In this blog we often talk about the benefits of bankruptcy for individuals and businesses—debtors who are part of the American fabric that are facing the significant financial perils of the current economic malaise.
But what if one of the financial entities that is often the primary culprit for harassing these same American debtors seeks the safe havens of bankruptcy relief? What are the economic impacts of such a filing?
Well, we just might see, as one of the nation's major mortgage insurers filed for Chapter 11 bankruptcy protection this month-- a move that's seen as a blow to lenders overall and ultimately to borrowers who seek credit, including those in dire need of home loans.
According to The Huffington Post, “Insurance giant PMI Group Inc. took the bankruptcy step after an Arizona judge rejected its efforts to overturn the state seizure of its mortgage insurance unit last month.
Robert Satnick, past president of the California Mortgage Bankers Association, called the Chapter 11 filing ‘another nail in the coffin’ of the mortgage lending industry. PMI provided insurance to lenders who needed coverage in the event borrowers defaulted. Insurance is required on a mortgage loan if the buyer has less than 20 percent equity invested in the property. Lenders purchase the insurance, and borrowers pay for it.
The housing bust was not kind to mortgage insurers, and PMI saw its business deteriorate as defaults rose. In the mean time, increasing numbers of buyers have turned to the Federal Housing Administration, whose loans only require 3.5 percent down from home buyers. The agency has seen its share of the market rise since 2008.
Now PMI's bankruptcy filing reduces the number of choices that lenders have to obtain mortgage insurance, without which they are unlikely to fund loans to borrowers.”
As a result, the housing bust is not only “unkind” to mortgage insurers seeking bankruptcy, but rather it leaves many more homeowners and would-be homeowners wondering where they’ll get their next cash (or credit) infusion.
To help homeowners avoid foreclosure in the long-term, industry insiders and other commentators have insisted Congress would need to force banks to modify mortgages in ways that are affordable over the long-term. Others have insisted that even this wouldn’t help because of the rising numbers of unemployed homeowners who are unable to pay even modified mortgages even with unemployment insurance benefits, and that the only real solution would be to allow unemployed homeowners a mortgage deferment while they’re looking for work. But now, with mortgage lenders themselves defaulting, it seems even a deferment wouldn’t aid borrowers since there would be little to no credit to be had after their deferral time is up.
Instead, homeowners who are having difficulty making their mortgages may have one solution and one solution only—to seek the same safe havens as many of the mortgage lenders who created the real estate reckoning in the first place—considering filing for bankruptcy protection. Personal bankruptcies for discharging debts under a Chapter 7 liquidation or Chapter 13 restructuring bankruptcy are now a great option for dissolving debt and getting back on your financial feet. These types of filings are becoming commonplace measures for millions of men and women hoping to restructure their debts into a more affordable payment option or, in most cases, dispense with them completely.
As American homeowners languish waiting for more immediate mortgage help, many are turning to bankruptcy to stop foreclosure and other creditor actions. For reliable bankruptcy advice that you can trust, contact The Law Firm of John T. Orcutt. And to find out more about your bankruptcy options, visit The Law Offices of John T. Orcutt’s “Things to See and Hear” information.