Facing bankruptcy? Want to save your house, keep your home? Sadly, 'home' may be already gone
In which I explain some background for my curiosity about bankruptcy, mortgages, unemployment, etc.
There's no soft way to say it, but the hard truth is the national mortgage and foreclosure scandal has damaged millions of lives and may damage millions more before any sort of resolution is found.
Simply put, the whole subprime thing was based on deception
From inception through cover-up, parties all along the way have been deceived, according to numerous lawsuits. Attempts to fix the problems have been bungled at almost every turn, including mangled stabs at loan modifications, communication with haughty loan servicers--themselves part of the problem--mismanagement of crucial paperwork on a scale so colossally inept it would be laughable if so many lives and real property value had not imploded. Sadly, the attempt to clean it up seems to be about as poorly managed as the original clusterbomb.
NYT calls for more inquiry, not less
As an Aug. 21 editorial in The New York Times says:
Neither Congress, nor federal regulators, nor state or federal prosecutors have yet to conduct a thorough investigation into the mortgage bubble and financial bust. We welcomed the news that the Justice Department is investigating allegations that Standard & Poors purposely overrated toxic mortgage securities in the years before the bust. We hope the investigative circle will widen.
But a lot more needs to be done to address the continuing damage from the mortgage debacle.
Tens of millions of Americans are being crushed by the overhang of mortgage debt. And Congress and the White House have yet to figure out that the economy will not recover until housing recovers and that wont happen without a robust effort to curb foreclosures by modifying troubled mortgage loans.
Instead of pushing the banks to do what is needed, the Obama administration has basically urged them to do their best to help, mainly by reducing interest rates for troubled borrowers. The banks havent done nearly enough. In many instances, they can make more from fees and charges on defaulted loans than on modifications.
The changing landscape of home-based credit
The editorial pushes for Obama to press Fannie Mae and Freddie Mac to pursue reductions of principal balances for underwater mortgage holders and to more aggressively help them refinance. Makes sense to me: I remember the shock I felt in the fall of 2008, when credit suddenly tightened up, seemingly the province of only the squeakiest-clean of FICO scorers. I had been in a weeks-long coma following a fire at my home, the house my father built, where I was raised and where I raised my children.
My own story
Because of a divorce, I had to re-mortgage the place but knew nothing of "Mortage-Backed Securities," "Credit Derivative Swaps," or any of that financial-engineering gobbledegook. Naive me: I thought America still operated, as far as home mortgages go, like the movie America we see every Christmas when George finally realizes It's a Wonderful Life. In short, I had no idea my mortgage would (or could) be sold, even numerous times, and sliced n' diced into tranches like an onion for investors who could enter the process downstream. Worse, they could cherry-pick those tranches, as if at a salad bar--then wave the meat-cleaver of lawsuits if the loan servicer even attempted to renegotiate the loan.
Pulse versus no pulse
When I signed the first re-up papers, as it turns out, the main criterion for such a loan was that the applicant had a pulse. Later, after nearly losing my own pulse, I woke up in a world in which I could not qualify for a mortgage on a new place even though I was willing to pay half-down on a much smaller, $75,000 property. (Fact: I was able to place $40,000 down on a $75, 000 property.) Can you guess the reason? (that is, beyond the "new world" in which Bear Stearns' stock had collapsed in the spring, and Lehman Brothers was about to be forced into a "voluntary" Chapter 11 bankruptcy.)
Payments refused--because of their mistakes
OK, I'll tell you. While I was in a coma, my loan was sold, once again, and the new mortgage servicer attempted to foreclose. Let me emphasize one point: I started out with Countrywide and wound up with Avelo, who transferred my note to Litton (after Avelo acknowledged screwing up my escrow); during all that period, I was never, ever late with a mortgage payment (late defined, by their own terms, as later than "the same month in which it is due"), UNTIL Avelo began refusing my payments--because they made a mistake in the escrow account. Yet, I'm in a coma, unable to respond even to my family and certainly not anything that comes by mail--and these sterling citizens try to foreclose.
I've lived it--stay tuned
In other words, I don't know about this stuff only by research; some of it, I have lived through. When I see calls, as from The New York Times, to press for grants of reduction in principal, I understand the situation. Basically, the big banks who created the destroy-equity-conspiracy got bailed out. Why them? Why not us?
Exactly who is it that's too big to fail?
Have you seen the movie, "Too Big to Fail" ? If not, I highly suggest you catch it--it raises the same question I ask: Why aren't U.S.A. workers, U.S.A. homeowners, too big to fail? Does anybody think for a minute, or even two seconds, that Wall Street could survive without us buying eggs and bread and gasoline and paying utility bills?
Next time: We'll look at more questions and news along these lines, including a shot across the bow from NACBA and updates about the 50-states' Attorneys General action against the largest mortgage lenders. Meanwhile, read on if you need help with your own bankruptcy.
Consumer bankruptcy for yourself
If you're considering filing for consumer-level bankruptcy protection, be aware that legally you can file the petition yourself. You can also hire "advocates" who can point you toward the correct forms and provide a minimal amount of information--although they can not offer legal advice. That being said, bankruptcy experts and legal authorities recommend hiring a trained, experienced attorney who keeps up with changes to the code and is familiar with all the principals in your area's bankruptcy court.
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