Are you the next target?

[Stan Johnson]

I discovered BiggerPockets as I searched for a HardMoney Lender to fund a deal involving a Farmington HIlls, Michigan office building.  I was excited to discover a treasure trove of valuable information in the Forums, Podcasts. etc.  Ann Belamy's  BP 09  Hard Money Lending was a terrific introduction.   I was excited to get more insight with another hour of great ideas in  BP 16-- dealing with Seller-Financing, Private Money, etc. but to my dismiss  I heard only a 4minute announcement that "We had to remove this program because new legislative ' Dodd-Frank' rendered many of its recommendations illegal."  

To any who have ever thought,  " There ought to be a law....."  I would respond that our Patriot - Founding Fathers were compelled to a revolutionary war because their overseers imposed too many laws that impaired their ability to realize their desired liberty and pursuit of happiness. 

In Fall 1978 my Real Estate Finance professor made a political announcement to our class as a preface to that day's lecture.  " Today it is now illegal for any lender in our state (Idaho) to make a mortgage at prevailing market rates."  Well-intentioned but informed lawmakers had determined that no lender should ever charge more than 10% for a mortgage loan so they wrote Usury Laws that forbade any higher rate.  The problem with general price inflation greater than 10% no rational entity would commit money to loan when economic conditions rendered his transaction a certain loss.   The Idaho State Legislature was called to an emergency session to change the statutes or else the state's economy would grind to a halt.

I eventually made Real Estate Finance my full-time profession. During that time I have witnessed many  new laws championed by idiotic politicians.  Without exception, every one of those laws has denied access to funds and denied home ownership to people who could have enjoyed property ownership if there were a free market.

The number of workers in my chosen profession, mortgage brokerage, is down by nearly 80% from its  2007 peak.  Without exception profitability of each transaction has been slashed because of the ramifications of Dodd-Frank and its associated Consumer Finance Protection Board.   To those that say " They had it coming" mortgage brokers earned too much.  I respond that transaction costs did not get reduced to benefit consumers.  The net result is that big banks, especially those that were deemed  "Too Big to Fail" were empowered to grow even larger as they were actually given money to devour their former competitors.

Chances are that the readers of my post did nothing to stop this terrible development because they believed that they were not being harmed.  

If you did not protest when my business was being harmed by over-reaching regulators because your business was not directly targeted,  I ask you .  " WILL YOU BE THE NEXT TARGET ? "

[Stan Johnson]

CONSUMER " PROTECTED"  OUT OF HER HOME.

SUBTITLE:  BE CAREFUL WHAT YOU WISH FOR, YOU MIGHT GET IT

An actual case history- A home owner rendered homeless as a consequence of  a mortgage regulation--  HOEPA  ( Home Owner's Equity Protection Act )

The mother of  three school age children provided in home medical assistance for an elderly resident of a small Idaho mining town.  Upon his death the old man demonstrated his gratitude by bequeathing his home to the caregiver so she could vacate her mobile home and become a real property owner.   The caregiver was not family and the old man did not want to disinherit his biological heirs  so he provided the home at a modest price but he made the estate the beneficiary of a modest  private money mortgage to provide a monthly remainder for his own adult children who already owned other residences in the same community.

All parties were served by this arrangement until the nurse's own son developed leukemia brought exorbitant demands for both money and time causing. The homeowner was unable to make mortgage payments to the estate for over a period more than 24 month by the time she approached me as a mortgage broker for help. At that time she owed less than 30% of the home's market value. Medical costs caused unpaid loans and collections to accumulate and to created a credit profile of a borrower who did not pay any of her legal obligations. Bank regulations simply would not allow FDIC-insured money to be invested in such a poor credit risk but the beneficiaries of the deceased man's mortgage deserved payment so they sold the non-performing mortgage to a Boise " Private Note Purchaser" for a small fraction of its face value because the heirs lived in a small community and did not want the infamy of being the ogres who would compound the misery of an unlucky family by seizing the home through foreclosure after the occupants had suffered the loss of their son to childhood disease.

The Boise opportunist had no such inhibitions.  He immediately initiated foreclosure proceedings.  Either way he would profit immensely  1) if he could force a payoff of his note through refinancing he would  receive a payoff  of more than 250%  of the money he paid for the discounted note, or 2) if he acquired the property through foreclosure his profits would be several times greater.  

The homeowners came to my mortgage brokerage company but their poor credit history prevented me from doing anything.   A few years earlier I could have helped them obtain a "second chance" mortgage.  Several lenders would lend up to 55% of a home's value without requiring proof of income and to even the poorest credit risks.  Of course a prospective lender would not lend to a borrower whose credit history demonstrates chronic pattern of disregarding credit obligations on the same terms they would extend to unblemished credit.  Such Sub-Prime lenders deserved and expected higher rates to compensate for the extra risk and the probable higher costs of recovering their money.  

The Home Ownership Equity Protection Act ended this class of loans.  HOEPA imposed onerous penalties for loans that were classified as " High Cost Loans"   HOEPA would also rescind (write off) a loan if it was determined that the lender had not documented the Borrower's Ability to Repay. 

This ill-fated family was "protected" from paying high costs to a mortgage lender but their home equity was extinguished.  They were forced to sell the home, to incur costs of moving an entire household and to become renters for several years until they could recover from the financial burden associated with their son's chronic illness and death.

To all who wish that government would protect them, I cite this example as I remind you  BE CAREFUL WHAT YOU WISH FOR,  YOU MIGHT GET IT