Changes Coming to Mortgages?

On behalf of Debt Advisors, S.C.

In a troubled economy, banks are finding that an increasing number of homeowners are unable to meet their mortgage payments. Unemployment remains high, and those that have jobs may have seen their standard of living decrease dramatically. Loans that used to be available easily to borrowers are now more difficult to obtain. Home sales have slowed and those who do find a buyer often find themselves still owing money when the transaction is complete.

Borrowing, Then and Now

During the Great Depression, many homeowners were facing foreclosure due to the system of lending in place at the time. In response, the Home Owner’s Loan Corporation (HOLC) was established. HOLC created the system of borrowing that we see today. HOLC would spread the mortgages out over a longer period of time, usually 20-25 years. This allowed for more manageable payments, and it drastically cut down on the number of foreclosures.

This type of lending works best in a strong economy. The mortgage is designed based on the assumption that people will have continuous employment throughout the duration of the typical 30-year loan. But what happens when a borrower loses his or her job? The terms of the mortgage do not change, making it difficult for the homeowner to continue to make payments. If the period of unemployment lasts for a significant time, which is surely possible in a tough job market, chances are very high that the home will end up in foreclosure.

How to Address the Problem

Critics have called for a new method of lending that takes the reality of today’s economy into consideration. Changes to the system could include allowing interest-only payments during the period of unemployment. While this would extend the time it takes for a borrower to repay the loan, it will allow the mortgage holder to receive full value. Additionally, workers could be allowed to create a flex-spend account that will allow them to withdraw their contributions in the event they become unemployed. If they never need to use the money, it could be disbursed when the borrower retires.

For those who are unemployed, the changes could allow them to remain in their homes. Many borrowers are having trouble making ends meet. By allowing borrowers to make these types of changes, it may provide them with more options when they find themselves in dire financial circumstances.

Hardest Hit Fund Expands, Still Seeking to Keep Homeowners Afloat

On behalf of Debt Advisors, S.C.

In February 2010, President Obama announced the “Hardest Hit Fund,” intended to provide assistance for homeowners in the states most affected by the downturn of the housing market and the recession. Under the program, $1.5 billion was initially allocated for innovative measures to help keep people in their homes, thereby preventing foreclosure and increasing the stability of the housing market.

At the outset, the federal government chose states for participation in this program based on two considerations. The five states selected had either higher than average unemployment rates or had experienced more than a 20 percent decline in home prices. Recognizing that the economic crisis has affected people across the country differently, each state’s Housing Finance Agency was granted the authority to distribute funds as necessary to effectively serve people in the state.

However, it quickly became apparent that this was not enough to address a problem the magnitude of the housing crisis.

In March, the program expanded to include five more states. These states were chosen because they had high concentrations of people living in areas of concentrated economic distress. The program aims to prevent what could become a tidal wave of foreclosures in these distressed communities. In August, Obama announced another $2 billion for the Hardest Hit Fund, adding five new states to the ranks of those receiving assistance.

For many, mortgages have simply become unmanageable. Between falling home values and rising unemployment rates, many individuals and families have simply become unable to meet their monthly mortgage payments, or it has become unreasonable to continue trying.

The federal government will undoubtedly keep trying to stabilize the housing market, as a strong housing market helps ensure a strong economy. However, for individual homeowners, it is important to consider personal situations. The fact that housing assistance is available does not mean that everyone should take it — for some, surrendering a home is an essential step in the financial recovery process.

If you are considering accepting housing assistance, or have questions related to bankruptcy and foreclosure, speak to a knowledgeable bankruptcy lawyer.

Will the Build America Bonds Push Cities into Bankruptcy?

On behalf of Debt Advisors, S.C.

Build America Bonds were created in 2009 as part of the American Recovery and Reinvestment Act. The federal government offered state and local issuers a 35 percent subsidy on interest costs if they sold the bonds on a taxable basis. Now the Treasury says it will reduce the subsidy by any amount the state or municipality owes the federal government.

This will force states and cities to come up with cash to pay the government at the same time that they are faced with severe budget deficits. As revenue declines faster than expenses in the recession, debt-laden cities are considering filing for Chapter 9 bankruptcy.

Chapter 9 bankruptcy was created in the wake of the Great Depression to give municipalities protection from creditors while developing a plan to pay off their debts. It is generally considered a last resort because it creates uncertainty for everyone from city employees to bondholders. By compromising the security of bonds, a traditionally low-risk investment, municipalities considering bankruptcy make it harder to raise money from investors, slowing economic recovery even more.

Detroit, Los Angeles and Miami have discussed Chapter 9 bankruptcy this year. They also have sold a combined $4.5 billion in Build America Bonds. If they lose a portion of their government subsidy, bankruptcy may become a reality for these cities. Some municipalities have raised taxes to help relieve the problem, but experts say a surge in municipality bankruptcy filings is inevitable, especially with the change to the Build America Bonds program.

Options for College Graduates Drowning in Student-Loan Debt

On behalf of Debt Advisors, S.C.

The number of college graduates with student-loan debt is increasing dramatically. The Project on Student Debt, a nonprofit research and advocacy organization, estimates that the number of college graduates with student-loan debt has increased by nine times since 1996. According to the College Board’s Trends in Student Aid study, the median debt amount for bachelor’s-degree recipients who borrowed while attending private, nonprofit colleges was $22,380.

Many student-loan borrowers find themselves in a position similar to subprime borrowers who assumed the value of their houses would always increase. Like subprime lenders, some universities enroll students without asking many questions about whether they can afford to pay the bill. If the students cannot afford the tuition, universities direct students to private, for-profit lenders who have no idea what the student might earn after graduation, just like mortgage lenders who did not verify borrowers’ incomes.

It is almost impossible to discharge student-loan debt in bankruptcy, but bills in the U.S. Senate and House of Representatives might help graduates who are drowning in student-loan debt. Under proposed changes, rules on the discharge of private loans would be less stringent than current laws, which require the debtor to prove “undue hardship.”

However, borrowers could not discharge their federal loans such as Stafford and Perkins loans because the federal government and ultimately taxpayers stand behind the loans. Also, federal loans offer various payment plans and forgiveness programs, which are generally not available from private lenders.

There are also options other than bankruptcy for people who are struggling with their student-loan debt obligations. Underemployed graduates may be able to find a flexible second job to supplement their income. Others who live in cities with a high cost of living may find some relief by moving to a cheaper area. Finally, borrowers might be able to work out a flexible or short-term payment plan by contacting their lenders directly.

Welcome to Our Wisconsin Bankruptcy Blog

On behalf of Debt Advisors, S.C.

Throughout the state of Wisconsin, the experienced bankruptcy attorneys at Debt Advisors, S.C., have helped thousands of people find debt relief. If you are faced with financial difficulties, whatever the reason for your debt, you should know that you have options for relief that include Chapter 7 and Chapter 13 bankruptcy protection. From our offices in Milwaukee, Madison, Green Bay, Oshkosh, Kenosha and Sheboygan, we can help you through this challenging time.

This Blog page is dedicated to issues concerning our clients, their injuries and how the law may impact their ability to obtain the compensation they deserve. Check back at this Blog from time-to-time to read periodic updates, posts and comments from our attorneys. Learning more about your rights can help to make important decisions about your case.

Talk with an attorney at Debt Advisors, S.C., by calling us toll free to schedule an appointment for a free initial consultation at 888-222-5615. Learn more information about bankruptcy, how it can protect you and what life will look like after your bankruptcy is over.

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