Bankruptcy trustee offers timely spending advice; MBS creator steps up as leader to clean up the mortgage-relief mess

December 21st, 2009 by Mike Hinshaw

Even though bankruptcy in Canada is a different animal than what we’re used to in the states, some parallels apply.

During the holiday season, for example, one parallel is hugely important, namely, the pressure to buy largely…

But it’s a big mistake to let meager finances get overwhelmed by holiday pressure to buy gifts and decorations and–well, all that stuff.

Canadian bankruptcy trustee Doug Hoyes posted December 4, saying that “one of our busiest phone days of the year is the first Monday back after the Christmas holidays. I assume that January 4, 2010 will be no different: the phones will be ringing off the hook.

“Why? Because we all tend to spend too much at Christmas on our credit cards, and as the bills start to arrive in January we realize that we have a serious problem. But it’s not just the bills that cause us to worry.”

As C-day approaches, the pressure may intensify. That is, you may have resisted so far, but visions of an empty area beneath the tree can make people cave in the last few days leading up to Christmas Eve and morning.

But, remember, it’s important to resist the urge to splurge.

As Hoyes says, “If you only have $50 to spend, that’s all you have, so that’s all you can spend.”

He recommends making a plan, first recognizing that, “When you had money in the past you could spend a lot on Christmas
presents. This year that may not be possible. So be realistic.”

In that regard, the most direct and easiest thing to do is simply explain the situation to your family–perhaps briefly–but certainly letting them know that the financial crisis has hit you, too, and so Christmas is being pared back this year.

Other tips from Hoyes include enjoying the spirit of giving, without resorting to credit cards or loans. Be creative: perhaps you can make gifts from inexpensive materials already on hand. Or you give coupons redeemable for shoveling a snow-filled driveway or babysitting for a harried friend or relative. “Being there” and giving of your presence and time is often more valuable than anystore-bought gift.

And by refusing to dig a deeper financial hole, you’ll be in better shape to start the new year.

Speaking of the new year, there’s encouraging news shaping up on the home-loan modification front. One of the founding
architects of the “financial engineering” that created mortgage-backed securities is taking the lead in what we think is the first
meaningful approach
to helping mortgage-crushed homeowners.

According to a December 9 Fortune piece on money/cnn.com, Lewis Ranieri is “arguably the most important figure in the creation of the modern mortgage industry that he now seeks to repair.

“At Salomon Brothers in the 1980s, Ranieri virtually invented mortgage-backed securities, the innovation that more than any other led to the explosive growth in homeownership by expanding the pool of money available for lending to buyers. As the head of the mortgage desk, Ranieri assembled a storied band of overweight, uncouth traders whose exploits were immortalized in Michael Lewis’s book ‘Liar’s Poker.’ ”

That the current relief programs are lacking is evident; so far, no program is boasting great numbers, neither the Team Obama plan, nor private lending, in general.

Maybe Ranieri feels the need to lead the cleanup of a mess he helped create: “Since his Salomon days, Ranieri has largely shunned the limelight while pursuing a variety of ventures in the mortgage business. At least until recently, when America’s real-estate-based prosperity crumbled and he went from being venerated as a legendary pioneer to being vilified for fathering the multitrillion-dollar market that went stark raving mad and sank the economy along with it.”

Regardless of the motivation, he seems pretty serious–he’s “raised $825 million from 31 foundations and corporate and public pension funds, including the South Carolina Retirement Systems, to form the Selene Residential Mortgage Opportunity Fund.”

The idea seems simplistic–and he’s not the first to think of this–”to buy delinquent mortgages at a deep discount, work with homeowners to get them paying again, and resell the now stable loans for profit.”

What is new, however, is his willingness to get off the “high center” of merely tinkering with late payments and reduced interest rates.

“To get homeowners to do their part, Ranieri is taking the radical step of substantially lowering their mortgage balances.”

The description of the team he’s assembled–as well as its goals and scope–sound even more encouraging: “The members of his team act as credit counselors, advising spendthrift borrowers to sell a second car or to change the weekly dinners at Outback Steakhouse to monthly. Selene will even pay off their credit card balances or fix the garage if it helps them pay the mortgage and keep their house.”

While Congress continues to drag its feet on reform of the Bankruptcy Reform Act, this is welcome news, indeed.

Maybe other like-minded leaders will step into the breach.

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If waiting for the various mortgage-relief programs is no longer an option, start here to read about the potential benefits of filing for bankruptcy protection.