Archive for the 'Bankruptcy' Category

The House of Representatives has passed a bill supported by President Barack Obama aimed at reducing the number of foreclosure homes and stabilizing the housing market.

The bill would authorize bankruptcy judges to modify loans by reducing mortgage payments for owners of foreclosure homes. It is currently in the Senate for consideration.

Last February 18, Obama unveiled the Homeowner Affordability and Stability Plan as part of his $275 billion anti-foreclosure homes program. The $75 billion plan is designed to help more than 9 million distressed owners of foreclosure homes.

However, not all owners of foreclosure homes would be eligible for assistance under the plan. The revised bankruptcy measure is an added option for distressed homeowners who want to save their properties from foreclosure.

The number of foreclosure homes and pre-foreclosure filings in January of this year showed some improvement with nationwide figures of foreclosures dropping by 25.7 percent to 72,694 from 97,841 the previous month.

Pre-foreclosure filings in January dropped by 12 percent to 166,860 from 190,467 the previous month.

The decline in the number of repossessed homes in January 2009 was noticeably evident in Arizona, California, Florida and Texas. California foreclosures dropped to 14,351 from 20,952 the previous month. Florida foreclosures declined to 10,007, 5,367 in Texas and 5,250 in Arizona.

Meanwhile, pre-foreclosure filings in Florida dropped to 43,070 while California slide to 33,008 from 41,710.

However, despite some improvements in foreclosure figures, the decline barely made a dent on the foreclosure crisis as more and more homeowners are starting to feel the impact of the recession.

Lionel Ouelette of the advocacy group CHANGER pointed out that the measure, which would authorize bankruptcy judges to modify loans if mortgage servicers failed to come up with affordable terms for distressed homeowners, would be a great help to some homeowners.

The mortgage industry opposed the revised bankruptcy law and has lobbied against its enactment. The industry argued that the revised law could reward homeowners who borrowed irresponsibly and may lead to higher interest rates and fees.

It also pointed out that there is no way to determine how much is the cost involved in implementing the law to help troubled owners of distressed properties.

Some distressed homeowners are willing to consider the measure as their last hope to save their properties from foreclosures.

A good question to be asked by people nowadays in this economic recession is why the Bankruptcy Court is not permitted to be one of the solutions to the foreclosure crisis?

According to Chapter 13 – wherein bankruptcy for individuals who have failed to keep up with their debts but do not wish to be harsh to their creditors—new terms on automobiles, boats and vacation residences can be worked out by bankruptcy judges. This is legally called the cram-down process.

However, judges are strictly prohibited to cram down a mortgage debt on a principal house. Debtors can either comply with the original terms of the loan or undergo foreclosure. This rule is absolutely ridiculous. Judges can help you keep your assets by modifying loans on possessions that are relatively expendable, but what about your home?

A measure supported by Michigan Representative John Conyers Jr. that will likely pass the House could fix this inequality. However, it may not be enough to gain 60 votes to become a stand-alone bill. Bankers are still against the mortgage cram-downs. Last month, when Citigroup Inc. declared that it supports the change, other banks have regarded the company as a traitor.

Moreover, the mortgage lobby states that cram-downs would incite an impulsive rush to the Bankruptcy Court. Mortgage rates could go sky-high even for commendable home buyers since lenders would perceive more danger in the mortgage industry.

On the contrary, cram-downs are essentially bound to mortgages underwater, or those with balances surpassing the market value of the property. Such loans are already at the risk of foreclosure, so the lenders deal with massive losses unless someone similar to a bankruptcy judge knows how to create a solution.

For example, in the primary proposal in Congress, a classic strategy would work like this for a debtor who owes $225,000 at an adjustable-rate mortgage at a home currently priced at $200,000: the judge decreases the balance by $200,000. The extra $25,000 transforms into an unsecured debt towards the lender when the case concludes, or a process identified as the strip down.

The remaining loan can be modified by the judge through changing the adjustable rate into a set market rate, adding up 1 percent to 3 percent as a risk payment. Seasonal rate adjustments, balloon expenses, pre-payment costs, etc. can be deleted by the judge and prolong it up to 40 years.

A house would only go into foreclosure if the judge concludes that no form of combination of these modifications could create a mortgage in which a debtor could cope with. This procedure tackles the rights of bondholders as one huge barrier to mortgage workouts. The separation of the body servicing the loan from the faceless investors or loan owners was made possible through the securitization of housing loans.

Servicers are worried that if they change a mortgage to maintain payment flowing instead of foreclosing, then they will be charged by bondholders even though the outcome is possibly better in the future. The service can obtain legal cover if a judge commands the modification.

No one believes that the cram-down is perfect, nor is it the single solution to the foreclosure crisis. But its advantage is that its focal point is the debtors that are really serious in keeping their houses and are the least expected to re-default.A good question to be asked by people nowadays in this economic recession is why the Bankruptcy Court is not permitted to be one of the solutions to the foreclosure crisis?

Senators came up with another foreclosure relief in the form of a bankruptcy fix. It hopes to help the bankrupt modify their delinquent loans under court protection. But there seems to be a dispute whether it should be put into a bill with the fear of Republicans delaying or even rejecting the plan.

Even with President Obama’s compromises, not even one Republican agreed with the proposed economic stimulation and recovery plans. The bill is thought to be delayed until spring or until it could be attached to other legislation. It is just sad to see politics as a hindrance to a good economic and foreclosure relief.

The bankruptcy fix could have been a good foundation to start rebuilding the weakened economy. Bad loans triggered the beginning of the crisis, followed by delinquencies then repossessions as the housing industry dwindle with lower home prices. Repossessed homes are now stagnant in the market, bringing home prices down. With financially unequipped homeowners, this will be a cycle- prices fall, delinquencies increase, foreclosures multiply.

Depreciating homes and rising defaults worsens the credit crisis. As long as banks lose, they become more difficult to borrowers.

Lenders are putting their own efforts to help their borrowers to modify their cases and prevent the looming foreclosure. But these efforts seem not good enough.

Bankruptcy fix could be the remedy. When a trouble homeowner would rather fix his loan through payment than to lose their home through foreclosure, a court settlement is possible. This will promote voluntary loan modifications.

It was said that the current administration is willing to shell out $100 billion for foreclosure relief but this is not enough. We need a bankruptcy reform. A bankruptcy fix will even be better for all tax payers because it will cost them nothing.

And if lender participation is desired, discretion is needed. The Obama administration must assure and clear the thought that their foreclosure battle will be lost under the wings of a judge.

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Efforts to add a stipulation in the economic stimulus bill supported by congressional Democrats that would permit bankruptcy judges to minimize mortgages as a possible solution to the foreclosure problem is being resisted by President-elect Obama and his advisers.

A U.S. House bill that would authorize bankruptcy judges to modify mortgage terms is not a good solution to the foreclosure problem, according to Glenn Boyd, top securities strategist of New York City-based Barclays Capital.

As foreclosure filings soared to about 2.2 million last year, personal bankruptcy filings also soared from 801,840 million in 2007 to 1.06 million in 2008, based on data released by the American Bankruptcy Institute.

For homeowners facing foreclosure, filing for bankruptcy is one of the options that can be explored. But based on the assessment of the Mortgage Bankers Association, choosing to do might have a significant impact on lending in the long run.