever had eight foreclosures in my company. Eight foreclosures! Even in today’s economic crisis, we are still not seeing foreclosures in the things that we do. I’ve got all kinds of loans in my portfolio. So, as a whole, I understand the front side and the back side, and when this whole thing started with the subprime lending arena, I actually had the opportunity to meet with some financial bigwigs on Wall Street in the summer of ’07. I had the luxury of sitting down with these ladies and gentlemen, and we talked about where this potential crisis might be headed and what we might be able to do, collectively and individually to: one, financially benefit from it, but also how to salvage or maybe head off what might be potentially very devastating for all of us. I was appalled at the answers I received. I went into it pitching a business model we had had and we were looking for capitol investors, and they didn’t see the opportunity, they didn’t see why they should be involved in this; it wasn’t their problem.
As I sat there and explained to these folks, and told them that if they took the loans that were non-performing and, rather than going in and foreclosing on the properties, would actually spend time modifying the loans, everyone would benefit. Because the one thing that I knew that they were about, they were not about real estate management, they were about cash flow management. That’s a key factor in the relationship.
So, as we carried on our conversation, the feedback I got was pretty clear. And that was: this isn’t our problem; we’re not engaging in it. We’re not going to be involved in it. The reason they felt it wasn’t their problem is because they had bought all these mortgages, they had put them in mortgage-backed securities, and then they had sold them to foreign investors. So, technically, these loans were no longer on their asset books or in their asset portfolios.
It’s like selling a used car; you’re a car dealership and you sell a used car, and the person starts to have car trouble. You can do two things, you can say: it’s not my problem, you bought it; or you can get involved and actually fix it, with the intention of maybe creating a life-long customer. Especially if the issue with that car is the same issue as every other car on your lot! Which is exactly what has happened to Wall Street.
But, their attitude was really simple: it’s not our problem. We created mortgage-backed securities, we sold them all off, we made our money – tough! We may not make all of our money, because we’re participating in the back end residual value of what we sold to foreign investors, but we’re okay with that. We’ll take what we got and be happy, and leave the problem for somebody else to fix.
I tried to get them to see the big picture, and say: hey, let’s look at this from the standpoint of taking back these non-performing mortgages and replacing them with performing mortgages for the foreign investors, so that they remain happy, because that’s who’s buying America’s debt. In doing so, one: they’re happy, and number two: collectively, as an industry, we can go in there and modify these loans, get them back on track, and once they’re back on track we can create another mortgage security instrument and then sell them to foreign investors as truly performing loans, re-performing loans! And the answer was: no. Actually, not no, but: Hell no! We’re not doing that, it’s not our problem.
As a matter of fact, their solution to it was to, in turn, to send out invoices, because they did have guarantees on these mortgage-backed securities. They felt that their exit strategy, or their solution to the problem was: they would take all of these non-performing loans and attempt to force the previous loan creator (AKA Countrywide, DiTech Mortgage, Option One), any of these companies that were big into creating subprime mortgages, to buy the mortgages back because they had written that into the contracts that they had; based on a certain timeframe. If it was within a certain timeframe, these companies would buy these mortgages back.
The challenge with this was, these companies didn’t have capitol reserves large enough to do that. They had a portion of the capitol reserve to do that, but it wasn’t large enough to take down the whole deal. So, the solution to it was: forget it, we’ll just declare bankruptcy.
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And, they did. And so, one by one, Wall Street started going down the line, sending out these invoices or these notices of payment to these lenders saying: hey, you’ve got fifty millions dollars worth of bad loans that you sold us, and we want you to buy them back within seventy-two hours. And so, within seventy-two hours, rather than that institution sending Wall Street a check, they would simply declare bankruptcy, and move on.
Wall Street continued that method of thinking for several months and kept getting the same results. And we, as a collective homeowner community, were sitting here watching our property values plummet. People were losing their jobs, institutions were going out of business, foreign investors lost their confidence in American debt buying programs, and the federal government stood by and occasionally would “stick their toe in the water” to some things that were touted as rescue programs and bailout programs.
That’s what Wall Street was doing. On the other side of the fence, you had the banks and institutions going out and using 1970’s type collection methods to collect on these non-performing loans. And what I mean is that they were going out and using the “Guido/Rocko” mentality that Americans have become immune to. We’re not willing to be disrespected any more by anybody. I know that bad things happen to good people all the time; that’s why I’ve created the Loan Modification Toolbox to help people get through this, to give people the tools they need in order to succeed at getting back on track. Because, this is uncharted waters for everyone, myself included! Nobody reading this has ever been under these circumstances, both personally and professionally, and on a national level; because we’re affected on all three levels. Sometimes we may be affected personally, but our business world is doing fine, and the world economy is doing fine, but we’re dealing with some personal matters. Sometimes our personal life is great, but our business life is in turmoil, and the world economic are fine. Well, this is a time when all three of them are with a big question mark!
Where are we going to go from here?
So, the bank is stuck with this idea of the “Guido/Rocko” approach: foreclose-foreclose-foreclose, pound-pound-pound; thinking that they’re going to get people to conform. And we as Americans, when we put our minds to something, we really-really have a tremendous power to create great results out of our efforts. And so, as Americans, we said: we’re not taking this behavior from these collectors any more; we’re not taking this from these institutions any more. If you want the house, come and get it!
And so, the institutions started doing that. Well, collectively, what was happening simultaneously, they were going out and foreclosing on all these properties and the property values kept sliding like a kid on ice, right down the hill. And, at one point in the process, the property values got below what the mortgage balances were, in a lot of cases. Now the banks were really upside down. Because, before, when they would foreclose on a property, there would be equity in the property and they could take it back, sell it, and they could get their money back. Nine times out of ten, they could get a lot more than their money back! There’s another whole conversation to be had about that, but we won’t get into it here.
But, at the end of the day, it got to be a negative arbitrage for them. Now they’re starting to realize that going out there and “beating people over the head” to get money out of them, and being very disrespectful and stripping them of their dignity is not financially advantageous for them. Not to mention, banks are not in the real estate business; they’re in the cash flow business, you have to always keep that in mind. They use real estate for collateral for lending money, but they lend money to create cash flow by the payments from the money lent. That’s their primary focus. I’ve never seen a bank lend money on a home, and then swing by six months later and say: “Hey, Troy, I really think you need to paint those shutters. I think that front door could use a coat of paint; think you need to fertilize that lawn, you need to do some things to make this place look better.”
None of us has ever experienced that from a bank. We may have experienced it from a family member or a spouse, or a neighbor, but not from a bank. The one thing that a bank wants is for you to make the payments on the loan. So long as you do, it’s out of sight, out of mind for both parties involved. So, that was where their primary focus was: cash flow. Now, I share that with you to go back to what I was talking about before, and that is: because of that being their primary focus, if, in fact, they are going out and foreclosing on property after property, what they’re seeing is that they’re getting an abundance of REO inventory, which means Real Estate Owned inventory in their portfolio that creates zero cash flow, and that is a declining asset. So now they’re really-really in trouble as an institution! Now, every time a loan goes into default, they have to post a reserve of two times the loan amount. So, if they’ve got a bunch of money over in reserve that’s in a non-interest bearing account, just because of all of these properties being in foreclosure, financially, it’s not very advantageous to do that. It’s always been a part of their business model; as long as there’s been lending money, there’ve been foreclosures. It’s just a fact of life, but never to the degree we’re dealing with today.
