Balky Lenders: Part 2–What happened to Del Phillips?

July 14th, 2010 by Mike Hinshaw

[Editor's Note: This is the conclusion of a two-part look at the difference between home mortgage delinquencies of the wealthy--which are on a dramatic rise--and alternatives for the less well-to-do. Part 1 is here.]

Maybe ‘shrewdness’ is breaching class lines

One guy who doesn’t care about credit ratings and FICO scores–anymore–is a former public affairs worker named Del Phillips who tried to stay in his Chicago home by working out a loan modification, even after he had lost his job.

This is a from a June 25 piece in the Chicago Tribune, and, boy, talk about sneaky…check out this lender:

Phillips bought the one-bedroom condo, tucked into a Lakeview courtyard building, in May 2007 for $212,500, securing a first mortgage of $159,375 and a $53,125 second note, both from Chase Bank, according to county records. In January 2009, he lost his public affairs job, began drawing on his savings and, in April 2009, after the government began its Home Affordable Modification Program, applied for a mortgage loan modification from Chase.

Customer service representatives with Chase, he said, told him to keep paying the monthly mortgage of about $1,400 while he awaited a decision on his application. In September, the still-unemployed Phillips was turned down for a modification because, as the letter stated, his hardship “is not of a permanent nature.”

It’s a common, Catch-22 tactic that lenders commonly use: pressure the homeowner to maintain regular payments regardless of the personal hardship and sacrifice, only to later deny a loan mod because the homeowner has maintained payments–thereby demonstrating no financial hardship.

And the lender had yet more tactics at its disposal:

Phillips decided to stop paying the mortgage and try to sell his condo in a short sale, in which a homeowner sells the property, with the lender’s approval, for less than the amount owed on the mortgage. A short sale typically does not tarnish an individual’s credit history as much as a foreclosure.

Short sales and second notes

Short sales can indeed be an alternative, but not with a balky holder of a second note as explained here, in May 2009 FindLaw piece: “Going back to the issue at hand, what is a short-sale? We discussed the basics of a short-sale in a blog post last year. A short-sale is a foreclosure alternative for distressed homeowners, whereby a distressed homeowner can sell their home for less than they owe on their mortgage, if the lender agrees to the sale.

“A problem with short-sale solution, however, lies in the second mortgage, where it might not always be so easy to convince the holder of a lesser mortgage (for example, a home equity line of credit (HELOC)) to drop the loan. As a result, the short sale remedy isn’t used as much as it could be, to assist distressed homeowners.”

But, lo and behold, Phillips got a decent short-sale offer and dang if the lender didn’t approve it.

Well, of course, with a catch: “Chase notified Phillips that it would still have the legal right to pursue him at a later date for the approximately $54,000 owed on the second mortgage.

” ‘A short sale may satisfy the first lien, but the customer could still be responsible for the second lien,’ said a spokesman for Chase, while declining to discuss Phillips specifically.”

‘He did everything right’

Finally Phillips sought help from a federally approved housing agency, where counselors brought up the alternatives of filing for protection under the bankruptcy code. He didn’t like the idea and resisted “but after consulting with an attorney, in late February he filed for Chapter 7 bankruptcy, not the Chapter 13 that would have negotiated his debts, including those with Chase.”

In other words, he chose not to try to save the house under Chapter 13 and enter a repayment plan to creditors. Instead, the lender will probably be forced to take whatever it can get for the condo–without any recourse to go after Phillips for the second note. He told the Times he couldn’t stand the thought of not only losing the home in a short sale but also then repaying the lender $54,000 on a home he no longer lived in.

” ‘My other option was to say I’ll roll the dice with the bank,’ Phillips said. ‘Will they really come after me? I wouldn’t put it past the bank industry to do that. It’s going to kill me to pay a bank for a house I no longer owned. I was, like, there’s no way I’m going to pay the bank another dime.’ ”

He now regrets paying in good faith “the more than $12,000 he paid toward his mortgage while he sought a loan modification that never materialized.” The lender sent notice of loan default in late May, but Phillips expects to stay in the condo for several months while the legal system works, using unemployment benefits to pay condo association fees and stay alive while job hunting and considering a move to another state.

” ‘ (Phillips) did everything right. He had good credit, and then he lost his job,’ said Michael van Zalingen, director of homeownership services for Neighborhood Housing Services. ‘If your lender isn’t interested in helping you, or the only thing you qualify for hurts your household, I don’t think you have any moral obligation to stay bound in that mortgage or paying to that company when it no longer makes economic sense for you.’ ”

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The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

Balky lenders face results of consumer-grade bankruptcies even as rates of wealthy “walk-aways” go through the roof

July 13th, 2010 by Mike Hinshaw

[Editor's Note: This is the first of two parts looking at the difference between home mortgage delinquencies of the wealthy--which are on a dramatic rise--and alternatives for the less well-to-do.]

A recent headline in The New York Times:

Biggest Defaulters on Mortgages Are the Rich

If you’re thinking, yeah, well–what else do you expect from the Times? OK, here’s basically the same story from Fox:

Wealthy Walk Away From Mortgages

Reading both accounts, one will notice a  shared theme, namely the question  “what’s best for the community?”

Community and neighborhood interests are crucially important. Hence our posts about the nonsensical behavior of institutions that lets home after home slide into foreclosure, which affects property values like bombing a pond. Aanymore, this ain’t about ripples from a pebble. What really hurts a neighborhood more? Owner-driven bankruptcy–or bank-driven foreclosure?

Property-value loss cascades through neighborhoods

Foreclosed properties littered through a neighborhood affect property values throughout the entire community, not merely the adjacent homes.

On the other hand we’ve all seen major league bankruptcies, from big players such as The Donald to major automakers. Not to mention the current, wadded-up mess with the Texas Rangers baseball club…

How is it that when “the big boys” do it, it’s a business decision?

Yet, when consumers file for bankruptcy protection, they are somehow…sneaky?

Unemployment data say ‘no progress’

Let’s look at the numbers of the so-called recovery: Since June of last year the unemployment rate is virtually unchanged, whether you look at the so-called “official rate” (row U-3 in the labor department’s Table A-15) of 9.7 per cent in June 2009 versus 9.6 per cent last month. Ok, that’s not “seasonally adjusted.” The seasonally adjusted figures show a slightly better picture: 9.5 percent in June 2009 versus 9.5 per cent last month–which means even when we consider the lesser numbers of jobless people counted in the “official rate,” there’s no change in a year.

And the same holds true for row U-6, which is the actual “total unemployed” rate. The not-seasonally-adjusted rate in June 2009 was 16.8 per cent in June 2009 and 16.7 per cent last month. Again, a .1 per cent difference. The seasonally-adjusted rate was 16.5 per cent in June 2009 and 16.5 per cent last month. Same pattern.

On the bright side, last month’s rate is down in both columns from a peak in April, when the “official rate” was 9.9 per cent and the actual rate was 17.1 per cent.

So we’ve progressed to the point that we’re back to where we were a year ago–with total unemployment actually closer to 20 per cent than it is to the claimed “official rate” of nearly 10 per cent.

Wealthy ditch mansions as business decisions

And now even the wealthy are sending “jingle mail” to their mortgage servicers, sending in the keys to their mansions (some primary, some secondary homes–and some that were intended as investments) and heading off to, well, wherever the rich go. What’s sort of fascinating, though, is that they’re ditching these high-end properties in significantly higher measure than the less well-to-do have been.

According to the July 8 Times piece, “Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.”

The article cites data showing that “[m]ore than one in seven homeowners with loans in excess of a million dollars are seriously delinquent” while only “[a]bout one in 12 mortgages below the million-dollar mark is delinquent.”

So basically “homeowners with less lavish housing are much more likely to keep writing checks to their lender.”

Lends a new meaning to “there goes the neighborhood,” doesn’t it? Makes one wonder what the brainiacs behind credit ratings and FICO scores are going to do with these data.

The data were provided by analytics firm CoreLogic to the Times, who says, “Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.

“ ‘The rich are different: they are more ruthless,’ said Sam Khater, CoreLogic’s senior economist.”

The Fox account shares a similar perspective concerning the data: “As for those investment or second homes, Corelogic says delinquents on those topping the million dollar mark sit at 23%, while it’s just 10% on the cheaper ones.”

But the Fox writer tries a reverse spin: now that the wealthy are acting like the plebe sub-primers, suddenly having mortgage problems isn’t a class sin. But it just goes to show how the salt-of-the-earth middle class endeavors to persevere, against all odds.

“So to me this isn’t just an excuse to bash the wealthy, ” writes Gerri Willis, “… but a testament to the middle class…”They understand the value of a dollar and the value of a contract.

“Many are just too proud to throw up their hands and wave the white flag — for better or for worse.”

In other words, Willis seems to be saying, C’mon guys, even if it makes no business sense and the banks refuse to work with you, keep making those payments and honoring those contracts!

(In Part 2, we’ll have a look at what happened to Del Phillips and his condo.)

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The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

Unemployment data send mixed signals; jobs, benefits bills trudge through Congress as some Republicans break ranks

March 10th, 2010 by Mike Hinshaw

The big news Feb. 25, as The Washington Post put it, was that the Senate easily passed a $15 billion jobs bill. Some outlets were even calling it a “bipartisan” bill, given that 13 Repubs joined 57 Dems to pass the measure 70-28.

Just shows to go ya–how some pols will vote differently, once the threat of a filibuster is removed (as we discussed here and in Part I of  a two-part piece on the “stealth filibuster”). In fact, the jobs bill might have been scuttled–or “shelved”–had not newly-seated Scott Brown (R-MA) and four other Republican Senators voted against a filibuster on Feb. 23: even with those five votes, the filibuster was avoided by only two votes, clearing that hurdle 62-30 (60 votes are required).

Filibuster affects voting strategy

Yet, when the jobs measure itself came to a vote, eight more Republicans crossed the aisle, which sent it back to the House, where a much larger jobs measure had passed in December.  Also from The Washington Post: “The House voted 217 to 201 to approve a $15 billion measure that would give tax breaks to companies for hiring new employees. Six Republicans joined the vast majority of Democrats in supporting the bill, which also includes a one-year reauthorization of the law governing federal highway funding, as well as an expansion of the Build America Bonds program and a provision allowing companies to write off equipment purchases.”

Unfortunately, the measure (which still must clear the Senate again, due to House revisions) is not expected to have a major impact on unemployment and almost certainly will not help consumers who right-now-today are staring at foreclosure or bankruptcy.

‘Stop calling this a jobs bill’

Among the pols who voiced disappointment by the 10-fold reduction, a shared sentiment immediately following the Senate vote seemed to be to drop the euphemism “jobs bill” –that is, to simply concede that it’s a tax-credit bill that might indirectly spur businesses to hire people who have been out of work more than 60 days.

For example, quoted in the “Political Blotter” at ContraCostaTimes.com, Congressional Black Caucus Chairwoman Barbara Lee (D-Oakland) said, ““When presented with a powerful opportunity to create jobs and address the growing unemployment rates among the chronically unemployed, the Senate responded with a whimper. A ‘go slow’, piecemeal approach will do little to address our nation’s need for employment.

“It is critical that policy solutions include not only small business relief but worker training, the use of existing federal programs and targeted job creation to those communities with the highest rates and longest history of unemployment. Until the needs of the chronically unemployed are met, we implore leadership to stop calling this ‘the jobs bill.’ ”

Despite her confusing syntax, we get Ms. Lee’s point: seems like a “jobs bill” should, in fact, create jobs.

Although some tiny gains are trickling, the national jobs picture remains grim.

Job losses, job gains

One Wall Street Journal blog is reporting “a sign the job market is inching toward recovery [because] 31 states added jobs in the first month of the year.”

Using Labor Department data regarding  the official unemployment rate, the piece continues: “In January, the overall U.S. unemployment rate fell to 9.7% from 10% a month earlier, while the nation’s economy shed 26,000 jobs. The job losses continued in February amid strong weather effects, but the jobless rate remained at 9.7%.” (By the way, that blog also has jobless rates for each state.)

But remember, the “official rate” is not the real rate, which includes those who have given up looking for work as well as those who can’t find full time work. That rate, the “total unemployment” rate, peaked at 17.4 per cent in October 2009. Sometimes referred to as the “U-6″ category, this rate is important for two reasons. First, of course, it shows the number of U.S. unemployed is actually closer to 20 per cent than it is to 10 per cent. Why the media continues to buy in to the Labor Department’s lower number–the “U-3 category, now at 9.7 per cent and holding–is simply confounding.

Second, the U-6 category is telling in that gains in the  U-3 category should parallel gains in the U-6–but that isn’t happening. As pointed out in another WSJ blog: “The U.S. jobless rate was unchanged at 9.7% in February, following a decline the previous month, but the government’s broader measure of unemployment ticked up 0.3 percentage point to 16.8%.”

So what’s that mean? Well, here’s the conclusion from that piece: “A U-6 figure that converges toward the official rate could indicate improving confidence in the labor market and the overall economy. This month pushes convergence even further away.”

Unemployment extension passes ‘no debate” hurdle in Senate

the Senate. A larger measure, described today in The  Washington Post, moved forward when eight Repubs joined 58 Dems to limit debate: “The bill includes one-year extensions of unemployment insurance and COBRA health benefits, as well as money to help states pay for Medicaid and private pension funds that have taken a big hit during the recession.”
According to the Post, how the House is expected to act on the larger measure is not known.

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If you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”),  bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, please know the laws have changed recently. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

In speech, Obama seems to ‘get it’ that real unemployment rate is closer to 20% than the often reported 10% rate

December 8th, 2009 by Mike Hinshaw

In his most public acknowledgment of the true depths of unemployment, President Obama today said in a speech to the Brookings Institution that  he wants to use unexpected fiscal headroom in recovery-stimulus funds to create jobs.

As reported by CNN Obama said “he wants to give small businesses tax breaks for new hires and equipment purchases. He also wants to expand American Recovery and Reinvestment Act programs and spend some $50 billion more on roads, bridges, aviation and water projects.

“Obama did not give a price tag for his proposals but pointed out that there is more wiggle room in the federal budget since the 2008 financial system bailout program will cost $200 billion less than expected.”

Perhaps to be expected, some top Republicans are resistant to the idea–remember, it was the Senate where the bankruptcy “cram-down” provisions stalled after intense lobbying by the lending industry–saying any extra room in the recovery-stimulus funds should go toward the national deficit. To that, Obama responded, “”There are those who claim we have to choose between paying down our deficits on the one hand, and investing in job creation and economic growth on the other–but this is a false choice.”

The timing could not be better–with all the gushing over the November jobs data, you’d think the jobless crisis has passed.

But, no, until major change takes hold, it’s still a matter of the same ol’, same ol’: We’ve merely been shedding jobs more slowly than we were.

But you wouldn’t know it by following  the mainstream media; here’s how The New York Times reported the data on December 5: “In the strongest jobs report since the recession began two years ago, the nation’s employers all but stopped shedding jobs in November, the government reported on Friday, and they appeared to be on the verge of finally rebuilding the work force.

“The sudden and unexpected improvement surprised even the most optimistic forecasters. Instead of yet another six-figure job loss, only 11,000 jobs disappeared last month and instead of another rise in the unemployment rate, it went down, to 10 percent from 10.2 percent in October.”

Of course, it is nice that the nation’s job loss is slowing down.

The bad news is that “official” unemployment’s going to 10 percent really means the “total” unemployment rate is 17.2 percent.

Yup, as it turns out, when unemployment was reported to have reached double-digits, at 10.2 percent, that figure applied only to out-of-work folks who are actively looking for jobs.

As explained December 1 at MoneyNews.com, ” It’s bad enough that the official unemployment rate hit a 26-year high of 10.2 percent in October.

“But if you count people who have given up looking for a job – those who are really the most unemployed – and those who are working fewer hours than they would like, the jobless rate registers 17.5 percent.”

“That’s a record since the government began tabulating the statistic in 1994.”

This all comes from a table maintained by the Bureau of Labor Statistics, right there in row “U-6,” in two data sets, four columns each, showing the grim rise, in data “Not seasonaly adjusted,” and four more columns of data that has been “seasonally adjusted,” the numerals just sort of laying there like shameful secrets in an unlocked but forgotten diary–row U-6 which is labeled, “Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.”

There it is, with one row of seasonally adjusted data (mislabeled as “Nov. 2008,” when it should be “Oct. 2008″), when total unemployment was 12.2 percent, having risen to 12.6 percent a month later. By Oct. 2009, it was 16.3 percent and by last month, up again to 16.4 percent.

The seasonally adjusted data look even worse, rising monthly from July through October: 16.3, 16.8, 17.0, to 17.5 percent; then it fell in Novemeber to 17.2 percent.

Perhaps the best signal of all was discussed in another piece from The Times, a December 4 “Economy” post that discusses an un-named indicator that “is part of the monthly survey done by the Institute for Supply Management, in which manufacturing companies are asked if their business is getting better or worse.”

Described as having proven “reliable in all 10 previous recessions since World War II,” the indicator is part of the I.S.M.’s “November results, showing that for the fourth consecutive month, more companies thought business was getting better than believed it was getting worse.

“A part of that survey asks whether companies are adding or subtracting workers. It showed more companies hiring than firing in both October and November,” so if “the I.S.M. indicator is right, that means that the 10.2 percent rate in October was the cyclical high.”

So that is good, right? Finally a drop in the rate…whew.

Still it’s staggering to learn that instead of the improvement from 10.2 to 10 percent, in fact total unemployment is actually closer to 20 percent…

Some newspapers have caught onto this, but don’t seem to be bothered, as evidenced by the many headlines like this one in the Fort Worth Star-Telegram, by two AP reporters:  “Unexpected drop in jobless rate sparks optimism.” From there, it’s pretty much the same info that The Times’ would detail the next day.

For some, the route to a new job may very well entail a move to a different part of the country, as some areas, in various sectors, are coming back more quickly than others. At cnbc.com, you can watch a slideshow of the “Best U.S. Cities to Find a Job,” which not only lists the metro area but also includes the best sectors for each city.

For job stability, it looks like automobile repo work may be doing OK.  According to a December 7 Daily Finance report, “The ratio of U.S. auto loan borrowers who were 60 or more days past due on their payments increased in the third quarter over the second quarter from from 0.73% to 0.81%, according to Trans Union. The year-over-year delinquency rate at the national level increased by 1.25% in the third quarter.”

Although TransUnion expects the default rate to continue rising–projecting 0.9 percent by end of the year–to a 7.5 percent increase over the past year,  some data suggest that seeing a silver lining even here is warranted.

“Peter Turek, automotive vice president in TransUnion’s financial services group, believes the increased delinquency rate is indicative of a cyclical pattern. The good news is that seven states experienced a drop in their quarter-to-quarter delinquency rates while 22 showed a drop on a year-over-year basis. ‘The drop in delinquency is an indicator that some states could emerge from the recession sooner than others,’ Turek said in a statement released with the report.”

What it really sounds like is that the hard hit areas have been really, really hit hard, because nearly half the states have shown improvement: “So essentially, the market is shifting back to a pattern dependent on local economic conditions, with some states faring better than others. At least with 22 states seeing a drop in delinquencies over last year we can see there is some economic improvement in almost half the states.”

Still, the most encouraging sign amid all the bad news/good news is Obama’s public recognition: “Even though we have reduced the deluge of job losses to a relative trickle, we are not yet creating jobs at a pace to help all those families who have been swept up in the flood,” Obama said. “And it speaks to an urgent need to accelerate job growth in the short term while laying a new foundation for lasting economic growth.”

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In this tough economy, sometimes filing for protection under the federal bankruptcy code is a consumer’s last, best defense from creditor harassment and a chance to start over with a clean slate.  If you don’t have enough income to make payments under Chapter 13 protection, the relief offered by Chapter 7 may be your best bet–and may protect more assets than is commonly perceived.

Here’s a starting point for the basics of bankruptcy.

If you’d like to schedule a free appointment to evaluate your situation, click here.