For years, cash-strapped individuals who sought to keep their homes by filing for bankruptcy blamed a handful of causes: heavy credit card debt, loss of a job, hefty medical bills.
Add one more to that list: higher-than-expected mortgage payments. And it already is contributing to higher bankruptcy numbers.
For the first two months of this year, the number of Hampton Roads individuals trying to hold onto a home or other major asset by means of a Chapter 13 bankruptcy jumped 84 percent to 373 from slightly more than 200 for the same period last year, according to the U.S. Bankruptcy Court's Eastern District of Virginia.
Chapter 13 of the bankruptcy code enables individuals to hold onto a home by devising a repayment plan under the court's supervision and repaying what they owe over a five-year period. Another part of the bankruptcy code, Chapter 7, allows individuals to wipe out most of what they owe but usually requires that they liquidate major assets such as homes.
Jim Pedigo, a Norfolk bankruptcy attorney, said some clients have come to him after having their adjustable-rate mortgages reset at much higher rates. Even though interest rates have moderated, these homeowners had difficulty catching up with their monthly payments once they fell behind, Pedigo said.
Jeffrey Flax, another Norfolk attorney who handles personal bankruptcies, witnessed an increasing number of homeowners squeezed by rising costs while their incomes failed to kept pace.
"Some people got into houses they really couldn't afford," Flax said. "Home values have gone down, rather than up," and these homeowners "are stuck."
The number of personal bankruptcies in Hampton Roads due to mortgage-related difficulties will continue to climb, Larry Filer, an associate professor of economics at Old Dominion University, predicted. That's because a significant number of the nation's subprime adjustable-rate mortgages will reprice at higher rates in April, said Filer, who has been studying personal bankruptcies for the past decade.
By historic measures, the volume of Chapter 13 bankruptcies filed in Hampton Roads remains modest. An abundance of credit earlier in the decade enabled many financially troubled homeowners to avoid bankruptcy by refinancing or taking out a second mortgage.
By 2006, the number of Chapter 13 filings in the region fell to slightly more than 1,000 from 4,153 three years earlier. That downturn ended abruptly last year as the availability of financing for individuals with tarnished credit evaporated. The volume of Chapter 13's jumped almost 60 percent during 2007 to more than 1,700.
Bankruptcy attorneys blame a weaker economy for part of the local rise. Although Hampton Roads' unemployment rate of 4.1 percent in January remained well below the 5.4 percent rate nationwide, many individuals involved in real estate-related jobs are working fewer hours or have taken jobs that pay much less than what they once earned, Pedigo said.
As a percentage of consumer bankruptcies filed in January and February, Chapter 13's jumped to 41 percent from a 33 percent share in the same two months of 2007. Chapter 7 filings accounted for the remainder.
Still, resorting to a Chapter 13 filing hasn't alleviated the financial pressures on many cash-strapped homeowners. That's because their homes may be worth much less than what the owners still owe on their mortgages.
For a Chapter 13 bankruptcy to work, homeowners "still have to have the income to make their mortgage payments going forward and to fund a repayment plan," Flax said.
Concerns about the nationwide surge in foreclosures have spurred proposals in Congress that would give bankruptcy judges additional powers in Chapter 13 cases. The Foreclosure Prevention Act of 2008 in the Senate and the Emergency Home Ownership and Mortgage Equity Protection Act in the House would allow judges to modify the principal of a mortgage for a primary residence and the mortgage's interest rate, steps that judges now are barred from taking. The opportunities for loan modification would be available only under certain circumstances.
Mortgage lenders, however, are opposed to providing additional powers to bankruptcy judges and argue that mortgage credit would be less available and more expensive under such an approach.
Tom Shean, (757) 446-2379, tom.shean@pilotonline.com
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Loan Modification help
A loan modification is a great alternative to foreclosure. MIZNA (loanmod.com) helped me complete a loan mod with my current lender. Of all the companies I researched to help me avoid foreclosure, MIZNA was the most credible and even had various articles written about it in large newspapers. One tip I would give other struggling homeowners looking to modify their loan is that if a loan mod company does not have a mailing address on their contact information page, then I would not do business with them. There are so many scams going on out there that borrowers should be vigilant and not trust every company that has a website. You want to make sure you’re working with real people who care. MIZNA definitely cares about homeowners and they did wonders for me. Check them out at www.loanmod.com .
Real Estate taxes
I have to ditto Steve on this on. Real Estate taxes have been double digits for the past three years. I believe that the mortgage companies will work with you. I don't believe city government will when it comes to real estate taxes. To quote Daun Hester from Norfolk city council..."get another job".
Basically it's tough cheese.
It's obvious. .
99.9% of all these people bailing out of their (the Bank's) homes, mostly deserve it. My wife and I have no kids (by choice), and we make >$100K per year, and we bought a very modest home for $235K. Too many people are ignorant about what life, "other than your house", costs. . Kids, cars, insurances, clothing, food, entertainment, maxing out a 401k, gasoline. .bla, bla. . If you can't pay for your monthly mortgage with one paycheck, you're an idiot, and deserve to lose your house, as you've spent too much.
Re-read his post
No none on this board even comes close to making the sense that danielm's staement is saying. Sure, brokers fished people in to get fees and points. They are the only ones who made any money. Gnutson is the one from below still drunk. Investors make no money if the interest is not paid. I believethe brokers bear a large part of the blame. However, the homeowners signed a contract they knew to be to good to be true. Even if they did not, they still had the paperwork available for review. They signed EVERY SINGLE PAGE. Regardless, I was just offered a reduction on my mortage of 30 years to 5.5%. I checked it out and it is legit. It's not enough to change, but it's there w/ no points. The ability to re-fi if needed is out there. Enough crying.
Rising Prices
What's choking me are the prices at the grocery store. I never thought I would pay a dollar for a lemon! I am seriously thinking of cutting my cable TV back to Cox Limited Service, and cancelling the phone service since I also have a cell phone. I have already cut out visits to my hairdresser, and not renewed a gym membership. There definitely is a domino effect, and it will not be over anytime soon. The best thing to do right now even if you are still scraping by is to live as if you had even less money, and create a cushion for harder times.
I don't blame anyone but the individual
We can blame this or that, but the real blame falls on the individual. We have become a society of entitlement. I'm entitled to this home even though I know I can't afford it. I'm entitled to 2 new cars sitting in my dirve way, credit cards maxed out to impress the neighbors and the list goes on. Sorry folks, but this is the mentality of the baby boomers and the irresponsible. When you listen to Realtors they are quick to say by mid-year the market will turn around. I don't believe a word of it. The scam/fraud was by lenders, realtors, and the "I want it anyway" crowd. Remember one thing, when it sounds to good to be true, it probably is.
Simply amazing
Interesting how no one seems to want to acknowledge or call out our local government for it's role in this debacle. My property taxes increased 2.5 fold over the past 5 years. That works out to around $375 / month. That is what is forcing me to look at leaving when the market improves. I also find it interesting that this article (like most all you read) notes that house values are falling (DUH). However, at the same time we read that the local assessors claim that values still continue to rise in this area. We all know that is absolute baloney but nobody says a thing. The local gov has as much to do with the loss of homes as does rising adjustable rates. I see these increasing tax rates at the hands of assessors (doing the bidding of local councils) no different than the recent VA Supreme Court ruling regarding illegal implementation of taxes by roadway authorities. Councils should be voting on RE tax increases..not pressuring local assessors to keep assessments up so the local goverments won't be held accountable.
Blame should be shared by all Owner Bank and Federal/local Gov
Obviously the price of homes, with few exceptions i.e, midwest Texas LA , Indiana KY and so forth... Prices have sky rocketed and we all bought into the bliss.. from the borrower/owner who feels his or her house should appreciate 15-25% each year. To the real estate agents who promised the market would not burst. Lastly the states and cities who only seen $$$$$$$ from the increased tax revenue. We should all have seen that when prices excedded incomes and inflation that the bubble would busrt and it has. The mmed wage in hampton roads at best around 50K, no more than 40% of your income should be tied to a mortgage. Most wages of the working class in Tidewater support maybe a 150k-175K mortgage. Folks when the ax finnaly falls expect to see prices much lower like in Or near Dallas TX , Indiana, Ohio... The average person living in Tidewater cannot afford over 1500 amonth in mortage without being close to falling behind or losing their home.
Bailouts
I bought my condo in 2005...30 yrs. FIXED at 6.15%
Just refi'd last week at 5.15% FIXED. I shopped around for the right place and the right loan and bought WITHIN MY MEANS. I didn't go for the "you must be blind" $0 down, no doc, interest only moron loan so I could buy the "mcmansion" down the street.
What I should have done is gotten in over my head and had someone bail me out because I made a bad decision and bought more than I could afford.
Just curious...What's being done for those of us who made a smart purchase?
Can someone spot me $20?
And the Hangover sets in
TThe night of drinking is over (the period where home values skyrocketed and many were profiting) and now it's daylight (the bubble burst). The bartenders are home ( the sub prime lenders are gone with their profits). The drinkers have a huge headache (the homeowners with mortgages they can't afford and the bankers who purchased highly risky loans) and their friends and relatives have to hear and deal with them (the taxpayers and related industries).
not a lot of room to move around
4 times is a valid point, 3 times your income is an even more conservative bet but everyone knows here on the east coast that isn't practical or feasible. one thing though, i make $26,000; no it isn't much and I am not ashamed to admit it, but that suggests I can only afford a $78,000 to $104,000 home. now in my own good conscious i can appreciate that but everyone else is like, "buy, buy, buy" everyone around you. you can't even get a mobile home for those prices around here. college dorms in this town are probably worth more than that, in fact, perhaps 90 percent of hampton roads should rent because by that logic none of us can realistically afford to buy.
Paper juggling
Here's all the paper juggling you need to know. Money in - Money out = Money left. To make Money out less, get rid of the 21 premium channels at (70 bucks a month), the gas-guzzling Escalade sitting on 21's and get a '95 Cavalier with hubcaps (450 bucks a month), look through your cell phone bill and get rid of the nickels and dimes (usually about 20 bucks a month), the stupid security system ADT scammed you on (30 bucks a month), take the furniture that you been scammed on back and get some upstanding stuff from a yard sale (100 bucks a month) and Money out = Money out - $670. This is what living in your means actually means. Someday you may actually be a homeowner, as in you own the home.
retired
Retired, don't forget than many of the people that profited heavily on the way up should now be sitting on a bunch of cash, and will sweep in on the downfall and buy lots of cheap assets. I know over half of the subprime lenders have already gone out of business, that doesn't mean the principals didn't profit. We need a bunch of jail time, but unfortunately that won't happen. Taxpayers will eat it when the politicians bail out their buddies, that *had* to know what was going on. I believe that the low upper class has no idea how most people in the country live (and this includes most politicians). When you've got $5 mil in the bank your outlook is going to be different from someone who has to work paycheck to paycheck. But they still should have known. www.ml-implode.com tracks the mortgage lenders going out of business.
NINJA loans
Many of the people who are in over their heads were recipients of the so called NINJA loans. These were mortgages that didn't require the proof of ability to pay (No Income) and didn't require proof of employment (No Job) on the Application. So the greedy mortgage brokers arranged loans to people based on the honesty of their application, or as it turned out, their dishonesty. Unless it's a case of outright fraud, I have very little sympathy for the people who hoped to be able to make payments which they probably knew they couldn't afford. If you're bringing home $2000 a month and your mortgage is $1500, guess what, folks?? Nor do I have any sympathy for the mortgage brokers or institutions that initiated the NINJA loans hoping to make a killing on the higher interest rates they were able to charge. The NINA loans are a thing of the past, and when all the foreclosures wind down, things will return to normal in the housing market.
Wow, Some of you are kind of harsh
All knowledge isn't up to the parents and teachers to teach. If you're old enough to buy a house, then you're old enough to know how to seek the knowledge yourself. Before my husband and I bought our first home, we attended more than a couple of classes to know exactly what we were getting into. In those classes, it was made very clear that ARMs can lead to great financial burden in the future, so of course we didn't go that route. I hope anyone who is currently trying or will someday attempt to purchase a home will consider taking a few classes, doing a lot of research, and learn from the mistakes of many others. Before you make any big purchase-a house, a car, even a plasma tv-understand what you're getting into and don't be too impulsive.
Yup
If you can't afford to live there, don't rob your 401k! Don't throw good money after bad! I think you can sometimes live for up to a year before they kick you out, without paying! That is a pretty good nest egg to build, living a year without paying rent/mortgage. Also, the banks need to drop prices. The only way to fix the market is crush prices, sorry but about $8 trillion in home value has to be lost to fix things. Young people don't need 50%+ of their earnings to go into housing, get off your greed old people. You had your fair share it isn't our problem to make up for excessive toys in your retirement. Leased eurotrash cars and 5000sqft homes with 2 mentally uninteresting people in them.
Lost in the 80's
Many people watched Wall Street too many times.
"Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms, greed for life, for money, for love, knowledge has marked the upward surge of mankind."
Well, times are-a-changin'.
Just delay the unavoidable
If you're living in a house you can't afford, no amount of paper juggling will allow you to stay there. All you accomplish is stretching it out and making the situation worse. Foreclosures in an over-inflated market is absolutely necessary to getting prices down and sales moving again no matter what pandering politicians say.
People's sense of entitlement
As a former bankruptcy attorney, still licensed with the bankruptcy bar, I know that many people buy when they can't afford because of a sense that they deserve more out of life than they have worked to achieve. Their irresponsibility is passed on to responsible individuals in the form of higher interest rates and tax payer bailouts. The general rule is that if your house mortgage is more than 4 times your yearly salary, you should not buy the house. These people should be forced to liquidate the house to pay their creditors or to sell the house and find one that is appropriate for their station in life.
home owners/banks to blame
Too many people bought homes that were 800,000.00 + and thought in a few years they could sell it before their interest rates went up and make tons of money!! Well greed got them no where! Banks should have never allowed arm loans-rates are too high. A risk they should have never taken.