Now when I read the story, I too had my doubts, for this reason: if the reports CoreLogic used included HELOCS — home equity lines of credit — why would 30% of Dallas mortgages be underwater? In Texas we are limited to 80% loan to value home equity ratios. That would mean that if someone maxed out their HELOC in Texas, they’d have to have lost 20% of the value of their BRAND NEW 100% FINANCED home and then some to be underwater. Or maybe they’d be flat. Whatever, I thought, as I usually do, who am I to question the brainpower and computers of these geniuses in California? God, we are all so bad!

Well, Gwen questioned them. She did what I should have done and picked up the phone and said, you know, this just doesn’t look right. Artkansas never had a housing bubble. Neither did Texas. She did some research on CoreLogic’s methodology and found out — hold the presses!!! — the company’s numbers may be biased on the HIGH SIDE . In other words, giving us facts that are worse than they really are.

Most of the mortgages used in the study are less than six years old — really? Did the whole world re-finance in the last six years? When she called CoreLogic, Gwen got them to admit actually 85% are less than six years old.

The study assumes that the borrower owes the balance of the mortgage when they took out the loan — in other words, it does not take into account monthly mortgage payments made against that balance. Why? Because of the way CoreLogic gets it’s information — it aggregates information from lenders, matching total mortgaged amounts in geographic chunks, like how much was loaned in a specific area or zip code. Then the computers whiz out numbers against property values. (Obviously I over-simplify.) They get this proprietary info from the lenders and use original loan amounts from public data records. But they base it on the original loan amount — they never get to come into our file cabinets and see how much money we’ve actually paid down on that mortgage or home equity LOC.

See where I’m going with this?

Gwen also found out the study includes the HELOCs but again, uses only the maximum credit figures since that is all the information that is available. So it looks like every one’s HELOC is at the max. Don’t know about you, but I have to pay down on mine every month and in fact, ours is almost paid off.

So if you are using figures that assume homeowners still owe every penny in debt they ever took out on a loan, figures that give no credit to what homeowners have in fact paid, then Gwen asks, maybe that study could over-estimate the number of folks whose mortgages are underwater.

“It’s biased to the high side,” says Gwen. “We need to be a little more skeptical of these studies.”

No kidding.

(Note: Thanks to Gwen Moritz for not only questioning the CoreLogic report but notifying the Alliance of Area Business Publishers of her query via email, which Glenn Hunter, editor of award-winning DCEO, then forwarded to me.)

Yesterday, she learned that all three mortgage checks had been cashed, her mortgage now pre-paid,  and her checking account severely overdrawn. Not only that, she was hit with $350 in bank fees. Her bank officer called her — (”I didn’t even know I had a bank officer,” says she) and said gosh, this is so weird, your account has never been overdrawn in 15 years!

I am researching her recourse on the bank’s actions. They have refunded half the fees. But they would not reverse the payments. My lawyer daughter tells me to always, always write your bank account number on the back of a check or else, if the bank credits it to another account accidentally, they may not be liable. But I wonder how far the instructions on a check go — future dating — and sticky notes? My son (financial advisor) says banks cannot cash checks bearing future dates. But for best results, I have advised getting that mortgage set up on an auto-draft because Texas is a non-judicial foreclosure state.

Which leads me to a theory — would love your opinion on this. When you pay a creditor on an auto-draft, you significantly decrease any collection expenses they may encounter. In fact, you all but eliminate them. I think that banks and mortgage companies should give us a discount if we sign up for auto-draft. Or at least go back to handing out free toaster ovens! Calling Sheila Bair…..

Even if your mortgage has been sold, sold again and re-packaged as a mortgage-backed security, your name is on the note and you are responsible for the monthly payments no matter who it was assigned to. Know those stacks of papers you sign at closing? One of those docs gives your lender the right to assign the loan — or sell it — to whoever wants to pay the big bucks buy it. Miss one payment, you’ll find yourself embroiled in a lot of explanation and eterna-holds. (Wachovia calls me if one of our mortgage payments is two days late!) Miss several and your home could end up being sold on the court-house steps. Texas is a non-judicial foreclosure state, which means nothing has to be shown to a judge prior to launching the foreclosure process. This is one reason why Texas bankruptcy attorneys are busier than sin these days, working Saturdays and going to court to help homeowners save their homes.

But I need reader’s help with this one: is the mortgage holder, in this case none other than our esteemed Wick Allison, required to mail the payment (or send electronically) to the last known servicing address? Isn’t the bank required to notify all mortgage holders when a new loan assignment has taken place and specify where payments are to be mailed? What, if any, are the penalties against the mortgage holder for not doing so?

I recall an article in either the New York Times or Wall Street Journal a few months’ back describing the confusion all these loan re-assignments have caused in the foreclosure process. Folks were getting to court and no one could locate the actual mortgage documents. I’m trying to find the article.

This is not new: the tradition at Romanian weddings was to pin money on the bride (a tradition I’d like to revive), that money going to help the couple buy their first home. There are also many ways parents can help their children buy a home without giving them a chunk of cash. For example, we let my daughter and her fiance live with us while they saved up for a down payment. You can also cover the cost of property improvements on the new home once they move in.

Call me Debbie Divorce Downer, but I am a member of the 50% divorce rate generation: what do you do if the marriage doesn’t last? Let’s say you “gift” Johnny and Susie $20,000 for a down payment on a cute M Streets cottage. They split after two years. Texas is a community property state, home is to be sold and equity split. My take: you have just gifted your son-in-law $10,000. Am I correct?

“If we missed out on the 4.5% refi rates, have we basically missed the boat?  What would make it worth it now to still refi?”

Good question, we’ll find an expert and try to get you some answers!

“From an office in the Washington suburbs, it played an integral, if unsung, role in the proliferation of mortgage-backed securities that fueled the housing boom. But with the collapse of the housing market, the name of MERS has been popping up on foreclosure notices and on court dockets across the country, raising many questions about the way this controversial but legal process obscures the tortuous paths of mortgage ownership.”

Another client paid a local “law firm” that advertises on a local Dallas radio station $3,000 to get his mortgage modified; the firms first piece of advice was to intentionally get behind on his mortgage. The mortgage company posted him for foreclosure, the modification people told him that they couldn’t help him. Now he now faces the prospect of losing his home if he does not pay three months of payments all at once, plus all of the bank’s legal fees related to the foreclosure, and he’s out the $3,000. What a scam.

Then there’s the “foreclosure rescue specialist” called North American Foreclosure, LLP.  Folks need to be careful, says Polk, a bankruptcy attorney and home foreclosure expert for 15 years.

“Sadly, a person will try whatever they have to in order to keep their home and a roof over their kid’s head.  And who can blame them?,” says Polk. “But a con artist can sense that kind of desperation.   The number of so-called “loan modification counselors” has quadrupled in the last 18 months as the hucksters have opened up shop.  These fly-by-night operators target desperate homeowners– the easiest mark, but also the least able to afford such a scam.”

The money quote:

“The ways brokers were paid created a conflict of interest and really meant that the broker to a very large extent was financially rewarded by betraying the trust of the borrower,” said Representative Brad Miller, a Democrat from North Carolina.

The article also goes on to provide some helpful tips for shopping home loans.

Here are the dirty details on qualifying:

• Must have originated mortgage before Jan. 1, 2009.
• Be an owner-occupant.
• Have an unpaid balance that is equal to or less than $729,750 (for a single-family home).
• Have trouble paying your mortgage due to financial hardship.
• Your monthly mortgage payment must also be more than 31% of your gross (pre-tax) monthly income. Duh.There’s a three-month trial period before you lock in the lower rate for five years and if your home is in danger of foreclosure the process will be halted while you apply for the program.

“Historically, this credit support has been in the form of PMI, but in the bubble-building years, borrowers found piggy-back second mortgages less costly (because they were securitized and off-loaded into CDOs and yield-hungry funds). As much as the GSEs have tightened their credit standards, PMI underwriting is even tougher, and their insurance premiums have gone up to reflect the realities of mortgage risk.”

A -$8000 tax credit for first-time buyers, l like very much. Assuming this will work like a section 179 deduction and come right off the taxes, not add 5 more pages or 6 hours of CPA billable hours to the tax return, essentially using tax dollars to help fund the home purchase. 

F- Revamping U.S. bankruptcy rules, giving judges the power to reduce mortgage payments and set lower interest rates. Excuse me, but I think part of our problem was that banks got too big, unregulated and complex. So now we are going to let judges play banker? This will slow down lending and banks will have to recoup their losses from somewhere —charge more to the customers who pay their bills, or higher PMI or PMI for everyone or higher interest rates.

Not fair, folks.

C – The government will match reductions lenders make to keep borrowers home payments at 31% of their income. What income — stated income? Does that include alimony?

Incomplete – Flushing Fannie Mae and Freddie Mac with $900 billion.

It now appears the economic stimulus bill will deliver be some significant benefits to those wishing to purchase or refinance a home. These include:

Ø A true first-time homebuyer tax credit in the amount of $7500 available for a qualified purchase of a principal residence between January 1 and September 1, 2009. I say “true” since, this time, the “credit” will not have to be repaid by the homeowner!

Ø FHA, Fannie and Freddie loan limits will be revised. While specifics have not been released, reports indicate the 2008 limits will be reinstated for 2009 with certain limited exceptions.

Ø Foreclosure mitigation and neighborhood stabilization is forthcoming. In essence, this means that there will be some as-yet-undetermined method for funding state and local efforts to abate foreclosure and stabilize and redevelop neighborhoods. of abandoned and foreclosed homes are authorized.

My daughter recently attended a first-time home-buying seminar sponsored by Virginia Cook’s Ed Murchison and Beverly Bell, and Shelter Mortgage. She learned that loans are available for young people like herself for as little as 3.5% down, that you need 6 months worth of mortgage payments in the bank for an economic safety net, and that the $7500 deduction for first time home buyers will increase to $15,000 in the new economic stimulus package — details are forthcoming. Pork city! Clearly this stimulus package wants to get the young people into homes solidly, and I am glad someone is offering sound advice. Too bad seminars like these are not required for every first time homebuyer.

Call me Bob Shiller, who thinks every American family ought to have a personal financial adviser paid for by the government. Let’s see, no mortgage deduction, free health care, a free financial adviser on Uncle Sam’s tab, will there be any money left in our paychecks?

Do you think the mortgage deduction in the U.S. encourages over-consumption? Is that deduction sacrosanct or heading for oblivion or… heading for a one-time offer?

“Loan originators were able to divorce themselves from risk by selling loans to Wall Street investment firms that bundled them into securities that were sought after by investors looking for better returns than Treasurys. When home prices collapsed and borrowers began defaulting, the losses on those investments and others tied to them rippled through the financial system, curtailing all types of lending.”

But I gasped yesterday when one panelist said that hidden in the fine print of the securitization process of the bundled ARMs was a non-default warranty from the loan originator of 90 days!   

To understand how we got into this trillion dollar financial mess, Shiller said we had a number of merging factors: rare events, complacency, over reliance on conventional wisdom, herd behavior, and more respect for sophisticated methods rather than substantial evidence. (”Quantitative technology?”) Finance and real estate have become much more sophisticated disciplines, but data we used didnt include historical episodes such as The Great Depression. Since the 1929 crash, we had 3 major stock dips — 1929, 1987 and 2008. Shiller thinks this latest episode is more like 1929 than 1987, and he doesn’t think recovery will be rapid. But for the first time in our economic history, we had a real estate bubble. Americans went gaga about real estate as an investment. In Miami, for example, housing prices were stable from 1987 to 2000. 2001 to 2007 prices tripled — the Miami condo market overbuilt by hundreds of thousands of units. We got carried away: irrational exhuberance, herd mentality. Long term solution? Market transparency, better information, but as Shiller pointed out, you can present buyers with all kinds of warnings — sometimes people just don’t pay attention or figure it out. Very interesting comment: what if, he asked, medical professionals did not exist and all we had were drug company sales reps telling us which drug to take? (Would the Wellbutrin folks would tout the benefits of Prozac or push their product?) Shiller believes every family needs a financial physician that the government should subsidize. (Reality check: the government does provide health benefits for some through Medicaid and Medicare, but both programs reimburse physicians at minimal rates and are teetering financially.) These advisors would vow to not take commissions or other distractions to affect the advice they give their clients.

In this country, we have failed to manage real estate risk, which is devastating to familes. Shiller proposes a futures market for single family homes. We need more hedging of real estate risk, something he is focusing on in his company, Macroshares. We need to think creatively about our mortgage institutions. Why are we so married to 30 year conventional mortgages? (And why was the wheeled suitcase only invented in 1972?) Why can’t a work-out be built into a mortgage — in case of default, safety measures would kick in to prevent foreclosure. Why not have home equity insurance? Livelihood insurance? Payroll deductions for mortgages that would adjust up or down with the market? Harvard’s Elizabeth Warren has proposed a Financial Product Safety Commission to protect consumers from financial products, much like the Consumer Product Safety Commission protects consumers from concrete products.

 We are living in very uncertain times, says Shiller. To people close to retirement or living off equities, be careful — the market could fall in half again this year. Job creation did not drive the housing boom — credit did. And it’s going to take much more than just a finger-snap to get us out of it.