A Conversation with Jay Hill
Owner, Hill Mortgage Consulting, Tallahassee, Florida
When commercial and high-end residential borrowers find themselves under water and in need of help, they contact Jay Hill. He and his team scrutinize the fine print of their client’s loan paperwork and find compelling points of negotiation which they take to the bank. They work only in Florida, Georgia and Alabama.
One of the biggest hurdles today is flopping – and Woodward Asset Capital’s products (OfferSubmission and VerifiedShortSale) really help to highlight this. Never showing the bank the other contract sitting there, for 30-40% more, that’s a huge problem.
Problems like these have created a layer of due diligence the banks have to go through, making them skeptical of every buyer. I don’t blame them.
There is a cure for this and it’s simple. We can attack it from the institutional side or from the government angle.
An institutional cure looks like this: Banks contact and give the option to all under-water borrowers to write down their loan to market value, reset the rate to current market value and put the difference in a non-interest-bearing, non-accruing second mortgage. If, in the next 15 years, the borrower refinances or sells the property, the bank takes 90% of the equity growth in the property out of that mortgage balance. This eliminates the moral hazard of people thinking they’re going to pay for someone else’s loan.
Take it from the government side and it looks like this: tell the banks to keep a loan instead of sending it to Fannie and Freddie, write it down to market value, and the government gives a subsidy for a percentage of that write-down. Then, the amount follows the property owner in the form of 75% capital gains tax if he sells. It puts money back into the government’s hands when the market starts to grow, and there’s a little bit of punishment to the banks.
Either way, these two ideas are better than the band-aid programs the government keeps suggesting – they’re not going to fix our problems.
Banks deal with borrowers on an emotional level – guilt, integrity – not on a what-can-you-afford basis. If they just looked at everything from a business standpoint of what a borrower can afford and what is the best case for recovery, they’d write down loans.
People come to me in the third stage of grief, when they’ve achieved acceptance of the situation. After they’ve gone through denial and anger, they throw up their hands and say, “Help me.” Everybody in the market is in one of those three stages of grief – denial, anger, acceptance. We need to move through these to finally reach resolution.