Los Angeles Bankruptcy Blog

It’s certainly a political issue, especially in an election year. But what do we want our politicians to do about it?

A notable survey from the AARP finds that one in ten middle-aged households gets support money from their older parents.

In the telephone survey of 1,002 adults 45 and older, nearly four in 10 said they had helped a child pay bills or expenses. Among retirees, one-third said they’d helped their children pay bills. Eight percent said they’d helped a parent pay bills or expenses. The survey’s margin of sampling error was plus or minus 3 percentage points.

This is consistent with what I see every day. A downturn or job loss has people getting help from their parents or siblings.

John Stossel has some interesting thoughts about the mortgage crisis, subprime crisis, financial crisis, disaster and credit crunch.

Thoughts?

Foreclosure Prevention Act making its way through Congress has some members divided whether judges should be able to trim the loans of homeowners who are underwater with mortgages:

The Senate is poised this week to approve the housing legislation, dubbed the Foreclosure Prevention Act. Heavy on tax breaks for homeowners as well as for businesses incurring losses, the legislation has earned the ire of unions, consumers groups and other advocates for troubled borrowers, who complain that it does not do enough to help people at risk of losing their homes. Their chief objection is the absence of the bankruptcy measure, which would allow judges to trim the mortgage debts on homeowners’ primary residences.

It’s still very early to try to assess all of this. A lot of horse-trading still to be done.

How will the mortgage and credit crisis play itself out? Today’s paper offers a clue:

Like many, I’ve wondered how our home mortgage finance system will rebuild itself, and how we will be able to contain problems in the financial system so they don’t infect corporate America, lower profits, and lead to massive layoffs. The answer to these questions became much clearer to me on a recent Sunday when I drove to downtown Los Angeles and joined approximately 2,000 others in the Convention Center. They had come to participate in an open auction of 120 foreclosed homes from Los Angeles, Orange and San Diego counties. What I saw there reinforced to me that the only resolution to the crisis is to let the free market repair itself.

A number of lenders had foreclosed on and taken possession of the houses, with the objective of selling them to people at prices they could afford. They hired a company, National Home Auction, to run the show. Buyers all had to bring certified checks for $5,000 in order to participate. If they were successful in the auction, they had to post another $5,000 immediately, and then go upstairs where they were qualified for a mortgage. Once they were, the buyers moved to another room where the closing process was begun with the title and escrow company. Final closing was scheduled for 21 days later. Seventy-five percent of the homes auctioned that day have closed; would-be buyers and lender-sellers are still negotiating the rest.

It’s not pretty, but every house has a value and a selling point. The sad part is that many people who are hoping for a sale or deed in lieu or quick sale vastly over-estimate what this price point is.

In today’s WSJ, they quote the Becker-Posner blog:

Hardly a day goes by during this housing crisis that the media does not report on families in foreclosure proceedings, or in arrears in repayment on mortgages that had close to zero down payment requirements and low “teaser “ interest rates. The many excuses offered by some home owners for their plight, and also eagerly by the authors of these human interest stories, is that the borrowers did not understand that these introductory interest rates might rise a lot after a few years, or that they would have negative equity in their homes if housing prices stopped rising and began to fall. An obvious alternative explanation for their behavior is that they gambled that the good times would continue indefinitely.

Do you agree or disagree? Post your comments.

The latest information from the us trustee’s office median income regarding median family income by family size is here. Updated for cases filed after March 17, 2008.

To find out if you qualify to file bankruptcy under Chapter 7, contact a Los Angeles bankruptcy attorney.

I was particularly taken by this opinion piece that touched on the mortgage and housing crisis. A sample interesting quote was:

With liberalized credit rules, many people with limited income could access a mortgage and choose, for the first time, if they wanted to own a home. And most of those who chose to do so are hanging on to their mortgages. According to the national delinquency survey released yesterday, the vast majority of subprime, adjustable-rate mortgages are in good condition,their holders neither delinquent nor in default.

There’s no question, however, that delinquency and default rates are far too high. But some of this is due to bad investment decisions by real-estate speculators. These losses are not unlike the risks taken every day in the stock market.

What’s fascinating is when you learn the piece touching on the credit crisis was written by George McGovern.

The banks don’t want judges to re-write mortgages, saying it would raise mortgages for everyone.

The Wall Street Journal weighs in on the new bill making its way through Congress.

The AP reports that more and more people are doing the “midnight move” and just walking away from their house as the mortgage payment increases and the equity decreases. And most surprisingly, it’s not just the “subprime” borrowers doing it: people with decent credit are also considering this more and more.

That has already led to surging defaults among risky subprime borrowers who could barely afford their mortgage payments even before they got hit with the double whammy of falling home values and rising adjustable-rate loans.

Seemingly creditworthy homeowners are bailing out now, too. They aren’t following the predictable script of the past, which meant stopping payment on credit card and other debt just to keep up their mortgage obligations.

“If you go into a new home purchase with no skin in the game, with just your credit score but no money down, then you really don’t have much to lose from walking away,” said Alex Stenback, a mortgage banker in Minneapolis who writes the blog “Behind the Mortgage.”

There’s even a website to educate people to the process of bailing on their house: www.YouWalkAway.com. Seems like a trend in the making.

Over ten percent (10%) of all mortgages are underwater, according to a new study by Moody’s. This means one in ten houses is worth less than the loans.

Nearly 8.8 million homeowners, or 10.3 percent, are in over their heads, its chief economist, Mark Zandi, estimates.
As a result, millions of U.S. homeowners have the incentive to abandon their properties.

What’s best? A short sale for these underwater mortgages? There’s no easy answer.

In today’s news, another lender closes mortgage business in the United States.

From the Wall Street Journal:

TOKYO — Nomura Holdings Inc., Japan’s largest investment bank by market capitalization, said Monday it would close its New York-based residential mortgage-backed securities business, marking the latest fallout from the meltdown of subprime mortgages in the U.S.

Nomura said it would take a loss of $621 million on write-downs of residential mortgages and an additional charge of about $85 million for restructuring the business. That will swing Nomura to a pretax loss of as much as $510 million in the quarter ended Sept. 30, 2007. In the same quarter a year earlier, Nomura posted a net profit of about $2.1 billion.

As California foreclosures and mortgage defaults continue to climb, we’ll sadly be seeing more of this.

More layoffs to come.

The Office of the United States Trustee (OUST) has released the new median income figures. People who didn’t pass the Means Test before might, just might, pass after Monday next week.

The Means Test is the gatekeeper to file Chapter 7 bankruptcy.