Tag Archives: Mortgages

Mortgages – Life After Bankruptcy

Can you obtain a mortgage or refinance a mortgage after personal bankruptcy?

The New York Times dispels some myths about the effects of a bankruptcy on the filer’s ability to obtain home mortgage financing.

The article entitled, “Life After Bankruptcy” that appears in the New York Times web edition, asserts that many bankruptcy filers mistakenly believe that it will be many years before they can either obtain a home mortgage or refinance an existing home loan “because notice of a bankruptcy filing typically stays on a credit report for 7 to 10 years. In reality, they could become eligible in as little as one year, as long as they work diligently to improve their financial picture.”

The article continues, “Mortgages guaranteed by the Federal Housing Administration are permitted one year after a consumer exits a Chapter 13 bankruptcy reorganization, which requires a repayment plan that is often a fraction of what is owed, and two years after the more common Chapter 7 liquidation, which discharges most or all debts. Conventional mortgage guidelines from Fannie Mae and Freddie Mac, meanwhile, call for a wait of two to four years.”

I fully endorse this recommendation: “’There’s a lot of other things that go into your ability to get approved’” for a mortgage after a bankruptcy, said John Walsh, the president of Total Mortgage, a direct lender based in Milford, Conn.”

“The most important point, he and other industry experts say, is that consumers re-establish their credit and show that they can manage it responsibly. They can do this by paying rent and utility bills on time, or perhaps by obtaining a secured credit card, according to Mr. Walsh.”

Ideas for Action:

  • “Rebuilding credit after a personal bankruptcy will take some work. Mr. Feinstein suggests that individuals maintain or take out one or two credit cards and routinely use them. ‘If the payment’s due on the first, make sure it’s paid by the 25th’ of the previous month, he said.”
  • “Mr. Feinstein says he has seen a few clients qualify for a mortgage only two years after filing for Chapter 7, though generally borrowers can obtain a loan quicker after a Chapter 13 reorganization, because of the partial repayment of debts, he said.
    “As Mr. Walsh noted, “Chapter 13 is a little more responsible” way to go from the lenders’ perspective, so lender guidelines are a bit more lenient.”
  • “Almost 70 percent of personal bankruptcies are filed under Chapter 7, according to the American Bankruptcy Institute, a research organization. The institute data noted that last year there were 1.362 million personal bankruptcy filings nationwide, down from 1.53 million in 2010, and closer to the norm over the last 15 years. At the end of the first quarter of this year there were 311,975 filings, which is 5 percent less than the first quarter of 2011.”
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Homeless shelters see 20% increases in need – 550,000 receive aid from Federal Homeless Prevention and Rapid Re-Housing Program

[categories: Washington bankruptcy attorney]

The NY Times’ Michael Luo reported upon the extreme toll the recession has taken upon young families. See NY Times "National" Section, Pages 19 & 28, September 12, 2010.

The Federal Government knows of the problem as well. The Feds have allocated $1.5 billion to be made available to homeless prevention causes over the ensuing three years as part of the stimulus package, known as the Homeless Prevention and Rapid Re-Housing Program.

This article is striking and heartbreaking. It follows the story of Mr. and Ms. Griffith (aged 40 and 26) and their two children aged 3 and 16 months. Mr. Griffith was a hard working gentleman working two jobs. His primary $25/hour job as a waiter at a Florida Applebee’s restaurant ended when the restaurant closed. The family could not find work and returned to Providence, Rhode Island after a three day bus ride from Florida.

I was shocked at the story; living in a homeless shelter with an infant and a toddler is no freeloader’s picnic; I don’t know that I personally could survive the Griffith’s daily life. There are many, many rules at the shelter, and after three infractions of the rules the entire family is evicted – no exceptions.

The rules are easy to violate, and include rules against being found in your living quarters between 10:00 a.m. and 4:30 p.m. There is a rule against congregating around outside seating benches. If you are caught watching news programming on the TV in the common area, it is also an infraction.

The Crossroads shelter in Providence, Rhode Island (the shelter where the Griffiths reside) has seen a 20% increase in demand and occupancy for June, July and August 2010, over the same time period in 2009. Similarly, an Ohio Y.W.C.A. shelter in Columbus, Ohio, has seen similar increases in occupancy.

Homeless families jumped from 131,000 to 170,000 between 2007 and 2009.

6% Drop In Mortgage Delinquencies – only 13.52% of Households now Behind (but 1 out of 7 Remain Delinquent!)

[categories: Washington bankruptcy attorney]

The NY Time’s David Streitfeld reported on Friday, November 19, 2010, that mortgage delinquencies dipped from 14.42% of households to 13.52% of households. This works out to about a 6.0% reduction in mortgage delinquencies from Q2 2010 to Q3 2010, according to the Mortgage Bankers Association. http://www.nytimes.com/2010/11/19/business/19delinquent.html?

Likewise, seriously delinquent mortgages (in excess of 90-days) fell from 9.11% of mortgages to 8.7% of mortgages, a drop of some 4.5% overall.

Federal Reserve Bank governor Elizabeth A. Duke testified before Congress this week – the Federal Reserve expects 2.25 million foreclosure filings for each of 2010 and 2011. 2 million foreclosures are expected for 2012.

David Streitfeld reported: "…foreclosures are no longer being caused by bad [subprime] loans, which was the case for much of the recession. Now most foreclosures occur with prime loans, which are harder for banks to modify than subprime [loans]. Prime fixed-rate loans, the safest kind of loans, represented 36 percent of all new foreclosures in the third quarter, up from 30 percent in the third quarter of 2009. Meanwhile, the percentage of new foreclosures generated by the worst kind of loans, adjustedable subprime, fell sharply.

CHECK THIS OUT – MODIFICATIONS LARGELY A SHAM! – D. Streitfeld reported: "…only 24,000 hoseholds had gotten permanent new loans during October. It was the lowest number since the government’s Making Home Affordable Program was getting started last year. [ ] ..483,000 homeowners ahve gotten permanent new loans through the program; 719,000 enrolled in a trial but were either foreclosed or got a modification without government oversight.

I personall feel that banks seem to seek avoidance of the guidelines of the HAMP program, which recite a modification must meet certain criteria – so the banks seem to make up their own modification programs so as to avoid the strictures of the HAMP program. Accordingly, "Bank of America said that it modified 25,000 loans in October, up from 16,500 in September. Relatiely few were done through the government program." recites the NY Times’ David Streitfeld, in his 11/19 article.

D. Streitfeld quotes Michael Fratantoni of the Mortgage Bankers’ Association: The post-modification re-default rate of modified loans can be as high as 50% after the first year, another reason foreclosures are unlikely to decline significantly.

Mismatch of skills: There are jobs – but none for you! Especially, if you have stretched out your earlobes.

[Categories: Washington bankruptcy attorney]

Many jobs go unfilled, because of a "mismatch of skills" reports Jeff Joerres, CEO ofstaffing giant Manpower. (See USA Today, Section 1B, October 11, 2010, Paul Davidson "Jobs are starting to open up again".

Mr. Joerres is quoted: Companies are being pickier." With sales rising modestly, "There’s no big wind at thier back that says they have to hire right now…[they] want to fill it with the exact person they want."

"…employers added a net 64,000 private sector jobs in September. That’s far better than last year’s steep job losses, but less than the roughly 125,000 additions needed to lower the 9.6% unemployment rate." reports Mr. Davidson.

Mr. Davidson focuses on a case study of Gentex, a Zeeland Michigan maker of electronics and rearview mirrors for in-car technology systems. Gentex has found it nearly impossible to fill about 100 engineering positions after searching for six to nine months, and having received over 1,000 applications. The company has struggled to find skilled engineers, and it is also being very selective. Gentex’s Vice President of human resources Bruce Los recites: "If there wasn’t a good fit culturally, we would not hire them."

What does this mean to you? Ideas for action?: I think it is pretty darn obvious. For starters, take out the unusual face jewelry and laser out those tatoos! Anything even slightly offputting to employers means you will not get the job, so before you insert the earlobe-stretchers in your earlobes, think about the impact it will have on employers! And by all means take out the nose ring for your interview and don’t say anything stupid or offensive! This is the time to "fit in" and not be offputting in a job interview.

What is MERS? My Halloween thoughs on witches, lynchmobs, “Dancing with the Stars”, Arthur Miller and “The Economist” magazine.

[categories: Washington bankruptcy attorney]

MERS stands for Mortgage Electronic Registration System. It is a company based in Reston, Virginia, and its services are utilized by the mortgage industry to track mortgages and their ownership, and has been around since the late 1990s. USA Today reports that 64 million mortgages are tracked by MERS, and that about 60% of new mortgages are tracked by MERS. (See USA Today, Page 1B, October 11, 2010, "The mess gets uglier, more confusing".

When a mortgage loan is signed by the borrower, two documents are created; the first is called the promissory note (the note) and the second is the deed of trust or mortgage document (deed/mortgage). The deed/mortgage is thereafter "recorded" in the county records where the property is located, such as the Office of the Pierce County Auditor, here in Pierce County, Washington.

But what so often happens is that the loan originally written up, funded and then recorded by local Bank A, is then sold off later to Investor B, who later sells the loan to Investor C. The idea behind MERS was to reduce costs; it is expensive for Investor B to record a "Notice of Transfer/Assignment" in the Pierce County records and it is again expensive for Investor C who buys the loan from Investor B to again record another "Notice of Transfer/Assignment" in the Pierce County records. There is the cost of hiring someone to draft up the transfer/assignment document and then to pay the fees to Pierce County, which can be substantial as to recording a transfer. I believe the current fee is $11.00 for the first page and $2.00 for every page thereafter, thus a 6 page document costs $21.00 to record (please check these fees, though, I am going from memory!).

The idea behind MERS was that Bank A would send a "Notice of Transfer/Assignment" to MERS (instead of to Pierce County) regarding the transfer to Investor B and likewise MERS would receive notice from Investor B and Investor C that investor B had transferred ownership of the loan to Investor C.

If there was later a problem with the loan and a foreclosure had to be commenced, then Investor C could go collect all of the transfer/assignment documents plus perhaps even the original mortgage/deed and perhaps even the original note from MERS because MERS served as a registry and repository for these documents and transfer information, per my understanding.

MERS probably works quite well at keeping track of millions of documents and transfers, but if say Investor B and Investor C forgot to tell MERS about their transfer, then MERS might hand out inaccurate information to Investor C’s loan servicer and the loan servicer for Investor C could become confused and perhaps start a foreclosure saying "Investor B hereby commences foreclosure on parcel #12345" when in fact Investor C is truly the owner.

What does this mean to you? Well, prior to joining the lynchmob that is trying to blame the "mortgage industry", MERS and loan servicers for the rising tide of foreclosures, you should be a thoughtful and well read person and take a moment to reflect – you should separate the baby from the bathwater before throwing both out the window: MERS is not inherently evil; it is little more than a storage facility for information and in my opinion, has been doing little more than trying to keep track of who really owns what mortgage as banks, hedge funds, mutual funds, investors and institutions holding mortgages have swapped the mortgages like young boys swapping baseball trading cards.

Remember that, unfortunately, when a witch-hunt begins, it is the non-witches that pay the worst price. Consider reading or re-reading playwright Arthur Miller’s "The Crucible" before you join the mob seeking to set fire to MERS, loan servicers and the banks/investors who gave nearly every American the chance to borrow money to fulfill a dream of home ownership. ANYONE who bothered to turn off their TV and take a little time and effort to be reasonably well read could see that we were in a housing price bubble 2002-2006 – if the lynchmob was too busy watching "Dancing with the Stars" and sports on TV instead of taking a little time to slow down and read a few issues of "The Economist", then my suggestion would be that the lynchmob should extinguish their torches and take its medicine. The news about the real estate bubble was out there – the lynchmob just wasn’t listening.

You can be a thinker or you can be a mob…the choice is yours.

Floodgates Open: Foreclosure filings jump 71% in Seattle/Tacoma/Bellevue – Sharpest annual increase in the country! Housing prices sure to drop as foreclosures flood the market.

[categories: Washington bankruptcy attorney]

One in every 129 Western Washington households received a foreclosure filing notice with the largest annual increase in foreclosure filings anywhere in the country.

What does this mean to you? It means that you have little hope of your home price rising in order to allow you to pull funds out of the home to pay off credit card debt or other bills. In my estimation, your home value is going to sink like a rock at worst and stall out completely for many years, at the very best.

The next largest jump was the Chicago-Naperville-Joliet area, with a 35% annual jump, with one in every 84 households receiving a foreclosure notice.

The Washington state unemployment rate stands at about 9.0%, by official statistics, but remember that many more people that this are out of work, because people who are unable to find a job after an extended search are not counted in that 9.0%, so "real" unemployment is likely higher. Also this statistic does not well include the "underemployed" working significantly less than full time (but who would rather be working full time) or those who are working out of their normal field of labor at a reduced wage (e.g. the geologist once earning $100k annually no working as a Walmart greeter). Nationally, "official" unemployment stands at about 9.6%.

The highest foreclosure rate was in Las Vegas-Paradise, Nevada, where one in every 25 homes received a foreclosure warning in the July-September time period.

In more bad news, spending by companies on capital goods (excluding aircraft purchases) dropped 0.6% in September, after a brief rise of 4.8% in August 2010. This category is viewed as a good proxy for business investment in the economy, and it has declined in two of the last three months. New home sales are down 78% from their peak of 1.4 million homes in 2005. New home sales are at their worst level since 1963, with sales at an annual pace of only 307,000 for the month of September.

Banks have seized/fully foreclosed some 816,000 homes nationwide January 1, 2010 – September 30, 2010, and will have seized more than 1,000,000 homes by the end of the year.

Source: Tacoma News Tribune, Thursday, October 28, 2010, from Alex Veiga of The Associated Press.

Yes it will all happen again – Fannie Mae and Freddie Mac return to politicized (instead of economic) lending/refinance decisions – 21% of all HFannie Mae/Freddie Mac refinance purchases must involve lower income families.

[categories: Washington bankruptcy attorney]

The Investor’s Business Daily reported on Friday, September 3, 2010, that the federal regulator of Fannie Mae and Freddie Mac has ruled that 21% of all refinance loan purchases under must be granted to lower income families. The earlier proposal had been 25%.

The federal government took control of Fannie Mae/Freddie Mac in 2008 amid losses in large part attributable to the agencies’ political agenda to grant more loans to lower income borrowers.

With the government now running Fannie Mae/Freddie Mac pursuant to the federal takeover, it appears that the politicized lending decisions will continue. An earlier overemphasis upon lending to the economically disadvantaged was significantly responsbile for the recent Fannie Mae/Freddie Mac failures of 2008.

In this writer’s humble opinion, Freddie Mac/Fannie Mae should concentrate on lending to the strongest borrowers so as to ensure the ongoing solvency of both programs.

IDEAS FOR ACTION: If you are of lower income and wish to buy a home or obtain a refinance of your presently difficult loan, then ensure you request a Fannie Mae/Freddie Mac product by name from your mortgage broker, or better yet, appproach the Federal Housing Finance Agency yourself to see what Fannie Mae/Freddie Mac options are available to you.

PIMCO Fund financial super-guru William Gross calls for the government to encourage the widespread refinancing of all underwater mortgages – even though his own investments and investors would take a financial hit.

USA Today’s Paul Wiseman and Stephanie Armour reported on September 29, 2010, that William (Bill) Gross, managing director of investment giant PIMCO urged policymakers to "quickly engineer a refinancing opportunity for all mortgages that are current on paymetns" and guaranteed by Fannie Mae or Freddie Mac. Mr. Gross is reported to have analyzed that turning mortgages now at 5%, 6% or 7% into 4% mortgages could pump up to $60 billion into the national economy and lift housing prices by as much as 10%.

Mr. Gross’ idea is remarkable as it is seems odd it is coming from Mr. Gross. If Mr. Gross is anything, he is a "super-guru" of bond, note and mortgage backed securities investing. Mr. Gross’ advice will actually cause Mr. Gross (and those investors he advises) to lose money and value in the short term, and maybe even in the long term.

Morgan Stanley analyst/economist David Greenlaw agreed with super-guru Mr. Gross, calling such a move a "slam dunk stimulus".

Mr. Gross explained his reasoning: "Whether it’s above water or below water, it’s the same house…there would be fewer foreclosures. There would be fewer defaults. There would be fewer empty homes. … You’ll improve the quality of the houses by keeping people in them rather than forcing them to leave."

The mortgage and banking industries are expected to resist Mr. Gross’s advice because many mortgages are packaged into securities and sold to investors and are not hold by the bank/mortgage sales company that originated the mortgage. A massive refinance program pushed by the government is a "non-starter. …. It would involve breaking a contract with the investor who’s holding the existing mortgage." says Mortgage Bankers Association vice president for research and economics Michael Fratantoni.

USA Today reports that the Obama administration has shown little enthusiasm for the widespread solution recommended by Mr. Gross.

Mr. Gross’ proposal is remarkable in that he invests (and advises investors similarly invested) in the bonds and mortgage backed securities that would take a financial hit by such a widespread refinance. Mr. Gross thus seems to believe that even if bond/mortgage investors take a hit in the short run, they will ultimately be better off with a less anemic economy and higher home prices.

The same USA Today article reports that "cash out refinances" are on the decline. Q2 2006 $83.6 billion was pulled out of homes. Q2 2010 a mere $8.3 billion in cash was pulled out of homes in refinances.

See USA Today, Section B, September 29, 2010, Paul Wiseman and Stephanie Armour. (Sorry, USA Today did not offer a link to this article on their website which I was able to locate.)

IDEAS FOR ACTION: Of course resist the idea to use your home as an ATM, even if you have a modest amount of equity. If you are struggling with consumer debt or unpaid taxes, consider consulting with a consumer bankruptcy attorney and learn about Chapter 7 and Chapter 13 before you trot down the "cash out refinance" road. With the HARP refinance program, note that you may be able to refinance your higher interest rate home notwithstanding slightly rocky credit scores and significant unsecured debt. Keep your eyes and ears open for changes and improvements to the HARP Fannie Mae/Freddie Mac refinance programs in case the Obama administration should see fit to partially follow at least some of the advice of Pimco investment giant super-guru William Gross.

Lowest mortgage rates in history fail to help housing market. 11 million houses are worth less than what is owed on them and 15 million are unemployed. HARP refinance program a failure.

USA Today on September 29, 2010 set forth the grim numbers in a report by Paul Wiseman and Stephanie Armour. "Anemic demand continues to hamper real (economic) growth, " says housing analyst Robert Andrews of IBISWorld. "The housing market needs to find its true bottom before things can finally turn around."

Home sales were thought likely to strengthen after a terrible summer. But the housing market was barely registering a pulse even after 30-year, fixed-rate mortgages hit a record low 4.32% earlier in September. This does not bode well for anyone who is hoping that their home equity appreciation may offer a financial rescue.

Nearly one in four homes with mortgages are underwater – more is owed on the houses than they’re worth reports Wiseman and Armour.

They report that the 2009 Obama HARP program (Home Affordable Refinance Program) has not been effective. Under HARP, homeowners can refinance even if their mortgages are 25% higher than the value of their houses. However, two requirements hold back the success of that program. First, their mortgages must be guaranteed by Fannie Mae or Freddie Mac, and the homeowners must be up to date on their monthly payments. Federal Housing Finance Agency director James Lockhart III predicted in 2009 that HARP could help up to 4 to 5 million homeowners lower their monthly house payemnts. The program has not been effective, as only 380,000 ho
homeowners had refinanced through HARP by the end of June 2010. Note: HARP is different from a loan modification under HAMP. The programs are different.

Wiseman and Armour report that Amhearst Securities analyzed several reasons for the failure of HARP, including (1) homeowners with negative equity are struggling to come up with the funds to pay the closing costs of the new mortgage (2) the mortgage industry laid off many people and cut positions and thus cannot cope with the small surge in HARP refinance requests and (3) mortgage servicing companies are reluctant to handle home loans originally underwrittenby lenders that are now out of business.

As reported in USA Today September 29, 2010. (USA Today publishes selected articles online so I apologize that it seems no link was available to the September 29, 2010 Wiseman/Armour article "Mortgage rates fail to motivate".

IDEAS FOR ACTION: Mortgage rates have already popped up since the 4.32% low earlier this month. DO refinance now and specifically insist on the HARP program, but avoid the temptation to pull home equity out to pay credit cards and other bills if you do have any home equity. If your home equity is less than $125,000 you may be able to refinance to a lower mortgage payment and soon thereafter reduce your credit card burden with a Chapter 13 0% interest repayment plan or a Chapter 7 wipe-out of credit card debt. Do not be afraid to ask relatives and friends to help you pay closing costs associated with an HARP refinance. As cynical as it may seem, consult with a bankruptcy attorney about surrendering your "underwater" home and then buying another one in a year or two that is "right priced" to the market so that you are not paying forever on negative equity.