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Monday, May 2nd, 2011

Strategic Default and Foreclosure: What’s the Difference?

With the housing market headed for what some analysts are calling a double-dip downturn, there’s been a lot in the news lately about homeowners who strategically default on their mortgages. Here’s a look at what that means, how strategic default relates to foreclosure and what you need to know if you’ve got a mortgage you can’t afford.

What Is a Strategic Default?

The mortgage manipulation known as the strategic default works like this:

  • A homeowner reassesses her debt situation: This can be spurred by a number of things, and in the current economic climate common triggers include having difficulty paying bills (though not necessarily making mortgage payments) and realizing that a home is now worth less than the amount of the mortgage loan.
  • A homeowner decides not to make mortgage payments: After a month or two of missed mortgage payments, the mortgage loan will be in default (or, said another way, the borrower will have defaulted on the loan). The decision is usually considered “strategic” because those who choose this path opt to meet other financial obligations in lieu of paying their mortgages.
  • The home goes into foreclosure: Because the homeowner stops making mortgage payments, the mortgage lender begins the foreclosure process and takes back the home.
  • The homeowner deals with the credit consequences: In addition to finding new housing, strategic defaulters must also face serious financial consequences. Strategically defaulting on a mortgage can seriously damage a credit score, and many lenders (of all kinds) may refuse to issue loans to those with strategic defaults on their record. Fannie Mae, for instance, has announced that strategic defaulters are banned from Fannie Mae mortgage loans for seven years after defaulting.

How Is Strategic Default Different from “Regular” Foreclosure?

A strategic default is a conscious choice on the part of a homeowner to stop making mortgage payments, even if those payments are still affordable. Those who choose to strategically default often indicate that they are no longer willing to pay for a loan worth more than their house.

“Regular” foreclosure happens when a homeowner can no longer afford a mortgage loan and so has no choice but to stop making payments. In both cases, the homeowner loses the house to the lender; in strategic defaults, doing so is a conscious decision on the part of the homeowner.

What Are Other Options for Struggling Homeowners?

Because of the serious credit consequences and questionable ethical nature of strategically defaulting, many homeowners are not willing to do it, even if their loan is bigger than they’d like. Alternatives include:

  • Applying for a mortgage modification: Some banks (assisted by federal programs) offer mortgage modification programs. To find out whether you might qualify, contact your bank as soon as possible.
  • Filing for Chapter 13 bankruptcy: Some homeowners are able to at least delay (and possibly prevent) mortgage foreclosure by filing for Chapter 13. If you’re interested in learning whether you qualify, contact a bankruptcy lawyer in your state.

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Posted in Economic News: How Are We Doing?, Home Foreclosure | 1 Comment »

Wednesday, April 13th, 2011

New Solutions for Those with Mortgage Woes?

These days, many Americans are desperate to stay on top of mortgage payments, and are considering unorthodox ways to pay the bills. apparently, when a company called Adzookie offered to pay people’s mortgages for up to a year if those people would display large advertisements on their homes, applications flooded in by the thousands, as a recent report from Credit.com details.

The deal reportedly works like this: if you apply and are accepted into the program, Adzookie will paint advertisements on your home and pay your mortgage for three months (with a chance to renew for another nine if the ads remain in place).

While that may sound like heaven to some struggling homeowners, only a handful of people will be selected for this deal. So what can the rest of us do?

Finding Affordable Housing

Because of the tight standards of many refinancing programs, few homeowners are able to qualify. So that might mean a few things, one of which could be giving up a mortgage (whether with the help of personal bankruptcy or not) and renting for a while.

So how can you find affordable rent? By following these steps for negotiating:

  • Know the area: Figure out what people are paying for apartments in the neighborhood you want. In addition, try to determine whether there are more apartments than tenants or vice versa. If there are lots of vacancies, you have a better chance of negotiating a deal. You can do this by scouring local postings and asking people who rent nearby.
  • Consider amenities: Determine whether your potential apartment is bare-bones or all-inclusive. The former may provide you better negotiation opportunities, but make sure you’re able to find necessary services nearby—if you have to haul your laundry across town every time you’ve got dirty clothes, a small rent savings might not seem worthwhile in the long run.
  • Prove yourself: Offer to show to a potential landlord a strong credit report, a reference from a previous landlord or proof of steady income. A landlord who views you as a good credit risk is more likely to cut you a deal because she’ll be less likely to have to chase you down for rent or lose money on you.
  • Think outside the box: Offering to sign a lease longer than one year (which saves a landlord the work of finding new tenants), pay ahead of the due date (which saves a landlord worry and possibly money loss) or move in whenever works best for a landlord can all give you leverage in negotiations, as all these circumstances tend to ease a landlord’s financial (and worry) load.

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Posted in Economic News: How Are We Doing?, Home Foreclosure | No Comments »

Wednesday, March 23rd, 2011

The Latest on Student Debt and Underwater Homes

New reports highlight some interesting information about two topics near and dear to those who have filed or are considering filing for bankruptcy: underwater mortgages and student loan debt. Here’s a look at what kind of picture the latest numbers paint.

Students Don’t Need to Default to Be Behind on Loans

The Institute for Higher Education Policy released a report last week showing that two-fifths of those who borrowed money for educational purposes fell behind on their payments at some point in their first five years of repayment. So what does this mean?

  • Widespread repayment difficulties: These numbers may not even reflect the current rates of repayment difficulty, given that graduates in the last few years have faced a much tougher job market than those who graduated five years ago.
  • Old measures may be inadequate: Traditionally, studies on student debt have focused on the rate of default rather than delinquency. Looking at delinquent loans offers a clearer picture of how many people are struggling to repay their loans, even if they manage to get back on track at some point.
  • Bankruptcy not an option: Student loans are typically not dischargeable in bankruptcy court, which means that those with unmanageable student debt have few options for easing their debt burden. This is scary, considering that some estimates put the country’s total student debt at $896 billion, which is greater than our national credit card debt total.

Reports note that these numbers may affect the current debate in Congress over whether for-profit colleges and universities should be eligible for federally backed financial aid.

More Underwater Homes

Recent numbers released by a company called CoreLogic show that the number of underwater homes in the U.S. (that is, homes with a current value less than the amount of the mortgage on the house) has climbed since last quarter. Here’s a look at the numbers.

  • A reported 11.1 million U.S. homes were underwater in 2011’s first quarter, a jump from 10.8 million in the last quarter of 2010.
  • Nevada has a 65 percent rate of underwater mortgages, and is apparently the only state in which the average homeowner is underwater.
  • Besides the more than 11 million underwater homeowners in the U.S., 2.4 million Americans have less than five percent equity in their houses, according to sources.
  • Collectively, we reportedly owe about $751 billion more on mortgages than our homes are worth.
  • Analysts predict that home prices could fall by another five to 10 percent in 2011, meaning that those with little equity could soon find themselves underwater.

Unfortunately, mortgage loans for primary residences cannot be modified in bankruptcy court, but in some cases homeowners may find a Chapter 13 or Chapter 7 filing useful for eliminating other debts to help improve their odds of staying on track with their mortgages.

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Posted in Economic News: How Are We Doing?, Home Foreclosure | No Comments »

Thursday, March 10th, 2011

The Latest Consumer Protection from the FTC

The Federal Trade Commission’s annual National Consumer Protection Week is upon us (March 6 – 12, 2011) and that means it’s a great time to brush up on information about money, credit and the consumer protections available to you – just because you happen to live in the United States.

You can get handy tips for personal finance and money management at the NCPW blog, which is updated regularly with tips for topics including these (and more!):

  • Avoiding foreclosure rescue and other mortgage-related scams;
  • Knowing how to spot employment opportunity scams;
  • Making the most of your money in the early stages of your career;
  • Building and maintaining a budget to improve financial stability;
  • Avoiding time-share and credit-card scams offered via text messages; and
  • Learning what steps to take to save your home from foreclosure.

In short, whether you’re rebuilding from a bankruptcy filing or just starting to establish yourself in the world of credit and wealth, there are excellent, free resources available for your enjoyment and education.

FTC Targets Scammers Preying on the Cash-Strapped

In other FTC news, the commission announced this week new efforts to halt scams that target people in need of work – in other words, those who can least afford to lose money to dishonest schemes.

According to the FTC’s web site, Operation Empty Promises has taken legal action against the following scammers:

  • Ivy Capital Inc., a company that allegedly bilked consumers out of more than $40 million with promises of helping them to establish lucrative, Internet-based businesses from their homes. The scam reportedly worked by first asking victims about their available credit and then pushing them to use that credit to buy worthless products and services.
  • National Sales Group, Executive Sales Network and Certified Sales Jobs, three names of the same company that allegedly posted fake sales jobs on job-search web sties including CareerBuilder.com. The group, it seems, falsely promised sales positions with Fortune 1000 companies and charged victims money for what they claimed were costs related to background checks – often, this company reportedly overcharged and charged unapproved recurring fees to victims’ credit cards.
  • Business Recovery Services LLC, a company that the FTC claims misrepresented the potential effectiveness of its work-at-home wealth recovery “kits,” which sold for $499 each. All told, the FTC reports that this group managed to snag $1.5 million from victims.

Take Advantage of FTC Protections!

The FTC is constantly patrolling for scammers and those violating existing consumer protection rules. If you’ve caught wind of a scam or have been victimized by a scammer, you may want to file a complaint with the FTC as well as consult with an attorney to see whether you might be entitled to any compensation.

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Posted in Bankruptcy News and Events, Finance 101: Secure Your Future | No Comments »

Wednesday, March 2nd, 2011

The Latest on Foreclosures & Home Sales in the U.S.

Because the current recession was caused in large part by questionable practices in the mortgage market, home sales and foreclosure rates have been particularly interesting to monitor as an overall indicator of the economy’s rate of recovery.

Here’s a look at some of the latest findings and reports about the industry.

Home Sales Up Slightly, Thanks to Foreclosure Sales

The Associated Press reported this week that home sales in the U.S. rose from December 2010 to January of this year:

  • Rate of increase: Reports show that existing home sales (i.e. sales of not-new, previously occupied homes) rose at a rate of 2.7 percent between December and January.
  • Annual rate: The rate of sales in January put the market on pace to sell 5.36 million homes for the year. December’s sales were at a 5.22 million annual rate. A “healthy” economy, sources note, generally includes about six million home sales per year.
  • First time buyers: The latest numbers show that first-time home buyers accounted for 29 percent of all sales, well below the 40 percent that apparently is the hallmark of stronger economic times.
  • Hearty areas: Particularly strong types of home sales reportedly included foreclosure sales, at 37 percent of all transactions, and cash-only sales, which accounted for another 32 percent. Sources indicate that these numbers mark a doubling in such types of sales from two years ago.
  • Median home price: The glut of foreclosures now on the market continues to drive down home prices, and the median price in January was apparently $158,000, down 3.7 percent from this time last year and the lowest median in nearly a decade (since April 2002).
  • Unsold homes: Sources report that 3.38 million unsold homes still clog the nation and hold back the housing market’s recovery. At January’s rate of sales, it would take more than seven months to sell these homes.

New Changes on the Horizon for Mortgage Servicers?

A recent report at Credit.com notes that the federal government may be nearing an announcement of new regulations for the mortgage servicing industry. Here’s why:

  • During the subprime housing boom, mortgage servicers were often rewarded for signing customers up for more expensive loans than they could have qualified for.
  • This led to abusive practices by many mortgage servicers and caused many customers to pay more than they could have for their loans in interest rates and related services.
  • Since the collapse of the housing market, federal investigators have apparently been attempting to determine which practices were most detrimental to borrowers.
  • As the research period draws to a close, insiders are reportedly expecting the announcement of new regulations for the mortgage servicing industry in the coming weeks.

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Posted in Economic News: How Are We Doing?, Home Foreclosure | No Comments »

Monday, February 21st, 2011

The Changing Face of Mortgage Loans

Since the start of the mortgage foreclosure crisis in 2007, the mortgage industry in the U.S. has changed significantly. And, according to a recent piece in the Wall Street Journal, one of the latest changes being noted is a push by banks for larger down payments on mortgage loans.

Here’s a look at what that might mean for potential homeowners, the housing market and the recovery of the U.S. economy.

More Money Down = Fewer People Buying Homes?

The WSJ reports on how the home-buying landscape has changed in recent years:

  • Down payments at all-time high: One online real estate information base, Zillow.com, has apparently been keeping track of median down payments required by lenders since 1997, and this year’s median (22 percent of the home’s value) is the highest that number has been since the tracking began.
  • Steep rise in required down payments: What’s more, sources report, that 22 percent figure marks a doubling of the median down payment required just three years ago! In other words, banks have reacted swiftly and decisively to the turmoil in the housing market.
  • Higher stakes for homeowners: It seems that the push for higher down payments has been largely driven by lenders, as a reaction to findings that homeowners with more of their money on the line (i.e. those who make larger down payments up front) are less likely to default on payments or go into foreclosure than those with less money at stake.
  • Alternative lending assistance sought: The Journal notes that, because many potential homebuyers cannot afford a 22 percent down payment, there’s been an uptick in applications for mortgage assistance programs designed to help select groups of people (including veterans).

A More Realistic Picture of Homeownership?

While owning a home has long been considered part of the “American Dream,” the real estate bubble’s devastating effects on the housing market has left some people questioning whether homeownership is in fact for everyone.

Considered from a broad perspective, tightened mortgage regulations could well be a good thing for the U.S. economy as a whole: with lending practices that require more fiscally conservative borrowing and spending, the housing market will have less of a chance to spiral out of control and create another boom-and-bust cycle like the one we’re currently digging out of.

Worried about Your Mortgage?

If you’re currently saddled with an unaffordable mortgage (or one that’s gotten out of your reach because of job loss or reduction), you may be able to benefit from the foreclosure-prevention power of Chapter 13 bankruptcy, which may allow you to catch up on your mortgage payments or sort out your living arrangements without the pressure of creditors breathing down your neck.

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Posted in Economic News: How Are We Doing?, Home Foreclosure | No Comments »

Monday, January 10th, 2011

Foreclosures Expected to Balloon this Month

Recent news reports have forecasted a significant increase in the rate of mortgage foreclosures across the country in the first month of 2011. According to NPR, the forces that held foreclosures in check for the final months of 2010 are no longer at play and this year should see foreclosures picking up with a vengeance.

Here’s a look at what’s happened so far in the foreclosure world and what you can expect in coming months.

The Sad Saga of U.S. Home Foreclosures

While many economic indicators suggest that we’re finally tugging ourselves out of the recession that’s gripped us for years now, the state of the housing market suggests otherwise. Here’s a look at why.

  • Robo-signing foreclosure scandal: In the last few months of 2010, a foreclosure scandal hit: it seems that, at many banks, the practice of “robo-signing” had become common for foreclosure paperwork. Lawyers questioned the legality of the practice and, in the meantime, hundreds of thousands of foreclosures were put on hold while the courts decided what to do.
  • End-of-year foreclosure stays: Following that scandal came the holidays, a time during which many banks and lenders traditionally put a hold on foreclosure processing.
  • Backlog of foreclosures in 2011: Now, of course, the holidays are over and the robo-signing cases have been more or less settled. And, according to NPR, as many as 100,000 homes could go into foreclosure by the end of January.
  • Even more homes on the market: Naturally, increased foreclosures are bad news for the families directly affected by them, but they’re also likely to be problematic for the already glutted housing market. And, with mortgage lending standards tightened and unemployment still above nine percent, the chances of other families buying those homes any time soon are slim.

Is there Any Hope for Foreclosure Relief?

If you’re worried about losing your home to foreclosure, now is the time to take action. Consider the following.

  • Visit a housing counselor: She can help you figure out what your options are and whether you can realistically catch up on your mortgage and stay in your home.
  • Speak with a lawyer: A local attorney can help you figure out whether or not Chapter 13 bankruptcy could provide you with sufficient means to halt foreclosure and work towards saving your home.
  • Consider rescission: Ask your lawyer about the right of rescission, which could help you keep your home if your lender originated the initial loan fraudulently.
  • Contact your lender: Whatever you decide to do, be sure to keep lines of communication between you and your lender open. While mortgage modifications may not always be an option, they can provide a realistic alternative when they’re practical.

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Posted in Economic News: How Are We Doing?, Home Foreclosure | No Comments »

Monday, January 3rd, 2011

Rescission: A Foreclosure-Fighting Tool in Peril

The Federal Reserve has proposed a troubling change that could all but eliminate one tool homeowners have to fight mortgage foreclosure, a recent post from Credit.com's blog highlights. The tool is called rescission. Here’s what it is and what might happen to it.

What Is Rescission?

Rescission is a process that more or less offers homeowners a chance to get out of a mortgage if they can prove it was fraudulently or deceptively originated. Specifically:

  • Deceptive & fraudulent mortgage lending: One phenomenon reported frequently during the subprime housing boom of a few years ago was lenders who allegedly lied about specific terms of mortgage loans (whether that meant concealing balloon payments, misrepresenting the nature of adjustable rate mortgages or something else), or encouraged borrowers to do so (usually by inflating their income level). Unsurprisingly, many borrowers who signed such mortgages ended up unable to make payments at some point.
  • Beginning of the foreclosure process: After a few months of failing to make mortgage payments, most homeowners will receive notice from their lenders of foreclosure proceedings. Naturally, this is not pleasant for anyone and can lead to serious stress and financial trouble for affected families.
  • Limited protections in Chapter 13 bankruptcy: While some homeowners are able to find relief from foreclosure proceedings in bankruptcy court, many others find that bankruptcy only addresses some of their problems – after all, the bankruptcy court cannot modify the terms of a mortgage loan.
  • Rescission’s foreclosure prevention: One of the few options available to many homeowners facing foreclosure, then, has been the process of rescission, which works like this: if a homeowner provides a written statement to his lender that his loan was originated fraudulently and can prove as much in court, the court may rule to cancel the terms of the current mortgage. The borrower can then take on a different loan from a different lender to repay the balance to the original creditor.

Essentially, the process of rescission allows homeowners to trade out fraudulent mortgage loans for more affordable, honestly originated ones.

The Fed’s Proposal to Change Rescission

But, as CreditBloggers reports, the Federal Reserve has proposed a change to the rescission laws that would require mortgage borrowers to repay the entirety of their fraudulent mortgage loans and only then challenge the loan’s legality.

As many consumer advocates have pointed out, this would remove much of the foreclosure-prevention potential the current rescission process offers and would prevent most ordinary homeowners from hanging on to their houses.

To learn more about the proposed rule change and the consumer advocates fighting against it, please visit the article linked to above. To learn more about your potential for relieving your mortgage debt with rescission, contact a lawyer in your area.

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Posted in Home Foreclosure | No Comments »

Wednesday, November 24th, 2010

Your Life after Foreclosure

If you, like millions of other Americans, are currently in some stage of the foreclosure process, you’re probably wondering what you can expect from life after foreclosure. The bad news is that losing a home to the bank will almost certainly have a negative impact on your credit – the good news, though, is that the current foreclosure glut means that mortgage foreclosure might not be quite as bad as it used to be.

What to Expect from Credit, Jobs, Cars and More

So which areas of your life might be affected by foreclosure action? According to a recent studies, a lot.

  • Your credit: As with a bankruptcy filing, a mortgage foreclosure will remain on your credit report for seven years – but the overall impact it has on your score and the way creditors view you should decrease with time. Because you likely won’t be able to open any new credit cards in the months and years directly following your foreclosure, it’s a good idea to keep up with payments on whatever cards you have now. Credit cards can play a central role in helping you rebuild your credit and thus qualifying for loans in the future.
  • Your career: Though some states have outlawed pre-hiring credit checks, many states still permit it, and plenty of employers take a peek at applicants’ credit histories as part of the screening process. If you’re looking for work, it’s important to be realistic and understand that your foreclosure might prevent you from getting jobs in economic fields.
  • Future purchases and loans: As mentioned above, a mortgage foreclosure will ding your credit rating in a pretty serious way, so you shouldn’t expect to qualify for a car loan or a new mortgage for a while. But that doesn’t mean you’ll be stranded on an island without any options for moving forward. The WalletPop.com post mentions one option called a “lease purchase,” wherein a person can agree to make regular rental payments to a landlord and decide, at some future point, to put those payments toward the purchase of the house.

On the Bright Side: Greater Understanding

The bright spot in all this foreclosure gloom is that, because so many Americans are currently struggling with foreclosure-related problems, more people are aware of the sorts of extenuating circumstances (like death, divorce, serious illness or injury, job loss, etc.) that can lead otherwise responsible financially individuals into mortgage foreclosure.

So, suggests the post mentioned above, don’t underestimate the power of explaining your situation to potential lenders or sellers. And, of course, don’t ever give up on rebuilding and maintaining your credit to demonstrate that you’re a good credit risk.

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Posted in Home Foreclosure | No Comments »

Monday, November 22nd, 2010

Protection from Mortgage Relief Scams from the FTC

The Federal Trade Commission announced this week that it has published new rules for companies that advertise themselves as mortgage foreclosure relief outfits. The rules, it seems, are designed to eliminate scammers from taking money from struggling homeowners.

Here’s a look at the details.

FTC: No Advance Fees, More Disclosures

The FTC’s rules include a number of provisions designed to bring more transparency to the world of foreclosure relief companies. These include:

  • A ban on upfront fees: This rule will prevent companies from taking homeowners’ money without actually offering any help. When the new rules take effect on December 13, foreclosure relief firms will be required to present consumers with a written agreement from the lender or servicer indicating that the proposed changes are acceptable and approved, as well as a written document detailing the changes.
  • Increased disclosures: In addition to the ban on advance fees, the new rules will require foreclosure rescuers to disclose more information and in a clearer format. Specifically, firms must explain that they are not affiliated with the government, that a customer’s lender might not agree to the proposed mortgage modification and that if a customer stops making regular mortgage payments it could adversely affect her credit rating and/or cause her to lose her home. Further, these companies have to disclose that customers have the right to stop doing business with the firms whenever they choose and that they have the right to reject an offer made by these firms.
  • Prohibited claims: Besides being required to disclose certain information, foreclosure rescue firms will be forbidden from making any kinds of false or misleading claims, which might include claims about their likelihood of helping a client, government affiliation, a client’s obligation to pay, refund and cancellation policies and how much the company’s services cost.
  • Attorney exemption: It should be noted that the FTC rules provide an exemption for lawyers who are properly licensed and actively practicing law in the state where the client or the client’s home is located.

More Hope for Struggling Homeowners?

The new rules come as welcome news to a nation gripped by a flailing housing market, where millions of citizens are in some phase of the foreclosure process. Hopefully, when the new rules take effect, they’ll decrease the prevalence of foreclosure rescue scams, which would in turn mean that American families would stand a better chance of finding workable solutions to keeping and staying in their homes.

It should be noted that these rules are in a similar vein to those passed earlier this year for the debt settlement industry, which, like the foreclosure rescue industry, has historically been plagued by fraudsters and scammers who wreak financial havoc on cash-strapped customers.

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Posted in Home Foreclosure | No Comments »

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