One of the smartest and most well respected economists around, William Fleckenstein, recently wrote a piece for MSN.com where he reiterated something we said on the YouWalkAway.com blog about 6 weeks ago…
Strategic Defaults are giving our economy a huge boost.
Ok, well we actually said “Strategic Default could save our economy”, but who’s counting. The basic premise is the same. Banks are taking their sweet time in actually taking back the estimated 8 million homes currently in default, but yet to become bank owned. As such a large number of the owners and occupants of those 8 million homes are currently living mortgage free, which frees up thousands of dollars every month. As good materialistic Americans, of course a portion of that newly found money goes to shopping, travel, eating out, etc…
All of which is very good for the economy. That’s not to say this is a long term fix, but to quote our last report on this subject:
“The plan so far as been to give banks hundreds of billions of dollars, supposedly to stop foreclosures by lowering monthly mortgage payments, start lending to small business, etc… this is supposed to keep jobs, free up a portion of peoples’ income, and so on, all of which is supposed to have the trickle down effect of giving people more money to spend on shopping, traveling, going out to eat, etc.
The problem is, banks took the money, yet refused to lend to small businesses or help homeowners by reducing principal or even lowering interest rates in most cases. So we’re left with a huge number of homes in default, the highest unemployment in decades, and the lowest consumer confidence levels since it’s been measured.
But strategic default changes all that, by taking the power from the banks and putting it back in the hands of the people, along with thousands of dollars every month.”
And this article re-iterated our point. It goes on to give real life examples – the woman who walked away from her $525k mortgage, bought a similar place for $200k, and bought herself a nice new car. The working couple who decided it didn’t make sense to keep paying on the grossly upside down mortgage and took their newly freed up money and took a family trip to NYC. I’m sure we can find countless other stories. Feel free to share yours.
But at the end of the day, no one’s saying people should strategically default so that they can buy a new car, or take a trip. At YouWalkAway.com, we urge those who are going through strategic default to pay down other debts, or save up money for a rental once the foreclosure process is completed. But, sometimes it feels good to take that vacation you’ve been putting off for years because money was too tight. After all, you only live once. If it takes strategic default for a family to feel a little less trapped and get to enjoy their life a bit more, rather than working 2-3 jobs to pay for an upside down mortgage… AND they give the economy a much needed boost in the process, sounds like there are worse things that could be going on.
Q. Dear LoanSafe, I am planning on walking away from my home in a recourse state. I make good money and can pay my mortgage, but I can’t keep paying on a home that is $100,000 underwater. My main concern is that my lender sues me to obtain a judgment and then goes after my wages. My questions are; Does wage garnishment really cost a lot on your pay check? For people with financial obligations to lenders, creditors, ex spouse and children, how much can each wage garnishment amount to? Are there limits to each garnishment? If so, by how much and how many percent?
A. Wage garnishment is a process that allows a creditor or lender to take a portion of a borrower’s wages in order to pay off an existing debt. Wages that are garnished are paid directly to the lenders by the employers. A court order is served to the debtor’s employer and this is where the amount of wage garnishment is based on. Debts that are owed to federal agencies (unpaid taxes, student loans) are usually recovered through an administrative garnishment which is a type of debt collection that doesn’t require a court order.
However, The CCPA or the Consumer Credit Protection Act has set limits on just how much money should be garnished from your pay check. For consumer debt, the federal limit deducts twenty five percent of the disposable income or any amount that is in excess of thirty times the minimum wage set by the federal government. So say for example that an employee with wages at $500 a week is subject to a weekly wage garnishment of twenty five percent or $125 every week. A person with a net weekly wage of $300 is subject to wage garnishment of $82.50 which is the amount of the weekly wages which exceeds thirty times the federal minimum wage.
The CCPA also allows a higher percentage of the employee’s weekly wages to be subject for garnishment for non consumer debts like child support, alimony (for divorce), bankruptcy orders as well as unpaid taxes. Wage garnishment in these circumstances can go as high as fifty to sixty five percent of an employee’s net wages after withholding taxes.
It is the CCPA that sets the maximum amount of permissible amounts for wage garnishments. It does not however, prevent or stop each state from protecting their citizens from very high percentages of wage garnishment. There are some states that protect its citizens by allowing to set lower limits on the percentages of the weekly or monthly income that is subject for wage garnishment. For specific states, Pennsylvania, Texas, North Carolina and South Carolina stop or prohibit wage garnishment for people who have consumer debts. However, wage garnishment is still available for non consumer debts like alimony (spousal support) as well as child support.
Q. Moe, I am trying to save my home of 13 years in Southern California. I would like to refinance my house in order to make my payments more affordable. It still has about 10% equity, but I am in foreclosure. Do you think I can obtain a mortgage in my current situation? (more…)
In part of the new health care reconciliation by the federal government, there are a lot of changes that were implemented and affect student loans nationwide. Included in these changes is what appears as a federal takeover of federal student loans.
The new law removes the federal family education loan program which cuts out private lenders. Starting July 1st, all federal loans would come from the federal direct loan program. This is because according to the congressional budget office, removing private lenders from the student loans industry would save taxpayers $61 billion for the next ten years. $10 billion of which will help a lot in reducing the federal deficit and help improve the national health industry. (more…)
The California based non-profit organization Tenants Together put out a very interesting report this week talking about some of the least publicized victims of the foreclosure process – tenants.
In many cases, tenants whose landlord end up in foreclosure are wrongfully harassed and sometimes even evicted, despite recent legislation passed aimed at protecting tenants.
The report talks about some of the changes that have been made to protect tenants in foreclosure (although many of them aren’t being followed), then goes on to give some frightening statistics, and some very good suggestions about what to do in order to protect tenants once the bank becomes their landlord.
Here are some of the stats & suggestions that really caught my eye:
- At least 37% of foreclosures in California are rental properties.
- More than 200,000 tenants in California were affected by foreclosures in 2009 alone.
- From 2008-2009 there was a 70% increase in foreclosures of apartment buildings with 5 units or more.
- Enforcement agencies must step up efforts to enforce tenant protection laws, and hold banks accountable for breaking those rules.
- California Counties should notify tenants when a notice of default is filed.
- Laws should be enacted to ensure that innocent tenants don’t harm their credit scored with involuntary evictions.
Read the full report here.
Renters are innocent victims of the foreclosure process. Horror stories of banks hiring lawyers and real estate agents to harass & threaten renters who have been living in homes that are foreclosed on are heartbreaking. The thought that many of these people hurt their credit and some even end up homeless, despite the fact that they have never missed a payment and never got themselves in over their head financially is even more so. Something needs to be done to combat this problem and enforce the laws to the banks who unjustly treat these tenants unfairly.
With our current economic crisis not showing any signs of recovery, many debtors have found themselves in a position where they can no longer properly manage their finances. Banks are now much less willing to lend out money than they were in previous years and most lenders will require that the customer has am impeccable credit rating before they will even consider lending that individual money.
This is especially true when it comes to financing a home or a vehicle. (more…)
FREDDIE MAC SVP DWIGHT ROBINSON May 17, 2010 – Many individuals who are in danger of foreclosure simply aren’t getting the help they need. Across the country, people are losing their homes and some are not responding to repeated efforts to help them. Not surprisingly, many borrowers are frustrated to the point of despair. Housing counselors may be able to help them.
Research from NeighborWorks America shows that homeowners who received credit counseling were 60 percent more likely to avoid foreclosure than those who weren’t counseled. That’s good news because it shows that credit counseling can work.
Housing counselors help millions of individuals each year regain their financial footing. These counselors often work for nonprofit organizations and are trained to assist people with their financial needs, which can include helping them better manage their debt and finding solutions if they are in foreclosure or pre-foreclosure. (more…)
Submitted by a LoanSafe reader; My husband as a CPA was approached many a time during the housing boom to help homeowners who tax returns or financial statements needed to be done to complete the loan. One mortgage broker in particular was placing a buyer combined income with his spouse was 70,000 gross into a home.
The mortgage broker was putting them into a 800K house with a 100K equity line at closing. My husband contacted the broker and told him, “These people cannot afford the house.” Reponse from broker, “I don’t care. I am making 20K on this loan. It’s their problem once they buy it.”
My husband gave the broker back the paperwork and said find someone else, I want to be able to sleep at night. They need to limit the brokers, because for 90 percent of them, its is all about the FEES, points and back door payments offered by the banks, not the customer.
WASHINGTON, D.C. (LoanSafe.org) — By July 1, all mortgage servicers participating in the Making Home Affordable Program will offer extra help for homeowners struggling to make their monthly mortgage payments because of unemployment. The Unemployment Program will offer homeowners a forbearance period to temporarily reduce or suspend their monthly mortgage payments while they seek re-employment.
The minimum forbearance period is three months, although a mortgage servicer may extend it depending on the investor and regulator guidelines. If a homeowner becomes re-employed in that time, the forbearance period will end and the homeowner will be evaluated for a mortgage modification under the Making Home Affordable Program. Unemployment benefits will no longer qualify as income for the mortgage modification program. (more…)
Q. Dear LoanSafe.org; I have been struggling to pay my mortgage for well over a year and I am now considering walking away from my property. Things have not worked out as planned and I am planning to find a rental in the near future. From what I have researched, my credit score is most likely going to go down the drain and I would hate having this horrible mark on my credit history forever. So I am wondering, how long does foreclosure stay on your credit? (more…)
(LoanSafe.org) – In Supplemental Directive 09-01, the Treasury Department (Treasury) announced the eligibility, underwriting and servicing requirements for the Home Affordable Modification Program (HAMP). Under HAMP, servicers apply a uniform loan modification process to provide eligible borrowers with sustainable monthly housing payments. This Supplemental Directive provides servicers flexibility to provide assistance to borrowers whose hardship is related to unemployment. When a borrower is unemployed, a HAMP trial period plan or permanent HAMP modification may not be appropriate, and in some cases, the borrower may not have the ability to make the required payments. (more…)
Q. Dear LoanSafe.org; I am planning to walk away from my home. But I want to stay here as long as possible. How long can I stay in my home after foreclosure?
A. This seems to be a common trend now. More and more homeowners like you are deciding the walk away and they wanna stay as long as possible. I’ve seen some people stay in their homes up to one year and some two years. But that was before the foreclosure sale had taken place. After foreclosure is another story. (more…)
(LoanSafe.org) – If you are facing default on your mortgage or foreclosure on your home, watch out for the latest scam: phony “forensic mortgage loan audits.” Con artists claim that for an upfront fee, their audits can help you hold onto your home. Don’t believe them. (more…)
It is not uncommon for a borrower’s mortgage to be sold once, twice, or even three times throughout the duration of their loan. Over the last couple of years hundreds of banks have been seized by the FDIC and this has caused a numerous amount of mortgages to be transferred to different lenders. One woman by the name of Corliss Gittens had her home loan transferred several times in the early 2000’s without having any acknowledgment of the action. (more…)
Q. Dear Moe; I’m writing you because I am in desperate need of help. In trying to save my underwater house for the past year, my wife and I have depleted all of our savings and retirement money. We have to save our home. We have been searching everywhere to find a way to borrow some money. Unfortunately, our credit is wrecked.
Do you know where I can get a quick personal loan with bad credit or do you have some money I can borrow Moe?
A. I’m sorry to hear about your unfortunate set of circumstances. Over the last three years, I’ve met many family’s going through this similar type of hardship. There’s almost nothing worse in life, than not having enough money to pay the bills or the risk of losing your home. It is one of the top stresses that any human can go through. Please realize that you’re not alone in this crisis and there are millions of Americans suffering just like you. (more…)