The five biggest lenders – Bank of America, Chase, GMAC, Citi, and Wells Fargo – have $25 billion to use giving principal reductions.

If your property is worth less than what you owe on your first mortgage and if you have had a hardship, you may qualify.

We have recently gotten principal reductions for our clients from Chase, Ocwen, Chase (EMC), and Wells Fargo.

I do telephone consultations for no charge.

With apologies to Paul Simon:

     You Just slip out the back, Jack
     Make a new plan, Stan
     You don’t need to be coy, Roy
     Just get yourself free
     Hop on the bus, Gus
     You don’t need to discuss much
     Just drop off the key, Lee
     And get yourself free
            50 Ways to Leave Your Lover

Until you get the property out of your name, you are still responsible for it, a fact recently pointed out by my colleague, Jay Fleischman.  You have to do something to get that property out of your name so you can walk away with peace of mind.  How do you do it?

As the song time suggests there are a myriad number of ways to transfer the title out of your name.  Maybe there aren’t 50 ways, but here are a few:

First, you can contact your lender to see if they would accept a Deed in Lieu of Foreclosure.  In this case, you would execute a deed transferring the property back to the lender.  Once recorded in the Land Records, you no longer own the property.  Some banks are offering a payment to homeowners to voluntarily leave their homes in a “Cash for Keys” program.  This saves the lender the time and expenses of foreclosing the property and physically putting you out on the street.  After all, time is money and in some ways, it is far cheaper to offer you money to move.  But most importantly, it takes ownership of the poreprty out of your name so you are no longer responsible for it.

Another way is a Short Sale.  A short sale is selling the priority to a third party for less than you owe.  This can be a long and difficult process because your lender will want proof of value, proof that the buyer is not related to you in any way and will insist on knowing exactly how much they will get out of the sale.  There are other details as well, like whether or not the lender is going to require some additional payment from you or whether they will allow deduction of the closing costs and attorneys fees out for he sale proceeds before they get their check.  Again, the most important part of this is that the property is transferred out of your name.

These first two steps can be taken either before or after a bankruptcy.  If after a bankruptcy discharge, you need to remember that you have discharged your debt to the lender so there is no need to pay the lender anything. But you can also use the bankruptcy process to enforce a surrender of the poperty to the lender.

In Chapter 13, this will be a component of your Plan.  Some jurisdictions allow surrender simply by saying so in the plan.  In other jurisdictions, several motions need to be filed first.  These might include a Motion to Determine the value of the secured interest.  This is important because if the lender’s debt is more than the value of the property, the lender may have a partially unsecured claim in your case which will need to be paid in the plan after surrender.  You would should include surrender language in you plan with a proposed instrument to be recorded giving up your ownership the property. Once all of this is approved by the Court, you can record the instrument eliminating your ownership in the property.  Poof!  Gone.

In Chapter 7, this can be a little trickier, but the Code provides that you must indicate your intention to redeem, reaffirm or surrender the property so it might be best to file a Motion indicating surrender and get the bankruptcy court to approve a deed or release transferring the property back the lender.  Again procedures will differ according to your jurisdiction.

There are others ways too, but “urban myths” of how this is done could get you into criminal trouble.  As always, it is important to consult a competent bankruptcy lawyer in your jurisdiction.

Thanks to Bankruptcy Law Network.

***

This can be important to condo owners who owe home owner association dues. Even if they file bankruptcy, they continue to owe HOA dues until the title is out of their name. Sometimes lenders are slow to foreclose. Meanwhile the HOA can bill and sue the debtor for the HOA dues.

That’s the cry of the “debt settlement” industry.  They claim that they will help you rid yourself of debt without bankruptcy. If you avoid the out-right crooked companies, can they do it?  Sure…

But at what cost?

There are two types of these companies. One, simply takes a portion of your monthly income, negotiates with your credit card companies to stop or lower interest, and, in return, makes a monthly payment to each company.  After several years of those payments your debts will be gone.  Assuming, of course that you can make all the monthly payments to the credit negotiator and assuming you don’t incur any new debt. Oh yes, you’ll pay them a percentage of your income to do this – often several hundred dollars or more a year.

The other type of company takes a monthly payment from you and saves it.  They notify your creditors that they are working to get them paid.  Then, once they have 50% or more of the balance owed a credit card company; they negotiate to pay off the card in full for that percentage.  This usually works although it’s nothing you can’t do yourself; and you are paying a monthly fee to allow the company to do this for you.  Since it can take several years to raise enough money to do this and the negotiating company is being paid monthly this can be quite costly.  And, of course, if you miss a payment or two, you’ll still be liable for the credit card balances.

Meanwhile, whichever of the above programs you use, your credit score won’t improve until everything is paid off.

Don’t be fooled by the claims of “nonprofit” companies.  These credit negotiators may not be a “for profit company,” but you’ll still pay for the service at a hefty monthly amount.

Now let’s compare those programs with a simply bankruptcy.  You’ll pay your attorney a one-time fee – often less than $2,000 – and your debts will be gone in 3 to 4 months.

And you’ll start rebuilding your credit score right away.

Iceland forgives mortgage debt to save its economy

by J. D. Heyes

(NaturalNews) It’s probably not a concept that most U.S. banks and lawmakers want to think about, but the fact is, Iceland’s economy has grown by leaps and bounds since the government there implemented widespread debt forgiveness for many of its citizens.

The initiative came about http://www.bloomberg.com ” target=”_blank”>following protests by Icelanders in 2008-2009 who were angry at the country’s leaders and bankers for its fiscal and economic collapse. At one point, protestors gathered around the Parliament building and pelted it with rocks.

In the ensuing months, Iceland banks have forgiven loans equaling 13 percent of the country’s annual gross domestic product, which has eased the debt burden for more than 25 percent of Iceland’s population, according to a February report published by the Icelandic Financial Services Association.

“You could safely say that Iceland holds the world record in household debt relief,” Lars Christensen, chief emerging markets economist at Danske Bank A/S in Copenhagen, told Bloomberg News. “Iceland followed the textbook example of what is required in a crisis. Any economist would agree with that.”

By any definition, the initiative has been a success.

Iceland’s slow ascent out of the economic abyss began in 2008, following an $85 billion default by the country’s banks. Its economy in 2012 will surpass that of the entire euro zone, as well as the developed world on average (including the world’s largest economy, the United States, whose economy grew at an anemic 2.2 percent in the first quarter of this year), according to an estimate by the Organization for Economic Cooperation and Development (OECD).

And, while the rest of the continent continues to drown in debt, most polls now indicate that Icelanders don’t want any part of joining the European Union, which is in its third year of debt crisis.

“The island’s households were helped by an agreement between the government and the banks, which are still partly controlled by the state, to forgive debt exceeding 110 percent of home values. On top of that, a Supreme Court ruling in June 2010 found loans indexed to foreign currencies were illegal, meaning households no longer need to cover krona losses,” Bloomberg News reported.

Lessons learned, but who’s listening?

“The lesson to be learned from Iceland’s crisis is that if other countries think it’s necessary to write down debts, they should look at how successful the 110 percent agreement was here,” Thorolfur Matthiasson, an economics professor at the University of Iceland in Reykjavik, told Bloomberg. “It’s the broadest agreement that’s been undertaken.”

He went on to say that without the agreement, homeowners would have succumbed to their debt after the ratio of obligation to income skyrocketed to 240 percent in 2008.

Iceland’s $13 billion annual economy declined 6.7 percent the following year, in 2009, but has since rebounded and will expand by 2.4 percent this year and in 2013, the OECD estimated. Meanwhile, in the rest of debt-ridden Europe, the economy will collectively expand by a paltry 0.2 percent this year and only 1.6 percent the next, OECD estimates said in November.

Housing is now just about 3 percent below values in September 2008, just before the financial collapse. So improved is the nation’s economic and fiscal outlook that Fitch Ratings in February raised the country to investment grade with a stable outlook, stating the country’s
“unorthodox crisis policy response has succeeded.”

Here’s a concept: People first

Analysts say Iceland’s approach to solving its financial and economic problems put people ahead of markets at every step.

When it was judged in October 2008 that the country’s banks could not be saved, the government stepped in immediately and fenced in domestic accounts while leaving international creditors out of the loop. “The central bank imposed capital controls to halt the ensuing sell-off of the krona and new state-controlled banks were created from the remnants of the lenders that failed,” said Bloomberg.

That said, Icelanders are still reeling from the financial carnage.

“There are still a lot of people facing difficulties; at the same time there are a lot of people doing fine,” Kristjan Kristjansson, a spokesman for Landsbankinn hf, said. “It’s nearly impossible to say when enough is enough; alongside every measure that is taken, there are fresh demands for further action.”

That may come in the form of legal action. A new leadership coalition, led by Social Democrat Prime Minister Johanna Sigurdardottir that was voted into office in early 2009, has authorities looking into who was most responsible for the banking meltdown. And parliament is still weighing whether to move forward with an indictment brought against former Prime Minister Geir Haarde in 2009 for his role in the crisis.

A new coalition, led by Social Democrat Prime Minister Johanna Sigurdardottir, was voted into office in early 2009. The authorities are now investigating most of the main protagonists of the banking meltdown.

In all, a special prosecutor has announced that as many as 90 people may be indicted, while more than 200 others, including former chief executives of the country’s three largest banks, will face criminal charges.

In the U.S., meanwhile, no top bank executives or lawmakers have faced prosecution for their roles in the subprime mortgage meltdown, though the federal Securities and Exchange Commission said in 2011 it had sanctioned 39 senior banking officials for conduct tied to the housing market collapse. Big deal.

Meanwhile, the smoke still has not cleared from the bursting housing bubble; so far, home values have declined 33 percent since peaking in 2006. Yet the best Americans can get from their leaders after being suckered into purchasing homes at what turned out to be hugely (artificially) inflated prices is a proposal by President Obama earlier this year to expand loan modifications that included “some” reductions in principal loan amounts.

Gee, thanks, guys.

Sources for this article include:

http://www.bloomberg.com

http://www.independent.ie

http://www.morningliberty.com

Thanks to Natural News.

HUD secretary says some homeowners received $100K+ in principal reductions

May 8, 2012 • 12:12pm

Some families living in the most deeply underwater states such as Nevada and California are receiving principal reductions exceeding $100,000 from the mortgage servicing settlement, Department of Housing and Urban Development Secretary Shaun Donovan said before the Senate Banking Committee Tuesday.

The statement comes after Bank of America ($7.72 -0.24%) mailed letters to more than 200,000 mortgage borrowers for potential principal reduction under the robo-signing settlement. The bank began principal reduction in March, offering 5,000 trial modifications with more than $700 million in write-downs.

“It’s not a huge number at this point, it’s in the thousands, but hundreds of thousands are now getting these letters, not just from BofA, but from all five banks,” Donovan said before the committee.

In the fourth quarter of 2011, Nevada homeowners’ loan-to-value ratio stood at 114%, the highest in the nation, according to CoreLogic ($17.10 -0.14%). And 61% of mortgage properties in the state hold outstanding balances that exceed its value, also the highest.

California’s LTV ratio was 71% in the fourth quarter, while 30% mortgage properties in the state were underwater.

It varies by location, but in a state like North Carolina, where BofA is based, families are receiving $50,000 to $100,000 in principal reduction. North Carolina’s LTV ratio was 72% in the fourth quarter, while 7% of homeowners in the state state were underwater, drastically below Nevada and California.

Many families who were being evaluated for other types of modifications were able to receive principal reduction quickly after the settlement was finalized in March.

“We are very encouraged by the pace with which implementation is moving on those servicing standard,” Donovan said.

The settlement requires that not only principal reductions occur, but that there’s demonstrated ability for a family to pay and remain in their home for at least 90 days.

“What’s critical here is not just the amount of the principal reduction, but that it gets the family to a sustainable level and keep them in their home long term,” Donovan said.

Bank of America has started sending letters to thousands of homeowners in the United States, offering to forgive a portion of the principal balance on their mortgages by an average of $150,000 each.

The reduction for qualifying homeowners could amount to monthly savings of up to 35 percent on mortgage payments, Bank of America said in a news release on Monday evening.

The principal reduction offers from Bank of America Home Loans are the result of a $25 billion settlement agreement earlier this year with 49 state attorneys general as well as federal authorities who had been investigating allegations of abuses over the handling of foreclosures.

“To the extent principal reduction and other modification tools help us turn mortgages headed for possible foreclosure into long-term performing loans, it will be positive for homeowners, mortgage investors and communities,” Ron Sturzenegger, a legacy asset servicing executive, said in the statement.

The bank said it planned to contact more than 200,000 homeowners who could be candidates for the offers, sending letters to a majority of them by the third quarter of this year.

To be eligible for the principal reductions, however, homeowners will have to meet certain criteria, including: having a loan owned or serviced by Bank of America; owing more on the mortgage than their property is worth; and being at least 60 days behind on payments as of the end of January.

In the statement, the bank said it had started making such offers in March to a narrower group of homeowners — those who were already in the process of seeking mortgage modification. The bank estimated that the earlier wave of trial reduction offers to about 5,000 people could amount to more than $700 million in forgiven principal. But homeowners have to make at least three timely payments for the reductions to become permanent.

One of the leading causes of marital conflict involves money, or lack thereof.  If you and your spouse filed a joint bankruptcy and you are now considering divorce, your respective financial positions may be at odds with each other.  One person may want the house, one may not.  Both may want the same vehicle.  Who will pay, who will not.  Think about that for a moment, if you cannot agree to get along in marriage, will you be able to agree to do the things necessary to complete your case after you divorce.  This situation places the attorney squarely in a potential conflict of interest between both spouses.  An attorney cannot serve two masters.

Conflict resolution

This conflict does not exist if only one spouse is represented in bankruptcy unless the attorney also has an attorney client representation arrangement with the other spouse on some other matter.

In a joint bankruptcy case, the attorney represents both parties.  That attorney cannot ethically pick and choose sides or plan strategy favoring one client against the other.  Even if you only want a simple question answered, a conflict of interest prevents the attorney from providing one spouse advice that could hurt the other spouse.

So what do you do?  In order to get answers on how a divorce affects you and whether you should stay in bankruptcy or convert to another form of bankruptcy or whether you should split [deconsolidate] the one joint case into two individual cases, you and your spouse will need to consult separate attorneys, on your own and by yourself.

If you deconsolidate the joint case into two separate cases, one person might choose chapter 7 and one person might choose chapter 13; both might select the same chapter; or one, or both might dismiss the case.  Because there are so many options, some attorneys will automatically withdraw to avoid a natural conflict of interest.  If you find it favorable to finish the existing case and you and your spouse can do so in agreement, your bankruptcy attorney might continue to represent you both, provided both clients knowingly waive any potential conflicts of interest in writing.

Your bankruptcy attorney is only able to stay on as attorney in the bankruptcy case so long as the two spouses act in agreement on all decisions.  However, should either of you disagree on the way the case is handled, the attorney will be forced to resign, and you will need to hire separate attorneys.

Further, your attorney will not want to discuss matters outside the presence of either of you.  That means that individual phone calls will probably not be returned and communication will most likely only occur in each other’s presence or by letter or email copied to each person.  Cooperation will be the key to a successful bankruptcy involving spouses who divorce.

Thanks to Bankruptcy Law Network.

Foreclosure and Its Income Tax Consequences

(TheNicheReport) — In a recent issue of The Niche Report I wrote an article on how to safely “walk away” from your mortgage. That article discussed consumer protection statutes, enacted by such states as California, known to lawyers and real estate professionals alike as “anti-deficiency” legislation. This legislation protects homeowners who can no longer afford to debt service their mortgage from personal liability on their mortgage and allows them to simply “walk away” from an over-encumbered or “underwater” property.

That article sparked a number of inquiries from our readers, many of whom wondered what the impact of the Internal Revenue rules on cancellation of debt had on those homeowners who elected to “walk away” from their mortgage, lost their home through foreclosure or benefited from a short-sale or modification that included a principal reduction. This article attempts to shed some light on that subject.

Generally, if a debt for which you are personally liable is canceled or forgiven, other than as a gift or bequest, you must include the canceled amount in your income.

In the context of today’s real estate market, this means that when your property is foreclosed upon or repossessed and sold, you are treated for purposes of income tax as having sold the property at the fair  market value.  Whether you ultimately have a recognizable gain for tax purposes depends upon whether you are personally liable for the debt and whether the outstanding loan balance is greater than the fair market value of the property.

When a foreclosure takes place, whether by a strategic “walk away” default or otherwise, it is common for the underlying debt securing the home to be far greater than the current fair market value of the property being foreclosed upon. Why else would someone “walk away” and allow their property to be foreclosed, but for the fact that there is no equity?

Should you lose your home by foreclosure, cancellation of debt occurs.  However, foreclosure is not the only situation in which cancellation of debt occurs. Homeowners who were able to secure a short sale or deed in lieu, or those lucky enough to have negotiated a principal reduction modification, are all subject to the Internal Revenue rules on cancellation of debt.

Given that foreclosure, short sales and modifications are pervasive in this economy, the subject of cancellation of debt is something that all homeowners must consider when deciding how to deal with their over-encumbered property.

While the general rule is that taxpayers who receive the benefit of a cancellation of indebtedness are subject to taxation for a recognizable taxable gain, fortunately there are several exclusions and exceptions which may result in part or all of the forgiven debt not being nontaxable.

The first and most often used exclusion is the “Bankruptcy” exclusion. Under this exclusion a debt cancelled as a result of filing for bankruptcy under Title 11 of the United States code would be excluded and non-taxable.

The second most common exclusion is the “Insolvency” exclusion. This provision of the IRS code provides that if the total of all your liabilities was greater than the fair market value of your assets at the time the debt was cancelled, there is no recognizable gain from the cancellation for tax purposes.

By far, however, the most important exclusion can be found in the Mortgage Debt Relief Act of 2007.   Enacted by Congress as a direct result of the crash in Wall Street, our economy and the real estate market, this legislation was specifically designed to protect those homeowners who are burdened by a mortgage they can no longer afford and a principal residence they are unable to sell.

This Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for this relief.

The provisions of this Congressional enactment apply to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.

Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.

One must be careful, however. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.  In addition, debt forgiven on second homes or rental property does not qualify for this tax-relief provision. In some cases, however, other tax-relief provisions – such as insolvency or bankruptcy – may be applicable.

More information on this subject including detailed examples can be obtained from your tax professional or found in IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17.

Mitchell Sussman

This is an article by attorney Mitchell Reed Sussman. Mitchell is a California real estate attorney specializing in real estate, foreclosure and bankruptcy. His website is http://www.palmspringslitigationattorney.com.

Thanks to Niche Report.

By Travis Waldron, Think Progress
Posted on April 20, 2012, Printed on April 21, 2012

http://www.alternet.org/newsandviews/907008/wells_fargo_insiders_detail_foreclosure_fraud_practices%3A_%E2%80%98it%E2%80%99s_exactly_like_an_assembly_line%E2%80%99

That Wells Fargo has fraudulently processed mortgage documents using a process called robo-signing has been evident for nearly two years, since scandal enveloped the mortgage industry in 2010. That it kept doing it even after the scandal broke has been known for months. The practice, at Wells Fargo and other Wall Street banks, has led to waves of improperforeclosures and a $25 billion settlement with the federal government and state attorneys general.

A new report from MSNBC, however, provided an inside account of how Wells Fargo’s robo-signing department works. Unqualified employees with salaries ranging from $30,000 to $50,000 are given titles like “vice president of loan documentation” so they can sign foreclosure documents. Actual supervisors institute quotas on employees, forcing them to sign a certain number of foreclosure files each day — sometimes telling them they can’t eat breakfast or take lunch until they’re done. Documents required for homeowners to avoid foreclosure were ignored, left sitting on an unattended fax machine.

The result: the nation’s largest mortgage servicer often improperly foreclosed on homeowners who weren’t past due or owed little interest while pushing the files out the door as fast as possible, as an insider told MSNBC:

Some families apparently were denied loan modifications after only cursory interviews, she said. Other borrowers applying for help sent comprehensive personal financial documents to a fax machine that she discovered had been unattended for weeks. Others landed in foreclosure after owing interest payments of as little as $1.18 a day, according to documents she said she reviewed. [...]

“There was one file where they weren’t even past due and they were in foreclosure status,” the loan processor said. “They’re pushing these files and pushing these files….”

The MSNBC report comes just a month after a similar report from the inspector general of the Department of Housing and Urban Development, which found many of the same occurrences at Wells Fargo. In that report, Wells Fargo allegedly put an employee who had previously sold pizza in charge of loan documentation. Worse yet, the report found that executives at the banks knew about the practices and refused to stop them.

Higher-ups at Wells Fargo, however, are still denying that these abuses take place. “No one here is asked to sign anything they don’t understand. Period. End of story,” Michael DeVito, executive vice president of Wells Fargo’s Home Mortgage Default Servicing, told MSNBC. “There’s no production quota and if a team member says, ‘I don’t understand this I’m not going to sign it,’ that’s fine.”

Another Wells Fargo employee had a different account. “It’s exactly like an assembly line,” a loan processor told MSNBC. “You sign it, you push it off to a notary, they stamp it, you put it in a box and it goes somewhere else.” The next step, unfortunately, is that someone loses their home.

© 2012 All rights reserved.
View this story online at: http://www.alternet.org/newsandviews//

WA State Supreme Court Hears Arguments in Case Against MERS

“May a party be a lawful ‘beneficiary’ under Washington’s Deed of Trust Act if it never held the promissory note secured by the Deed of Trust?”

That’s the key question the Washington State’s Supreme Court heard arguments in the potentially pivotal case, Bain v. Mortgage Electronic Registration Systems, et al and Selkowitz v. Little “Litton” Loan Servicing, LP, et al.  It’s also a form of the same question that’s been asked by countless homeowners and their lawyers as they’ve fought to prevent their homes from being lost to foreclosure over the last 3-4 years.

Go back in time fewer than five years and you’d be hard pressed to find anyone who had ever heard of Mortgage Electronic Registration Systems, but today the acronym “MERS,” is a household dirty word in American homes from coast-to-coast.

Although the mortgage banking industry would say that they created Mortgage Electronic Registration Systems for the benefit of mankind, there’s no question that its creation also provided the industry with a way to avoid having to pay the costs involved in recording mortgage transfers.  Lenders permanently list MERS as the “mortgagee of record,” and by doing so the avoid the expense of recording any subsequent transfers.

MERS makes the claim that it is both an “agent” of the lender and the “mortgagee,” but the practice has fueled a firestorm of debate over a wide range of legal issues, and although many courts seem to have accepted the MERS way… it’s often not clear whether such decisions were actually made in favor of MERS, or just against homeowners not making their mortgage payments.

What MERS does is operate a computer database that’s supposed to track mortgage servicing and the ownership rights of mortgage loans throughout the U.S.  And when I first heard that explanation, I thought… well, that sounds incredibly boring.

Frankly, as a layperson… the whole thing is kind of insane, especially when you stop to consider that although MERS would readily admit that it doesn’t own any mortgage loans… it is also the recorded owner of over half of the nation’s residential real estate.  At least I think that’s right… every time I try to understand it better, the whole thing confuses me and then I have to take a nap.

The best way to understand the issue I’ve seen…

The video below puts you in the courtroom to watch as both sides of the debate present oral arguments related to MERS’ involvement in the foreclosure process in front of the nine justices of the Washington State Supreme Court.

I found it fascinating to watch… almost as good as an episode of “Boston Legal,” in fact, the MERS lawyer kind of reminded me of Bill Shatner’s character on that show, Denny Crane.

You’ll watch the plaintiff’s attorneys who are representing homeowners at risk of foreclosure argue that MERS violates the state’s Deed of Trust Act, among other things… followed by the attorney flown in from Minnesota to appear “pro hac vice,” on behalf of defendant MERS, who basically argues that MERS isn’t the problem no matter what because no one ever needs to know who owns their loan.

I’m paraphrasing, of course, but you’ll see what I’m saying when you watch it.  It’s not quite 45 minutes long, but it feels shorter… and afterwards, I’ll pick up the discussion below and share my thoughts on the matter.

A simplified view of how we got here…

The foreclosure crisis put MERS in the national spotlight as it started filing foreclosure lawsuits on behalf of financiers and servicers against millions of American families.

These people losing homes to something using the name MERS had been told by President Obama that because of his new government program, Making Home Affordable, they would be able to get their loans modified and hence save their homes from foreclosure simply by calling their bank… assuming, of course, they weren’t “irresponsible borrowers.”

So, believing that he was both smart and “a man of the people,” they did what he said they should do… but he wasn’t, and it didn’t work.

But, more than just “didn’t work,” the experience was nothing short of torturous, and in fact, I’m quite certain that many who lived through it, would have jumped at waterboarding as an alternative.

Lawyers representing homeowners who had clearly been wronged tried turning to the courts to enforce the HAMP guidelines, but to no avail.  So, they went after anything and everything… TILA/RESPA… MERS and the failings of securitization… and most recently robo-signing related allegations are all the rage…

“I’ll take one securitization audit, and one forensic… oh… and give me one of those fraud reports too… to-go, please… how much?  Oh my.  Do you take Texaco cards?”

The thinking was obvious… judges and everyone else could see them coming a mile away… cause enough trouble for the servicers and they’d offer to modify loans and hence save homes.  And soon… when even that wasn’t working… well, then even just delaying the loss of a home was something of a win, right?

Right… wrong… it didn’t matter… homeowners not making their mortgage payments was the issue at hand, as far as the vast majority of judges went, and today, although the battle rages on fueled by words like “forgery and fraud,” the outcomes are fundamentally the same as far as homeowners at risk of foreclosure are concerned.

Oh sure, some states became better than others, and bankruptcy courts seemed to fare better than others, but homeowners became more and more confused as courts of appeals, in some cases, tooketh away, what lower courts had given.

The OCC turned out to be an acronym for the Office of Ceremonial Complacency.

Many states today have bills on their legislative calendars that could help in some ways, but banking lobbyists don’t give up a single yard without a fight.

And finally it was OCCUPY… the blunt force edition of the foreclosure defense game, but again, to most… sort of a delay with a side of pepper spray.

So… now what?  What’s next?  The UCC 9 v. UCC 3 argument?  Okay, fair enough.  Not as exciting as securitization fail and REMICs exploding all over the place, but I’m in… why not?

I don’t like it any more than anyone else, but the fact is that in 2011… a year during which in some states like New Jersey and Nevada, foreclosures were said to be down year over year by something like 80 percent, even with the servicers waiting for the settlement to be reached so they could pick up their “Get Out of Fail Free” card… even with all of the things that caused delays… foreclosures were essentially flat when compared with 2010.  Absent anything new that I’m not seeing… can you imagine how bad this year and next are going to be?

Well, of course, there is the $2,000 if you were foreclosed on in 2009-2011… do I have that right?  I think so, but every time I type that out my mind says… no, that can’t be right… and then it is.

So, in the Bain case you watched on the video… what happens if the court sides with the plaintiffs?  Says that MERS does violate the state’s Deed of Trust Act… does that save homes in a way that I’m not seeing.  Or, will the servicers just start foreclosing judicially, as they’ve done in response in Hawaii, for example.

So… I called a couple of lawyers licensed to practice in the State of Washington to ask if their views of the Bain case confirmed mine… and they did.

Please understand what I’m trying to say, because I’m not saying everyone shouldn’t fight this year and next and next and next… and harder than ever, for that matter.  I know I will…

BUT, WAIT A MINUTE… some changes have come to pass.

Like what?  Like, the new servicer standards, for one.

Remember… the servicers and their propensity to ignore the toothless HAMP guidelines is one of the main reasons we’re all here, right?  Well, now we have new servicer guidelines that are part of the settlement agreement between the 49 AGs and the five largest servicers that doesn’t quite exist as yet, but I’m willing to believe if you are.

Ever since the day that the Obama administration prematurely asseverated that the AG settlement had arrived, I’ve had only one thought on my mind… what happens if servicers don’t adhere to the new standards?

Is there a private right of action?  I don’t think so… they’re not even laws, right?  So what good are ANOTHER set of servicing guidelines related to loan modifications that no one can enforce when they’re ignored?  We’ve already got a perfectly good set of servicing guidelines related to loan modifications that no one can enforce when ignored… they’re called HAMP guidelines and they’re like new, hardly used at all.  If they were a car they might be a 2009, but they’d have no miles on them and still come with the full factory warranty and that new car smell.

Why are we troubling the servicers with having to come up with another set of guidelines they don’t have to follow?  Don’t they have enough on their plates already?  I mean… they’ve got all those foreclosures still to get handled… and without several of their biggest mills, like Stern and Baum.

Then there’s designing the next phase of document creation, that’s not going to be done in a day or two.  And I hear that some servicers may actually have to get things notarized… no, I mean for real… actually notarized.

I think we should just call the five servicers involved and tell them not to bother with the new guidelines… we don’t need them.

Either that, or we should put some pressure on our AGs and our state legislatures to give the new standards or guidelines the force of law… you know… including a private right of action for homeowners, and a provision for attorneys fees.

What are the banking lobbyists going to say in response to that?  There will never be lending again in this state?  No chance.  Plus, even if the new standards were made into state law, it would be very easy for the banks to not get sued and lose… just don’t break the new law and follow the standards you agreed to follow in the settlement, which you said you’d follow… so, what’s the problem?

To the AGs and state legislators, I would put forth that we don’t need new rules that lack teeth… that no one who agreed to them has to follow.  We’ve got plenty of those kinds of rules related to loan modifications already.  Why would the AGs oppose taking the terms and making them law?

I realize the states are gong to have “independent monitors,” but I’m not worried about the monitors getting screwed over and losing their homes… monitors aren’t being damaged by rules being broken, it’s the homeowners, silly.  They’re the ones that need to be able to assert their rights under the agreement.

And to the homeowners not at risk of foreclosures just yet…  forget about the deadbeat cracks, shouldn’t any rules of any federal program or settlement with our government be followed?  Period?  Of course they should.  So, since we KNOW the last set were ignored, let’s make these new standards into a law with a private right of action and a provision for attorneys fees and let’s see what happens from there.

Maybe with such a law and attorneys fees clause, the trial bar will get interested, and they’ve got a lobby in DC that’s pretty effective, I hear.

I know… there are allowable margins for error in the settlement agreement, and extended timeframes for compliance… but, so what?  Whatever we’ve got, make it a law… something that must be adhered to, or consequences might result.

Embrace incremental improvements…

If you’re waiting for a BIG BANG, you’re going to be waiting for a long time.  It’s become obvious that, as I’ve been saying for so long I’m tired of saying it… it’s a game of inches.

And it’s a simple game.  You hit the ball… you catch the ball.  Sometimes you win, sometimes you lose and sometimes it rains.

Well, some things are actually better.  Over 80 percent of trial modifications become permanent modifications today… that didn’t used to be true.  And I’ve checked with lawyers all over the country and they’re seeing what I’m seeing… better modifications… and principal reductions more and more.

Bank of America has started granting principal reductions as part of their loan mods.  I’ve seen eight in the last two weeks, and a dozen lawyers from around the country, including Bruce Levitt in New Jersey, have reported the same thing.  And how about BofA’s new rent-for-three-years-if-you-can’t-afford-it-any-more program?  I call it a soft landing.

And Ocwen is offering shared appreciation modifications (“SAM”) and they’re offering quite a few of them by the way.  But they are still awaiting approval from several states… it’s a requirement, I’m told.

And look… I’m not just saying this stuff to protect homeowners from bankers… I’m saying it to protect the bankers and our society too.  I just don’t believe many people can take another failed program that happened because no one followed the rules.  Last time, well… that’s one thing… it wasn’t pretty, but we made it through.

Not to put too fine a point on it but there are more than a few programs I could reference… like, dozens… that have failed so spectacularly that… and I do mean this literally… their reported outcomes would have been identical had they been administered by farm animals or house pets.  And that would be funny, were it not so entirely accurate.

Allow the same exact things to happen back-to-back and I’m not at all sure… all bets could be off.

Or… tell me I’m wrong.  I’m always willing to be wrong.  I actually like being wrong because I always learn something… and it happens so infrequently these days… lol.

Mandelman out.

Thanks to Martin Andelman.

Principal write-down talk leaves out taxpayers

Posted by Jessica Huseman on 3/30/12 at 12:32pm

All of this talk about Fannie Mae and Freddie Mac reconsidering principal reductions seems to be leaving out one major thing: Taxpayers.

Wasn’t it the stance of Ed DeMarco, acting head of the Federal Housing Finance Agency that doing principal reductions was bad because it left taxpayers on the hook? Wasn’t that his biggest reason for saying “no” to principal reductions for the last several months?

Maybe he should have gotten Fannie and Freddie on message.

The both of them are now reconsidering principal reductions due to an announcement by the Treasury that it would triple incentives for mortgage investors to do principal reductions.

“I have to say recently the Treasury sweetened the program and tremendously increased the incentive payments in their offer to us,” Freddie Mac CEO Charles “Ed” Haldeman said at HousingWire’s REThink Symposium. “We will reevaluate that to see what may be in our economic best interest. If there are very large incentive payments — which could be 50% of what you could write down — it may be in our economic self-interest to participate in that.”

The Treasury paid between $0.06 and $0.21 to the investors for each dollar forgiven under HAMP, but under the changes that will grow to between $0.18 and $0.63 cents. And those dollars start to add up, since about 4 million Fannie and Freddie loans are currently underwater.

As Capital Economics pointed out on Friday: “Of course, given that HAMP is taxpayer funded, there is no difference in the final cost to the taxpayer. And because Fannie and Freddie will probably have to seek additional bailout money from the Treasury to fund the part not covered by HAMP, the taxpayer would probably bear the entire cost.”

Principal reduction requires Fannie and Freddie to take large initial hits, but has great results in terms of getting the rest of the money back and even potentially making slightly more if the house appreciates in value. In recent testimony before the U.S. Senate Subcommittee on Housing, Transportation and Community Development, Laurie Goodman, senior managing director at Amherst Securities, called principal reductions the “most effective type of modification” as they have the highest success rate when compared to interest rate or capitalization modifications.

So, if Fannie and Freddie can cut those initial losses while still benefiting in the long run, giving in to the Treasury’s temptations would certainly be a good business move.

So it seems good business sense may be outweighing that supposed need to protect taxpayers from being a never-ending pocketbook.

But should taxpayers be put on the hook at all?

“We should never forget that the taxpayer has already poured $180 billion in the rescue of Fannie Mae and Freddie Mac,” said Mark Calabria, the director of financial regulation studies at the Cato Institute, who recently testified before the United States Senate.

That’s a lot of taxpayer dollars, and more will be added with principal reduction — even if that money comes through taxpayer dollars given to the Treasury instead of taxpayer dollars given to Fannie and Freddie.

To solve the problem of taxpayers being drained, Calabria testified that Fannie and Freddie should immediately be moved out of conservatorship and into receivership so that they can bear the brunt of their own losses. After all, they are investors.

In an email exchange with him, he said the revelations about Fannie and Freddie’s new outlook on principal reduction would still leave taxpayers on the hook, and that’s a problem.

“I think it greatly increases the odds of it happening.  But obviously it leaves the taxpayer in the same situation — still taking the loss,” he wrote.

But the Center for American Progress takes the opposite approach. They say its time to spend money now to save money later.

“But it’s important to realize that over the long run, the government-sponsored enterprises are projected to lose even more money if they don’t act today. And more than three years into the conservatorship, with no clear path for the federal government to wind down its control of Fannie and Freddie anytime soon, we need to start thinking long term,” they say.

They point out the FHFA’s own analysis which says principal reduction would save “them approximately $20 billion over the life of those loans relative to not doing anything.” But I guess that’s the point: Relative to not doing anything.

The FHFA, Fannie and Freddie are, in fact, doing something. As DeMarco has painstakingly pointed out, they are doing interest rate and capitalization modifications, so studies that pit the stats of principal reduction against letting homeowners just ride it out are functionally pointless.

jhuseman@housingwire.com

Follow her on Twitter: @JessicaHuseman

Thanks to Housing Wire.

Making Home Affordable Encourages But Does Not Require Principal Reductions

HAMP has increased financial incentives to servicers for principal reductions. However, servicers are not required to give principal reductions.

See HAMP Supplemental Directive 12-01, issued February 16, 2012.

• March 23, 2012 • 11:14am

Freddie Mac CEO Charles “Ed” Haldeman gave a strong signal Friday that new incentives from the Treasury Department may be enough to start principal reduction on mortgages backed by the government-sponsored enterprises.

In January, the Treasury said it would triple incentive payments to mortgage investors who allow principal reduction in Home Affordable Modification Program workouts. The payouts ranged between six and 21 cents to the investors for each dollar forgiven under HAMP, but that will grow to between 18 and 63 cents.

“I have to say recently the Treasury sweetened the program and tremendously increased the incentive payments in their offer to us,” Haldeman said at HousingWire’s REThink Symposium. “We will reevaluate that to see what may be in our economic best interest. If there are very large incentive payments — which could be 50% of what you could write down — it may be in our economic self-interest to participate in that.”

There are currently 11.1 million borrowers who owe more on their mortgage than the house is worth, according to CoreLogic ($16.63 0%). Of that, estimates show roughly 3.3 million of those mortgages belong to Fannie and Freddie.

The GSEs and their regulator, the Federal Housing Finance Agency, long shunned principal reduction. Their biggest fear is moral hazard — that borrowers who are still current on their underwater loan would strategically default in order to get principal written down.

“We thought principal reduction could have unintended, secondary consequences on other borrowers seeking the same kind of reduction,” Haldeman said.

One previous analysis showed the GSEs would take significant credit losses if a wide-scale program was put in place. A new analysis from the FHFA, which would cover the new HAMP incentives, is expected to be released in the coming weeks.

NPR and ProPublica reported Friday the analysis will show a reversal, that principal reduction will work for the GSEs under the new version of HAMP.

“As we complete the review, the public should understand that Fannie Mae and Freddie Mac continue to offer a broad array of assistance to troubled borrowers and have continued to implement HARP 2.0 to enhance refinancing opportunities for underwater borrowers,” FHFA said in a statement.

Treasury Secretary Timothy Geithner told a House panel this week he and FHFA Acting Director Edward DeMarco were working out their differences.

Haldeman, who announced in October he would leave his post at Freddie, said the principal reduction verdict will ultimately reside with DeMarco, but he isn’t operating on his own.

“At the end of the day, we are in conservatorship, and he is the conservator. But the way it works on a day-to-day basis is that it’s a very close collaboration. It is extremely rare that I had a different point of view than Ed DeMarco,” Haldeman said.

I’ve been meaning to tell you something for awhile now. It’s going to be a bitter pill to swallow, but it’s better that you know now rather than later.

Someone’s be spreading around this rumor, and it’s annoying as all get-out. Rather than buying a billboard in Times Square to tell you the truth, I figured I’d set it down here.

Spread it around – let’s try to kill this story for good.

File For Bankruptcy, Get A Free House!

You’re not getting a free house when you file for bankruptcy. No, I don’t care what your friend’s uncle’s brother told you – it ain’t gonna happen.

When you file for Chapter 7 bankruptcy, your personal liability for repayment of the mortgage is going to be discharged. That means you won’t be required to make payments to the mortgage company once your bankruptcy discharge is issued. You will, however, be required to make the payments if you want to keep the property.

The Truth

The mortgage company has what’s called a security interest in the property. That’s their legal way of making sure you pay the mortgage note; if you don’t pay, they get to foreclose and take back the house.

Once you file for bankruptcy and get a discharge, you get a choice – keep paying the mortgage or give back the property. The bank can get the property, but can’t collect against you. Attempting to do so is a violation of the bankruptcy discharge.

What You Need To Do

If you’re filing for Chapter 7 and the house is protected from the trustee, you need to keep making payments and keep your mortgage current. If you don’t, the bank is going to foreclose and take back the property. If that’s alright by you, just pack up your bags and move when the time comes.

If, however, you’re backed up on the mortgage or have too much equity to protect then file for Chapter 13. Under Chapter 13 you’ll be able to catch up the arrears. If you’ve got too much equity to protect in a Chapter 7 then you can structure a payment stream that will allow you to keep the house.

Either way, the house won’t be free. If it were, don’t you think everyone would be filing for bankruptcy if only for the free houses?

Thanks to Bankruptcy Law Network.

GUEST POST: Good for the Banks, Good for the Borrowers by Law Professor, Lauren E. Willis

Good for the Banks, Good for the Borrowers

By Lauren E. Willis, Professor of Law, Loyola Law School Los Angeles

February 17, 2012

Beginning in 2007, the federal government took drastic action to save the nation’s banks. The banks were underwater, with liabilities that exceeded assets by any honest accounting. In response, we committed to them not only $700 billion in much-ballyhooed TARP funds, but also, hidden from public view, trillions of dollars in loans at rates as low as .01 percent, far below what any private investor or bank would have given them.

Although the banks have made much of having paid back much (but not all) of the face value of TARP funds extended, they have not paid a market rate of interest on the money they borrowed. They have even kept what Bloomberg calculates to have been a neat $13 billion in profit from lending the money they borrowed back to American consumers and businesses at higher rates. The American people not only threw the banks a life raft, but pulled most of them ashore.

Yet over four years later, millions of American homeowners are still sinking. About twelve million homeowners are underwater, summing to the ironic number of about $700 billion. To avoid foreclosure, these homeowners will have to make, month after month, year after year, payments totaling far more than their homes are worth.

Many will not be successful. Best estimates are that if we stay on our present course, we are only half way through the foreclosures precipitated by dropping home values, and that the economy will remain in its feeble state for years. The social costs of foreclosure will roll on, increasing the tax burdens and decreasing the quality of life for all households, renter, former homeowner and current homeowner alike.

There is as yet no Troubled Asset Relief Program for homeowners, despite the Obama Administration’s many incarnations of its “Home Affordable” programs. Many Americans’ most troubled asset is their over-mortgaged home, and the government has neither committed $700 billion to help them, nor extended them .01 percent interest rate loans. The $17 billion in principal reductions just agreed to by the banks to settle charges that they lied to the courts in foreclosure documents and charged homeowners bogus fees is less than three percent of the total housing debt overhang.

But what was good for the banks would be good for homeowners, and for renters too.

How would a TARP for homeowners work? Through the power of eminent domain. Eminent domain allows the government to take private property for a public purpose, so long as the owner is paid just compensation. Eminent domain can be used to correct deficiencies in the market, particularly when they threaten public tranquility and welfare.

Homeowners trapped underwater threaten the welfare of our society. After sending inflated monthly payments off to banks, they have little left to spend each month in their communities. They cannot sell because they cannot afford to pay the mortgage balance that exceeds any price their houses could command. Stuck in place, they cannot move to cheaper housing, better jobs,
or training opportunities.

With so many Americans removed from the pool of potential buyers, those who own their homes with smaller mortgages or outright cannot sell their homes for decent prices, trapping them too in place and forcing some to delay retirement. The low house prices do not even benefit renters, who cannot easily buy – in communities that are not decimated by foreclosures, sellers cannot afford to sell, and in communities that are decimated by foreclosures, banks refuse to lend.

With everyone frozen where they were when the housing bubble burst, the workforce is not nimble enough to follow businesses that have quickly changing needs, and so American businesses outsource the work to companies in other countries – both to assemble products and to assemble the engineering teams to develop those products.

Eventually, underwater homeowners will have too little income to make their payments or will give up trying. Further foreclosures will not only drag housing prices down further, but lead to property hazards, fires, crime, and other social costs, threatening the nation’s tranquility.

The logistics of providing homeowners relief from their troubled assets are not particularly complex, and similar programs have been done before. Any jurisdiction with eminent domain authority – the federal government, state governments, or in some states, local government bodies – could do it.

Two general methods could be used, either triggered by a petition of the homeowner. One, which I first proposed in 2008, would allow the government to take primary residences at risk of foreclosure and then sell the homes back to the homeowners at current market prices, with new fixed rate mortgages that do not exceed the value of the home. Because just compensation in eminent domain is measured by the market value of the property, today’s fire-sale home prices would be a boon to this plan. Lenders and investors would receive the lesser of the mortgage balance or the amount paid by the government as just compensation.

A more elegant method, similar to one proposed by Professor Howell Jackson at Harvard Law School, would allow the government to take mortgages at risk of foreclosure, reduce the principal balances and renegotiate the terms with homeowners, without title to the home changing hands. The government would pay the lenders the market value of the mortgages, meaning what an investor today would pay for them; no investor would buy these mortgages for more than the value of the collateral securing them.

The government could sell the new or renegotiated mortgages to private investors directly or could sell bonds backed by the mortgages. So long as the government underwrites the mortgages well, with documentation of borrower income and assets, fair appraisals and monthly payments the borrowers can afford, banks and investors will buy the mortgages or bonds.
This plan is not entirely unprecedented; eminent domain has been used to boost homeownership in the U.S. before.

At one time in Hawaii, concentrated land ownership was injuring the public tranquility and welfare by preventing ordinary families from owning the property on which they lived. To fix this market failure, the state took land from large landowners and compensated them at fair market value. The state then sold the property to the families who had been living there and paying rent, offering them mortgages through the Hawaii Housing Authority. The Supreme Court had no trouble finding this to be constitutional.

Naysayers will predict that banks will never lend to homeowners again in any jurisdiction that implements this plan. But banks are not giving out many new mortgages now. A state or locality with homeowners that are no longer weighted down by excessive debt would be the best place in America to lend.

Others will say that forcing banks to realize the true deflated values of the mortgages on their books will send them back under. But history says otherwise. During the Great Depression, and against the strenuous objections and predictions of doom by creditors, the federal government nullified all clauses in contracts that pegged debt to the price of gold. By taking these contracts off the gold standard, debts were reduced by roughly 40 percent.

Economist and former Federal Reserve Board Governor Randall Kroszner examined the effects of this sweeping debt reduction and found that both stocks and bonds responded favorably. Despite their prior opposition, creditors decided that the elimination of debt overhang and the avoidance of threatened corporate bankruptcies more than offset the cost to creditors of receiving 60 cents on the dollar.

Like the abrogation of the gold standard clauses, eminent domain is a blunt instrument, one that inevitably will be more generous to some than others. Politicians may proclaim that irresponsible homeowners should not be given a helping hand. But in four years, underwater homeowners have already learned all they are going to learn, and to continue punishing them unfairly punishes the rest of us.

Now that we know the Wall Street bailout will not flow out to buoy up the rest of the country’s families and businesses, it is time to help ourselves.

# # #

Lauren E. Willis is a Professor of Law at Loyola Law School Los Angeles, and an expert on the regulation of consumer financial products, including home mortgages.

Professor Willis earned her BA with high honors in general scholarship from Wesleyan University, and her JD, with distinction and Order of the Coif, from Stanford Law School where she was on the senior staff of the Stanford Law Review, a co-founder of the Stanford Public Interest Law Students Association, and a Foreign Language and Area Studies (Russian) Fellow.  Lauren received the Block Civil Liberties Award, the Stanford Women Lawyers Scholarship, and the University Goldstein Award for Scholarship on Children at Risk. 

After law school, Lauren clerked for the Office of the Solicitor General of the United States and for Judge Francis D. Murnaghan, Jr. of the United States Court of Appeals for the Fourth Circuit.  Before coming to academia, Willis was a litigator in the Housing Section of the Civil Rights Division of the U.S. Department of Justice and worked with the U.S. Federal Trade Commission on predatory mortgage lending litigation.   She currently serves on the Research Advisory Council of the Center for Responsible Lending in Washington, D.C.

Lauren taught at Stanford Law School as a Fellow, joined the Loyola faculty in 2004, and spent the 2008 Spring semester as a Visiting Associate Professor at the University of Pennsylvania Law School.  She was honored by Loyola’s graduating day class with the 2008 Excellence in Teaching award.

In her lecture, panelist, and media appearances in the U.S., the E.U., Korea, and South Africa, Willis has discussed regulation of the U.S. home mortgage market, predatory lending, financial literacy education, behavioral decisionmaking, and a variety of consumer law topics.  She is a member of the State Bars of Maryland and Massachusetts.  Currently she teaches: Civil Procedure, Consumer Law, Contracts, and Problems and Reforms in the Home Mortgage Market.

Other papers written by Professor Willis I think you’ll find of interest…

Bankruptcy is a last resort of course.  But it is an option.  Paying back debt when you barely have enough money to survive is usually a horrible alternative.

Unless you are Suze Orman.  Ms. Orman styles herself as a financial adviser to every day folks.  And Oprah Winfrey has given her a column on the O website.   But Ms. Orman sounds more and more like she works for the credit industry, not you.

In her March, 2012 on-line column, she posted a Q&A response which makes  consumer advocates — and anyone who actually cares about their elderly family — scream.

The question was asked how to help an 81-year old woman with $8,000 of credit card debt and only $600/mo of Social Security income get out of debt.

I can think of a few ways to deal with it.  First, the lady could probably file bankruptcy.  If she has no non-exempt assets, that would be a very simple case.  But, second, she may not need to consider even that.  If she has no assets and no other income, she is judgment-proof and would not need to file bankruptcy to avoid the debt.  The creditors could not seize her Social Security for payment, for example.  And I suspect there are other options available to her.

The one answer I would not suggest for someone with that much debt compared to their income — $8,000 for a person earning only $600/mon is like Orman facing an $8 million debt — would be to try to pay it off.  But that’s what Suze said.

As she pointed out, “It’s fruitless to try to talk your way out of this; the card issuer has every right to expect repayment.”

This doesn’t really come as a surprise to some of us.  My colleague Susanne Robicsek, a Charlotte NC Bankruptcy Attorney, wrote about Suze and why her advise isn’t to be blindly followed in What Suze Orman Doesn’t Understand (About Bankruptcy) on the Bankruptcy Law Network, as did Kansas City Mo attorney Rachel Foley  and Greenville SC attorney Dana Wilkinson.

For someone like Orman who ought to know that Social Security is protected from creditor collection action — so the creditor may have a “right to expect payment” but the consumer has the right to refuse to pay from those funds too — it shows she’s not even trying to help.  She just doles out credit industry-approved guidance.  Whether it would help, do more harm than good or is even feasible in the real world doesn’t seem to matter sometimes.

Indeed, Orman not only suggested that the elderly woman divert her pittance to repaying debt, she suggested she use more debt to get out of debt.  She recommended they track down a low or no-interest card she could open and transfer the balances to.  Without saying it, the next step is likely to need to open another account, rinse, and repeat.  That’s a gamble and it puts keeping a good credit score over paying for the basics of life.  But she never hints at any other option but repayment.

In fact, Orman simply used the elderly woman’s circumstance as a way of pitching the concept of “card kiting” as viable repayment tool for anyone in debt (and to lecture us — but not the industry — about the evils of cash advance financing).

This is an easy scenario to address if you have the  consumer’s interests at heart — We already know the credit industry lost that money.  It’s gone.  Sometimes the only way to make them admit it is to file bankruptcy.  But one way or the other, only the most ruthless creditor-oriented adviser would tell an elderly woman in such straits to find a way to repay that debt and never mention non-payment or, heaven forbid!, bankruptcy.

So what does that say about Suze Orman?  Who does she really work for?  And what does it say about Oprah’s O Magazine, that it would feature this advice as “Suze’s Best Advice on Getting Out of Debt.”

Thanks to Bankruptcy Law Network

FHA refinancing program means savings for those who can qualify

The Obama administration’s new plan to stimulate refinancings of FHA mortgages is likely to help large numbers of homeowners cut their monthly…

By Kenneth R. Harney

Syndicated columnist

WASHINGTON — The Obama administration’s new plan to stimulate refinancings of FHA mortgages is likely to help large numbers of homeowners cut their monthly costs — even those who are deeply underwater. But it’s also likely to disappoint many borrowers who aren’t aware of the program’s fine print and end up missing an opportunity to switch into a loan with a rate below 4 percent.

Bankruptcy isn’t something that you think you need to do.  After all, you don’t owe that much money, or you think you can manage your debts – except for your car.  So what to do?  You have it all figured out.

You are going to voluntarily surrender your car.

No need to file bankruptcy.

That is going to help a lot, by getting that car off your back.  Right?

Wrong!

A car lender who thinks that they aren’t going to get paid wants to get their collateral back as soon as they can, with as much ease and little effort or cost as possible.  They don’t want to pay a repo man to chase the borrower, so they often make is sound like they are cooperating you, and even helping you.

Voluntary surrender is a repossession and a default of your credit agreement.  It will not only harm your credit rating, but it will also normally result in a sale of your car for much less than you could have sold it for ……. and you will owe the lender the deficiency balance, which is the difference between the price it sold for and the balance on the loan.

You might be able to work something out with your lender.  The NC Attorney General gives some good tips if you are afraid your car may be repossessed, however the list misses one big suggestion.  Call a bankruptcy lawyer to see if bankruptcy can help you keep your car, or at least avoid the deficiency debt you will owe if your car isn’t sold for enough to pay the whole balance owed.

Chapter 13 might allow you a longer period of time to pay for your car, allow you to pay without having to catch up missed payments in a lump sum, lower your monthly payments on the car to make it more affordable, and/or even reduce the total amount you pay for the car if the car is worth less than you owe.

Additionally if you are behind because you were paying other debts, those debts might be able to be written off or down so that your money is going to protect the car you need, rather than pay the credit cards you can’t afford.

Chapter 7 can also help in some circumstances, either by getting rid of the other debts described above so you can afford your car, but you might have to catch up payments or reach an agreement with your car lender if you are behind, which might be done via a reaffirmation agreement.   Be aware that how courts treat car loans and reaffirmations vary from state to state, district to district, so it is good to have a bankruptcy lawyer familiar with your area to guide you.

You really want to consider this option while you still have your car – while not impossible to get it back (sometimes) after repossession, it is much easier to avoid the problem and protect the car from being picked up in the first place.

The Attorney General points out not to wait, but if you don’t seek the help of a bankruptcy lawyer soon enough, you might miss your opportunity there too.  I see a lot of people who tried to avoid filing bankruptcy or didn’t know that they could file and save their car.

Instead, they ended up filing for bankruptcy because they couldn’t pay for their car, and they lost their car to boot.

Thanks to Bankruptcy Law Network.