ONE SOLUTION: “Safe Harbor Intelligent Loan Options” (“SHILO”) (TM)

A. RISK MITIGATION TECHNIQUES

“Safe Harbor Intelligent Loan Options” (“SHILO”) (TM). We can and should foresee delinquency, default and foreclosure contingencies and handle them in the loan agreements at origination. Why wait for the effect of costly defaults and foreclosures until we handle the solution? We are creating a sub-industry based on failed attempts at the American Dream which cause further economic market uncertainty, economic ruin, and human disgrace. Is that what we want? If not, why not build-in some contractual remedies to enhance certainty in the marketplace and help save people at the same time? I recommend that we consider contractual risk mitigation techniques in the loan agreements at origination. I call this concept:
Safe Harbor Intelligent Loan Options or “SHILO”
“SHILO” is a minimum set of borrower (lender, insurer, or government) loan option rights concerning issues of payment, default, and foreclosure including forbearance or deferment options, loan modification or conversion rights, refinance rights, short refinance rights, short sale rights, and/or exit options contained in the loan agreements that may or must be used in the event of pre-default or foreclosures circumstances. The Lender and the Borrower may also negotiate for additional SHILO. These provisions directly benefit the borrower, but on many levels also directly and indirectly benefit the lender, the local State and Federal governments, investors, and the economy. Presently the borrower in trouble has a lack of exit options available. This causes “liquidation type forced sales" and creates a feeding frenzy in the foreclosure markets. This often causes great loss to the borrower, lender, local State and Federal government, investors, and the economy. When a borrower is in trouble and in need for loan modifications, he is generally experiencing financial, medical or market distress, or has a specific economic or other reason for wanting same. We need contractual remedies that offer relief from the foreseeable financial and personal problems that we know will occur and unforeseeable contingencies as well. Obviously persons in financial trouble will not be able to qualify for many of the current extra-contractual options. It creates another set of problems. The current loan agreements create RAhD and RAhC risk. Substituting predefined contractual solutions (SHILO) for those unknown and known potential problems would reduce the size of the foreclosure marketplace and help stabilize the risk benefit pricing structure. SHILO would cause real estate markets to experience or realize less extreme risks. This would reduce the risk, costs and losses to all participants in the marketplace. The SHILO solutions are the current concepts used by the foreclosure industry including but not limited to:

(1) Forebearance with Reinstatement Or Repayment Plan Agreement, (2) Loan Modification, (3) Short Refinance, (4) Short Sale, (5) Market Sale, (6) Investor Sale, (7) Investor Sale And Lease Back, (8) Deed In Lieu Of Foreclosure (9) Reverse Mortgage, (10) Bankruptcy, (11) Hand In Keys & Walk Away Clean, (12) Walk Away Dirty, (13) FHA Partial Claim (14) Gift Equity Transfer, Etc. The key is to allow a borrower when in financial trouble to access prescribed contractual payment or exit solutions without requiring good credit standards. We must stop kidding ourselves; we all know that the borrower who is in trouble will not have good credit or feasible foreclosure market solutions. We may see $164 billion in equity loss over the next few years. In an optimal or evolving economic society, we must refine this market inefficiency with what I call non-cash substitutes or equivalent risk-pricing (“ERP”) with MI.