Now They’re Sending in SWAT Teams?
Published Thursday, January 21, 2010 @ 11:50 am
The latest chapter in the Obama administration’s attempts to make lenders modify mortgages is to send SWAT teams – no, I’m not kidding, really, SWAT teams – into the call centers of major lenders to try to ensure that they follow the proper procedures and actually modify loans. Seriously, wouldn’t it be a whole lot easier just to pass cramdown and allow bankruptcy judges to modify mortgages than to try to sweet talk, bribe or otherwise convince bankers to do it on their own?
Because they’re not. Making Homes Affordable, the program implemented by the government last May, is designed to encourage banks to modify the loans of homeowners who are having trouble making mortgage payments. Mortgage companies are reluctant to do that, however: they make more money in interest and fees when a mortgage goes into foreclosure, than they make from the government when they successfully modify it. The government had hoped to have 3-4 million mortgages modified by the end of last year. As of mid December, the count was at 750,000 – the vast majority of those were still in the trial stages.
The news reports of lenders dragging their feet are backed up with anecdotal evidence from homeowners, who report that they call the lenders over and over, file and refile the same documents, and then call back, only to be told that no one knows anything about their case. Lenders counter that people don’t send them the requested documents. Really? Desperate homeowner, one last shot at keeping their home, and they can’t be bothered to fax some papers? The lender argument is a little hard to believe.
Hence, the SWAT teams. These are teams of three people, sent into the call centers of the seven largest loan servicers to make sure that the bank representatives are giving accurate information, filing forms properly, etc. Experts are not impressed – many say the initiative is unlikely to work. Some have called for putting permanent government observers in the call centers. They note that private insurers already have their people inside the call center, to help prevent the loans they’ve insured from going into foreclosure.
Unfortunately, neither temporary nor permanent government observers in the call centers seems likely to work. This is another initiative – like the ‘foreclosure hall of shame’ that was supposed to embarrass the lenders into modifying loans – that the banks will evade and ignore until the administration acknowledges it isn’t working and moves on to something else. The fact is, lenders aren’t going to modify substantial numbers of mortgages until they are forced to. Unless an initiative like cramdown is passed, which takes the decision to modify or not and how much out of the bank’s hands and gives it to a neutral party, foreclosures will continue to rise.
Fortunately, homeowners finding it difficult to pay their mortgage may have another option to save their home: bankruptcy. Your bankruptcy attorney will return your phone calls, keep your files organized, and not make you fax documents four or five times. In addition, he or she will help you map out a plan that will lead you to financial freedom. The Obama administration may sincerely want to help homeowners. But as long as they expect bankers to do it out of the kindness of their hearts, you’re probable better off filing for bankruptcy.
Brought to you by the Law Offices of John T. Orcutt. Providing North Carolina homeowners real foreclosure relief since 1995. Is your lender not working with you? Call today and find out how a bankruptcy can save your home. 1-800-899-1414. Convenient offices in Raleigh, Durham, Fayetteville, and Wilson.
401k Loans: Will They Survive Bankruptcy?
Published Tuesday, January 19, 2010 @ 3:02 pm
So you’re drowning in debt and desperate for a way out. A friend or relative asks if you’ve considered a 401k loan. “They’re quick, simple to qualify for, and here’s the best part: you’re paying the interest to yourself.” Sounds like a brilliant solution, right? Why pay 25% interest to a credit card company when you could be paying 6% interest to yourself?
Stop. You want to think long and hard before you take out a 401k loan, especially if you’re already in debt.
Fayetteville debt relief,
The most important thing to know is that, in bankruptcy, your retirement savings – 401k accounts, pensions, 403b accounts, traditional IRAs, Roth IRAs and even plans for small business owners and the self employed – are protected from your creditors. That bears repeating. If you declare bankruptcy, you keep all the money in your retirement accounts.
If you’ve taken the money out in the form of the loan, however, your creditors can take that money.
Moreover, failure to pay back a 401k loan comes with serious drawbacks. If you lose or change jobs, you have to pay back the entire sum within 60 days. If you’re unable to make payments on the loan – or the lump payment in the case of changing jobs – you’re required to pay all taxes on the outstanding money, plus a 10% penalty.
In addition, recent court cases have determined that because you’re paying the money to your own account, a 401k loan cannot count as debt, and is not part of the Means Test. This means that you could be tipped into a Chapter 13 plan even if you’re spending significant amounts of money repaying a 401k loan. If you’ve already borrowed the money, though, don’t despair. It’s true that it might bump you into filing Chapter 13 rather than Chapter 7. However, while the Means Test is very similar to the disposable income formula in a Chapter 13 bankruptcy, there’s one important difference and that’s the 401k. You’re allowed to both contribute to your 401k in a Chapter 13 plan, and to repay your 401k loan, and take both as a deduction on the means test. This means your plan payment may actually be lowered if you are making a 401k repayment.
There may be times when 401k loans aren’t a terrible idea, even if you’re facing bankruptcy. It might make sense, for example, to take out the loan in order to catch up with mortgage payments before you file bankruptcy. But this is a situation where you should really discuss the pros and cons of your actions with a bankruptcy attorney before undertaking the loan. One important rule of thumb: it doesn’t make sense to take the loan out to repay unsecured debt, debt that will most likely simply be dismissed in bankruptcy.
One final note: not every 401k plan permits loans for any reason. Some plans restrict them to specific purposes, such as first time home loans, medical expenses, college tuition or mortgage payments. Before even considering this option, you need to make sure it’s available to you.
Is It Worth Trying to Modify Your Mortgage Before Filing Chapter 13
Published Wednesday, November 25, 2009 @ 12:12 pm
Should you try to modify your mortgage before filing for bankruptcy? Bankruptcy will stop foreclosure proceedings; a Chapter 13 bankruptcy will allow you to keep your home, and to develop a payment plan to meet your back payment obligations. But it won’t necessarily lower your monthly mortgage payments. Is it worth it to try to modify your mortgage and secure lower payments first?
The evidence is mounting that it’s probably not worth your effort. A recent report shows that although 362,348 loans have been approved for “trial” modifications, only 1,711 of those trial modifications have been made permanent. Assuming you can even get over the first hurdle of being approved for a trial modification, you’re likely to get stuck in “trial mod limbo”. Depending on your lender’s mood on any given day, you could at any point be dropped from your trial modification, worse off than where you started.
But isn’t the program backed by the government It’s true, the government had high hopes for the Making Home Affordable program, designed to help homeowners who are having trouble making their payments. However, mortgage companies have dragged their feet over it; they make more money off fees when a house goes into foreclosure than they do modifying a mortgage. The government may well say you qualify for MHA, and your lender simply refuses to go along.
Faced with a recalcitrant lender, you might turn to foreclosure consultants. While there are legitimate consultants, be wary of scams. Many consultants will simply charge you a fee and never even bother to contact your lender!
You also have to consider whether or not changing the terms of your loan is in your best interest. For example, you may be qualified to refinance under the Hope for Homeowners program (H4H). However, H4H requires upfront fees and additional mortgage insurance; later, when you sell or refinance your house, you will be required to share between 50 and 100 % of the proceeds with the government.
Some lenders might agree to roll your loan into a 40-year fixed mortgage. In this case, you’d pay less per month, but for a much longer period of time. Depending on your loan amount, the additional money could be tens or even hundreds of thousands of dollars. Plus, of course, you will have payments for an extra 10 years, and less equity in the home if you sell before that. Will the difference in monthly payments make that additional debt worth it? It depends on your circumstances, of course, but possibly not. Remember, once you file for Chapter 13, much or all of your unsecured debt may be erased, freeing up more of your income for your mortgage payment.
The earlier you file for Chapter 13 bankruptcy, the more likely you are to save your home. If foreclosure proceedings have advanced enough prior to your filing, you may not be able to afford the Chapter 13 payment that is required to catch you up. If you’re starting to get behind, call a bankruptcy attorney today.
While modification is still receiving a lot of hype in the press, it’s becoming clear that it’s all just hype. . The best way to sort through these options is with the help of a professional bankruptcy attorney. It doesn’t make sense to spend weeks trying to modify your loan, only to find out it resulted in filing for bankruptcy too late.
The High Price of Rising Unemployment: Prime Borrowers are the Latest to Face Foreclosures
Published Monday, November 23, 2009 @ 6:49 pm
The Associated Press is reporting that the foreclosure crisis will persist well into next year as high unemployment “pushes more people out of homes, pulls down housing prices and raises concerns about the broader economic recovery.”
The latest evidence comes this week in a report from the Mortgage Bankers Association identifying that a rising tide of fixed-rate home loans made to people with good credit are now facing foreclosure, marking a surprising shift from assumptions that only riskier subprime loans are driving the current housing crisis. The report also stated that 14 percent of homeowners with a mortgage were either late on payments or in foreclosure at the end of September 2009, marking another record-high for the ninth straight quarter.
These findings speak to an even more beleaguered housing market than previously thought, bearing the weight of even more home-loan defaults. The main culprit, industry experts say, is rising unemployment, forcing even the most responsible homeowners to fall behind on their mortgages.
As the AP found, many laid-off homeowners might be able to survive on their savings for a while, but “the longer the economic situation stays in place, the less likely they are to hold on,” said Jay Brinkmann, chief economist at the Mortgage Bankers Association.
As Robert L. Borosage, Co-Director of the Campaign for America’s Future, blogged this week, “[o]ne in six workers is unemployed, has given up looking or is forced to work part-time. For young workers aged 16 to 24, unemployment is 19%. For young African Americans, unemployment is at 30%. And as Federal Reserve Chair Ben Bernanke testified yesterday, we’re likely to see — at best — a slow recovery with no new job growth. That exacts a devastating toll in hopes crushed, families stressed, young people stalled, and poverty and hunger spreading.And even if we avoid another downturn, the job picture will get worse. Crippling state deficits — over $260 billion over 2 years — will force layoffs that cost an estimated 900,000 jobs next year if nothing is done.”
As a direct result of this explosion of job losses, this year, more than 3 million foreclosures are predicted, as homeowners are increasingly incapable of paying the mortgage during a brutal recession. As the financial meltdown continues and unemployment surges, the millions that have now slipped into delinquency and foreclosure with only one conceivable way out: bankruptcy.
Homeowners with prime and sub-prime mortgages alike are taking immediate action, arming themselves with basic bankruptcy tools. So, if you’re interested in staying in your home, looking for permanent solutions to foreclosure threats, and ready to quit spending and start saving, there’s never been a better time to consult with a bankruptcy expert. For more information regarding homeowner benefits of bankruptcy filing, visit The Law Offices of John T. Orcutt’s “Things to See and Hear” information.
While recent reports of the nation’s financial future are nothing short of bleak, the good news remains that through bankruptcy laws, homeowners facing foreclosure can take their future into their own hands, stop drowning in mortgage debt, and begin on the road to a more viable financial future.