Credit counselors overwhelmed by U.S. mortgage crisis

[villager]

Source: Reuters

Credit counselors overwhelmed by U.S. mortgage crisis

By Andrea Hopkins Thu Mar 22, 8:26 AM ET

CINCINNATI (Reuters) - Until last year, financial counselors at the Home Ownership Center of Greater Cincinnati spent most of their time teaching Americans how to buy a first home. Now, they're deluged by broken and bereft homeowners facing foreclosure.

"Oh Lord, there is no way we can keep up with these calls," said Kaye Britton, a foreclosure counselor at the downtown nonprofit group that promotes home ownership to minority Americans, among others.

Britton has been helping clients reach the American dream of owning a home since 2002. Handmade wall signs urge would-be buyers to "sweat the small stuff" and note the lender's golden rule: "They have the gold, they make the rules."

Foreclosures were formerly rare, caused mostly by the loss of job, divorce or medical bills.

But when rising interest rates began driving up mortgage payments last year, homeowners started to feel the pain. Phones at credit counselors across the country are now ringing off the hook.

Read more: http://news.yahoo.com/s/nm/20070322/lf_nm/usa_subprime_counselors_dc

[Eurobabe]

1. Credit counselors aren't going to solve this problem. n/t

This is going to throw the US in to a recession.

[kcass1954]

2. This is what you get with "creative financing". You put people in a house that

they can barely afford to begin with, and then change the terms in 6 months or so, and this is the train wreck that happens.

I was a very conservative mortgage underwriter in a prior life (conventional/conforming stuff), and I shudder at what goes on now. I did some mortgages that didn't meet our underwriting guidelines, but not very many, and we didn't stray far. There was stuff that we just wouldn't touch - no deeply discounted ARMs, no 100% financing, no negative amortization. Not only is that stuff not good for the homeowner, but the lender loses out if foreclose happens.

[BlueIris]

28. Um, help out a non-homeowner here: "negative amortization"?

Sorry, that's one I've never heard of. It sounds pretty bad, though.

[NYC]

30. I'll try to explain simply.

When you make (regular) mortgage payments, your principal goes down. Each monthly payment pays for principal and interest. In the beginning of the 30 year mortgage, most of your monthly payment is for interest, very little for principal. As the 30 years goes on, near the end each monthly payment pays more for principal and less for interest.

Negative amortization:

Each month, your monthly payment is so small (smaller than it should be) that you are not even covering the interest portion of the mortgage. That amount gets added to the principal.

Example: You start off with a mortgage for $100,000. You make (artificially) low monthly payments. At the end of 3 years, your mortgage is for $120,000. Why? You didn't even pay enough to cover the interest on your original $100,000 mortgage so they have been adding that amount to your principal.

That is negative (going the wrong way) amortization of principal.

I hope that explains it well enough.

Edit: I just pulled numbers out of a hat, but it should give you an idea.

[BlueIris]

31. Thanks. And yikes.

That's crazy.

[melm00se]

36. NYC explained it pretty well

the underlying theory on negative amortization loans is that the property values appreciate faster than the balance increases so that the buyer can flip the house for a profit.

for a person looking to actual own the property it is a highly questionable product.

negative amortization is really an investor type product...minimum payment to allow for the property's value to increase.

many of these products allow marginal credit customers to get into a house but some of these people are not in sufficiently stable financial situations or have the necessary financial discipline to actually keep the house. (a sad situation but a real one)

[jaksavage]

3. This net is going to catch a lot of fish

It is not just po folk
Many people refinanced to pull out cash
some fools refinanced up to 125% of house value!
just find the right appraiser

this house of card is coming down
all for the greed of the finance industry
what oversight
grrrrr

[villager]

4. and you'll have a double-whammy on the buying end:

1) way more folks with no ability to afford a new/another home

2) those with the ability holding back, thinking, "why not wait 'til prices go lower?"

[jaksavage]

5. It is really sad

When the seller has to bring cash to closing.

[KansDem]

16. "way more folks with no ability to afford a new/another home"

And with credit scores used now for renting an apartment, we'll have a lot of couples/families who have very few options when trying to find a place to live after their homes are foreclosed on.

[Bozita]

8. Ditech is still running ads allowing mtg up to 125% of the home's value

Saw one yesterday. It really made me wonder.

Are these folks nuts?

[jaksavage]

10. Waiting for the bail out

Yes they are nuts
And we let them be

[Bozita]

11. That IS the only possible reason.

[Mrs. Ted Nancy]

24. You're right

It's the S&L debacle all over again.

I wonder how much this bailout is going
to cost?

[Bozita]

6. 1 out of every 21 homes in Wayne County (Detroit) is in foreclosure

according to an article in today's Detroit Free Press:

http://www.freep.com/apps/pbcs.dll/article?AID=/20070322/NEWS06/703220327&imw=Y

[happyslug]

19. That is almost 4% of all homes

1/26 = 0.038461538461538461538461538461538 or about 3.8%

That is just to high, for many homes in a depressed area like Detroit are just abandoned (i.e. No lived in, not foreclosed on for no one wants them).

[Delphinus]

25. When that happens,

how will the city ever rebound? Detroit may be the first of many cities in this situation - and still the nation sleeps.

[Scooter24]

34. And it's the complete opposite in wealthy suburbs...

at least in mine. Houses are selling quickly and sellers are making a pretty good profit.

[slackmaster]

7. As in previous business cycles, temporary agencies can help fill the void

Some of the people who are struggling to keep up with their mortgages will find employment as temporary credit counselors, repossessers, etc.

Here's a company run by a man I used to work for. Great guy, and I mean that sincerely. He specializes in, among other things, positions in mortgage servicing:

http://www.oncallemployees.com/

[Zorra]

9. Now we know exactly why the infamous Bankruptcy Bill was passed.

So hundreds of thousands, if not millions, more "peasants" can be forced into permanent debt induced indentured servitude by the finance industry, ensuring a desperate, obedient labor force that will work long hours for peanuts in order to feed and house their families.

These fascists have successfully turned the "American Dream" into the American Nightmare.

Shame and the pox on those financiers who lobbied for, and the legislators that allowed, the Bankruptcy Bill to become law. There's no way that they didn't see this coming.

The Bankruptcy law must be repealed ASAP, or we may see a modern American version of "Bastille Day" in the not so distant future.

[villager]

12. Can the Dems stop enabling the financial elites who exploit the rest of us?

n/t

[reprobate]

35. Not as long as they depend on those financial elites to finance their campaigns

[Earth_First]

13. S.256 roll call

YEA

Alexander (R-TN)
Allard (R-CO)
Allen (R-VA)
Baucus (D-MT)
Bayh (D-IN)
Bennett (R-UT)
Biden (D-DE)
Bingaman (D-NM)
Bond (R-MO)
Brownback (R-KS)
Bunning (R-KY)
Burns (R-MT)
Burr (R-NC)
Byrd (D-WV)
Carper (D-DE)
Chafee (R-RI)
Chambliss (R-GA)
Coburn (R-OK)
Cochran (R-MS)
Coleman (R-MN)
Collins (R-ME)
Conrad (D-ND)
Cornyn (R-TX)
Craig (R-ID)
Crapo (R-ID)
DeMint (R-SC)
DeWine (R-OH)
Dole (R-NC)
Domenici (R-NM)
Ensign (R-NV)
Enzi (R-WY)
Frist (R-TN)
Graham (R-SC)
Grassley (R-IA)
Gregg (R-NH)
Hagel (R-NE)
Hatch (R-UT)
Hutchison (R-TX)
Inhofe (R-OK)
Inouye (D-HI)
Isakson (R-GA)
Jeffords (I-VT)
Johnson (D-SD)
Kohl (D-WI)
Kyl (R-AZ)
Landrieu (D-LA)
Lincoln (D-AR)
Lott (R-MS)
Lugar (R-IN)
Martinez (R-FL)
McCain (R-AZ)
McConnell (R-KY)
Murkowski (R-AK)
Nelson (D-FL)
Nelson (D-NE)
Pryor (D-AR)
Reid (D-NV)
Roberts (R-KS)
Salazar (D-CO)
Santorum (R-PA)
Sessions (R-AL)
Shelby (R-AL)
Smith (R-OR)
Snowe (R-ME)
Specter (R-PA)
Stabenow (D-MI)
Stevens (R-AK)
Sununu (R-NH)
Talent (R-MO)
Thomas (R-WY)
Thune (R-SD)
Vitter (R-LA)
Voinovich (R-OH)
Warner (R-VA)

NAY

Akaka (D-HI)
Boxer (D-CA)
Cantwell (D-WA)
Corzine (D-NJ)
Dayton (D-MN)
Dodd (D-CT)
Dorgan (D-ND)
Durbin (D-IL)
Feingold (D-WI)
Feinstein (D-CA)
Harkin (D-IA)
Kennedy (D-MA)
Kerry (D-MA)
Lautenberg (D-NJ)
Leahy (D-VT)
Levin (D-MI)
Lieberman (D-CT)
Mikulski (D-MD)
Murray (D-WA)
Obama (D-IL)
Reed (D-RI)
Rockefeller (D-WV)
Sarbanes (D-MD)
Schumer (D-NY)
Wyden (D-OR)

Not Voting

Clinton (D-NY)

http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=109&session=1&vote=00044#position

[w4rma]

18. Looks like Clinton didn't want to support the average American, but also didn't want to

muss up her so-called "liberal" voting record too much.

[eridani]

33. Wasn't that when Bill had the bypass surgery? n/t

[DanWithAngel]

26. what frosts me are all the D Yea votes

ignoring that the most calculated skipped her vote, the D's in the "why" column makes no sense.

[KansDem]

17. "...ensuring a desperate, obedient labor force ..."

Watch for the rise of the "second-chance housing industry." When so many folks are left without a place to live and very few options to rent since their credit scores will be in the toilet (and credit scores are being used now to determine if someone is a good risk to rent to or not), watch for the rise of the 21st-century equivalent to the "company town" with cheap, crappy housing near overpriced stores and employment (what industries are left). And you can be absolutely certain these "company communities" will be nowhere near where the CEOs live!

[happyslug]

20. If you earn less than Median income, the Bankruptcy "Reform" had only minor affect

Today you have to go to an "Approved Credit Counseling Agency" BEFORE you file bankruptcy (Fee about $50) and after the Bankruptcy you have to attend a "Financial Management Class" fee about $50 in addition to the $299 filing fee. Other than that the Reform Act had no affect on families earning less than $40,000 (For a family of 1, more if you have a spouse and children).

For people below 150% of the poverty level even these fees are waived (For a family of one, 15,015 or less). This wavier of fees is the the First time ever, prior to the Reform Act low Income people had to pay the filing fee, now they do not.

The reason for this is the Democrats dragged the reform out so long that most of the real hardship problem were removed or minimized. The wavier of the filing fee was a HUGE improvement for low income people.

[w4rma]

22. Help the poorest. Help the richest. Kill the middle class. (nt)

[happyslug]

23. What do you mean by "Middle Class"

One of the problems with US politics is both the GOP and the Democrats use the term "Middle Class" but mean two different Groups when they are using that term. The GOP use the term "Middle Class" more or less for that same group of the population who were defined "Middle Class" in the late Middle Ages (i.e. the 10-20% of the population who earns less than the top 2-3 % of the population). The Democrats include what Europeans call the "Working Class" (i.e. those people earning more than the poor at the bottom ten percent of income earners, but less than the top 10-20 % of the population of the Rich and what we Americans call the "Upper Middle Class", but Europe calls the "Middle Class").

Median Income is about $43,000 per year (it has dropped about $2000 under Bush II). This is right in the heart of the "Working Class" (European definition), and the "Middle Class" US definition. If you are using the US divination of "Middle Class" the vast majority of Middle Class Americans benefit under the Bankruptcy reform (or suffer no adverse harm). The cost of filing and attending the two Debt Counseling class is minor compared to the Attorney's fees (Which run 500-1500 Dollars over above the $299 Filing Fee and $50-75 for the Counseling Classes).

Furthermore, the Median Income is adjusted upward based on the number of people in the Household. Heavy Debt loans are also figured into the Calculation (including Car and house payments that survive bankruptcy). Given all of the Changes in the Act as passed, only about 5-6% of all filers were affected (and many can minized the effect by buying a new car, which increase their debt load, which make them to be ruled “not Abusing the Bankruptcy System”.

Thus the people must affected are those who are making more than 75,000 dollars (and even most of these people are NOT affected, you have to make more than twice median income to be seriously affected). With Median Income less than $43,000 I can NOT bring myself to call people making more than twice that (i.e. making more than $90,000) “Middle Class” as we Americans have been using that term since WWII.

[BlueIris]

29. Oh, good luck.

The number of folks around here who actually bothered to read anything about the bankruptcy bill are few and far between. It's easier to spin economic conspiracy theories than to brush up on the facts.

[kineneb]

32. yes, fees waived for those with low income

all of our counseling fees were waived, but it still cost us $7000 to go through Chapter 7: the Trustee claimed our car and some possesions were valuable enough to sell. We now are paying my Mom back for the costs and legal fees, but at least the loan is no-interest and is $50/mo.

The kicker is that the Trustee has not discharged the funds and has not returned the attorney's staff correspondence. Next comes a call directly from the attorney, and then a lawsuit. But, we did everything right on our end.

No lectures please, from those who would have had us exercise more fiscal "responsibility". My husband was laid off from WorldCom, had End Stage Renal Disease, and is now in dialysis. There is no way we could have paid back the debts while living on SSDI. If you develop a serious chronic disease in the US, you will eventually go broke.

[lovuian]

14. I fear we will see more of these things

credit was way to free

[villager]

15. well, "free" in the "goddamn the pusher man" sense of the word...

n/t

[Bo]

21. Chapter 13 will slow down foreclosure

So will 7

[happyslug]

27. Chapter 7 slows it down about a month.

As to Chapter 13, most low income people by the time they get to a lawyer they are so far behind the Chapter 13 will fail, often within 3 months (The few Chapter 13s I have filed have all failed within that time period, some as quick as a week).

Remember to file a Chapter 13 you MUST be able to pay the ongoing Mortgage payment AND pay on the arrears (including any Attorney fees to filing the foreclosure) within 36 months (60 Months with Court permission). Most people by the time they go to a lawyer are any where from 3 months to a year in arrears. Paying the Mortgage and the arrears are just to much.

[melm00se]

37. a 7

immediately draws a "lift of stay" motion from the creditor...basically it buys you enough time to find a new place to live.

a 13 can save the day but only if your income is sufficient to make your mortgage payments + a percentage of your past dues.

[radfringe]

38. haven't seen numbers like this since.....

news clip last night regarding foreclosures/defaults/late payments on subprime mortages

Not sure who this woman worked for, but she was an official of some kind - she said "We haven't seen numbers like this since 1991"

Foreclosures may hit 1.5 million
Bob Ivry
Bloomberg News
Mar. 12, 2007 11:41 AM
http://www.azcentral.com/business/articles/0312housing-bust12-ON.html

---snip---

If this slump follows the same pattern as the last one, in 1991, it will persist for at least another year and may fuel a recession. New-home sales declined 45 percent from July 1989 to January 1991 and about 1 percent of all U.S. jobs, or 1.1 million, were lost in that recession, said Robert Kleinhenz, deputy chief economist of the California Association of Realtors.

In 1991 - poppy bush had his butt in the oval office. When alarm bells were going off regarding a recession - he put on a happy face and talked about how great the economy was doing. Our economic policy at that time was "trickle-down"

Today, we have junior with his butt in the oval office. He is also putting on a happy face and talking about how great the economy is doing. Our economic policy at this time is "trickle-down"