Foreclosures Surge - Who Could Have Predicted?
Home foreclosure filings are hitting record rates nearly everywhere in the U.S. Most of the economic punditry is focusing on the woes in the sub-prime mortgage market as the cause of the problem. Perhaps that’s a part of it. But the 2005 bankruptcy bill, passed with the help of Democrats, was the gasoline that fueled the fire.
When Democratic Party senators capitulated to the finance industry in assisting the GOP to pass the draconian bankruptcy bill two years ago (I’ve previously referred to the legislation as the Indentured Servitude Act of 2005), there were many warnings of problems for credit consumers on the horizon. No one listened. The bill passed anyway, and yes, nearly two years later I’m still upset about it.
In all of the hand wringing about the sub-prime mortgage market implosion negatively impacting financial markets in general (and homeowners tied to those mortgages, in particular) , not one pundit has mentioned the delayed impact of the bankruptcy bill.
There was a time in the recent past (pre-2005) when, after all else failed financially, a homeowner could at least save their home through the Chapter 7 process. It was a win-win, really, even if the mortgage lenders bitched about it a bit. The homeowner was given a bit of breathing room to get their financial house back in order, and the mortgage lender continued to receive payments. The bottom line is that mortgage lenders might have taken a bit of a hit (or had to transfer mortgage payment arrears to the back end of a mortgage), but the money continued to flow from the mortagee to the mortgager.
My gut feel is that at least some of the problems we’re currently seeing with home foreclosures stems from the onerous requirements of the bankruptcy bill. Today, it’s being reported that home foreclosures are hitting records everywhere:
LOS ANGELES (AP) — Foreclosure filings rose 9 percent from June to July and surged 93 percent over the same period last year, with Nevada, Georgia and Michigan accounting for the highest foreclosure rates nationwide, a research firm said Tuesday…
And let’s not forget for one moment that the bill was largely written by the financial credit industry, and passed with a lot of help from the vichy wing of the Democratic Party.
I agree 100% and have been saying this since the bill passed. However the reality of this bill will hit home when millions of Americans find out that they will be making payments to banks for the rest of their lives on houses they no longer own
Dead bang on! Formerly, a debtor was able to discharge the unsecured junk (i.e. credit card) debt and retain the mortgage — get the crap out of the budget so that the important things like houses could be retained. Now, credit card debt has been elevated on a par with real debt (mortgages, child support, unpaid taxes, student loans) and is damn near impossible to discharge. As a kicker, the Congressperps also made the stay in bankruptcy (breathing room form your creditors while the case is sorted out) only effective for one month against a mortgage creditor. Usedtabe that you could have arrearages, be facing foreclosure, file a Chapter 13 plan to repay debts and stretch out the arrearage over the life of the plan, thus keeping the house and paying the bill. No more. Who is going to be our Charles Dickens?
Sign me an unemployed debtors’ attorney.
This is why Senator Biden, who voted for this atrocity, should not be under consideration as the Democratic candidate for President or VicePresident.
Now, credit card debt has been elevated on a par with real debt (mortgages, child support, unpaid taxes, student loans)
How many people have turned credit card debt, etc. into mortgage debt with “cash out” refinancing, etc. courtesy of the mortgage lenders? Not to mention our tax policy, which had the unintended effect of encouraging people to turn their house into an ATM card. (mortgage debt is deductable but not consumer debt)
ronin, if you don’t mind a little nitpick: the interest on mortgage debt is deductible.
But you’re right. These days, choosing between mortgage lenders and credit card companies is like choosing between Pretty Boy Floyd and Al Capone.
The company that now holds my 6%, 20-year, fixed-rate mortgage keeps having telemarketers call me to try to get me to switch to an ARM. The checks I make my payments with must have “stupid” in the watermark.
No, no, Richard. It’s the MBNA Debt Slavery Act.
And it’s even way worse than you may imagine. Suppose that you have $50,000 in debt which the companies decide they will never extract from you, so they forgive the debt. The IRS counts that as income and comes after you for back taxes.
No kidding.
The guy who caught the Barry Bonds record-breaking homer has to sell it (by auction) because …. if he didn’t the IRS would make him pay tax on the “value” of the baseball! Does that make sense? And there are individuals and corporations who pay NO tax by gaming the rules? The tax on a forgiven loan makes a little sense, as it it s sort of income. But the chance catching of a baseball is income??? Give me a break.
Nothing less than a complete social revolution..(throw all the bums out of Congress and the White House..get the fanatical christian soldiers out of politics) will save this country and restore it to its former glory.
I recently quit my job as a credit counselor. Credit counseling is now a required part of the bankruptcy process. I was required to charge $75 to stressed-out, cash-strapped clients to educate them on other options (debt management plans) to filing bankruptcy. Nine years ago, most credit card companies charged 0% interest when cardholders paid off their debts with debt management plans, Now, the average debt management plan interest rate is 9.9% or much higher on each credit card (several creditors didn’t reduce interest rates at all!). Not one of my clients chose debt management plans over bankruptcy since the 2005 law change. I was forced to charge a fee to tell them what they already knew and took needed cash away from them that could have bought groceries and other necessities. Of course my right wing bosses supported the law change.
We have a Discover Card we haven’t used in ten years where the debt has stayed at $4,000.00 making minimum payments. Recently I came into a small amount of money from my mother’s estate and we’ve been trying to negotiate a settlement of this debt but they aren’t budging a dime even though we’ve paid off the original debt many, many, times over. Why aren’t there stronger laws against this type of usury? Oh yeah, corporations own government, that’s why.
I lost my condo to foreclosure last year. I am on permanent disability after a long career as a licensed social worker. with an MSW My docotor advised me to file for bankruptcy in 2005 before the laws changed. Losing my home after so many years of working hard and paying my bills was devastating. I had to give away most of my possesions. I now live in a small apartment and struggle to pay prescription co-pays, even though I have Medicare. I am inundated with bills from doctors and hospitals for co-payments not covered by Medicare. It is difficult to cope with a serious illness and struggle to buy medicine and food. I don’t even know how much longer I am going to be able to afford to pay for Internet access. It is so disheartening to play by the rules, and lose everything because of illness. It could happen to anyone.
Sure, give Biden hell for his vote on this bill. But don’t stop there; Obama also voted for that travesty for certain - I’m not sure how Clinton voted.
Of course stinkers like the Indentured Servitude Act must pass two houses of Congress to become law (a presidential signature on a piece of shit like that is not at issue these days), so how did your rep vote on it? Mine supported it and we threw her ass out of the House last year. I’m with Mr. Blair - it’s not nearly soon enough to forgive and forget an affront to the citizenry as that bill.
http://www.youtube.com/watch?v=Gf-Q2rDd6Tw
Charles, no, you don’t get dinged with debt forgiveness income if you are insolvent. If you are properly advised, you don’t get it even if you are solvent after the forgiveness. Instead, you enter into a settlement agreement with the lender which amounts to a compromise, in which case there is no forgiveness of debt. No one who files Chapter 7 or Chapter 13 pays taxes on forgiven debt.
I note that one of the proposals to deal with the problem is to amend the Bankruptcy Code to permit Chapter 13 debtors to modify the terms of mortgages. This excellent idea is supported by Senator Durbin and Elizabeth Warren, who, among other things, blogs at TPM Cafe. It has many virtues, one of which is that it solves the CDO problem.
Masaccio, it was in the news. So, who am I gonna believe? Some anonymous guy on the Internet or the news?
Don’t answer that.
Wordpress is being unkind tonight, so forgive any duplicate posts.
Masaccio, I don’t say things without substantiation. It’s on MSN Money. I would provide a link if Wordpress would let me. You are in fact on the hook for forgiven debt.
The real estate market is in the toilet, I was about sell my house but that has been put on hold until things stabilize.
Hopefully we can get some better government regulation on thie whole finance area. It is hard to understand people who would trade up from their 400K house to a 700K house and do it with a mortgage plan that is sure to put them in foreclosure down the road unless they have large increases in their income in the near future.
The mindset is that they could have a new house and that’s it they never think if they can pay or not their mortgage loan.
-Jan