Lenders going after money lost in foreclosures and short sales

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More and more lenders are pursuing borrowers for money lost in foreclosures and short sales. The money lossed in foreclosure or short sale is called a "deficiency" - the difference between what was owed on the mortgage loan(s) and the proceeds from the foreclosure or short sale. Some states, including Washington State, have laws that limit a home owner's liability for a deficiency. Other states allow the lender to pursue the homeowner for a deficiency, without limitation. In most cases, the deficiency and subsequent liability for the deficiency stems from subordinate liens (e.g., second mortgage, home equity loans, etc.) that are not paid off from the proceeds of the sale. The only recourse for these subordinate creditors is to attempt to collect the unpaid debt from the borrower. If the borrower does not pay, then the creditor may sue. If a lawsuit is initiated, the only recourse for the borrower is to file for bankruptcy. A bankruptcy filing would stop the lawsuit and allow the borrower to eliminate the personal liability for the deficiency. For the unforunate homeowner who faces a deficiency judgment, bankruptcy is often the last and only line of defense.

Home Affordable Modification Program (HAMP)

Too many homeowners are unfamiliar with the Home Affordable Modification Program (HAMP). Even those who know about HAMP do not understand their rights. In a nutshell, HAMP is a mortgage loan modification program created by the federal government (i.e., the Treasury Department) that allows qualified borrowers to modify payments on their first mortgage. It is often referred to as the "Obama Loan Modification Program."

There are 5 criteria for determining eligibility:
1) Home must be borrower's primary residence
2) The amount owed on 1st mortgage must not exceed $729,750
3) You must demonstrate that the current payments are a hardship (e.g., loss of income, inceased expenses, missed payments)
4) Current mortgage was obtained before January 1, 2009
5) Payment on 1st mortgage (including principle, interest, taxes, insurance) is more than 31% of your current gross income.

Anyone meeting these criteria should contact their mortgage loan servicer and request an Initial Package required to be submitted by the borrower to determine eligibility for HAMP. During the HAMP evaluation process the home cannot be referred to foreclosure or be sold at a foreclosure sale if the foreclosure process has already been initiated. However, the foreclosure process can resume if the borrower is determined to be ineligible for HAMP, misses a trial payment, or fails to respond to the servicer's requests for information.

Borrower's in active bankruptcy cases must be considered for HAMP if the borrower, borrower's counsel or bankruptcy trustee submits a request to the servicer. Borrowers who are in a trial period plan and subsequently file for bankruptcy may not be denied a HAMP modification on the basis of the bankruptcy filing.

For more information on HAMP click here AND here.

Unemployment Benefits Lapse

Across the country, 343,400 people will prematurely exhaust their benefits this week because Congress failed to reauthorize domestic aid programs before they lapsed on June 1. However, Congress is working on a bill that could extend those benefits as early as next week.

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Recession Takes a Slice Out of Retirement Savings

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Last year nearly 20% of Americans over the age of 45 yrs used retirement funds to pay their living expenses. As sources of income go, retirement savings should be a last resort. Why? First, early retirement funds are taxed at a higher rate than if you take the funds after the age of retirement. Second, funds in a retirement account are protected from creditors in bankruptcy and under most state laws. Once the retirement funds are transferred out of the retirement account, they are more susceptible to garnishment, liens, etc. by creditors. Finally, retirement is a nest egg that you rely on when you stop working. Dipping into retirement savings may require one to work longer than one's health may allow. If at all possible, use retirement funds as a source of income only as a last resort.

Mortgage Delinquencies Show First Quarterly Drop Since 2006: TransUnion

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According to a sampling of consumer credit reports by TransUnion, mortgage defaults decreased in the first quarter of 2010. This was the first quarterly decrease in mortgage rate default since 2006. While this may be welcome news, the current rate of default 6.77% is still high compared to historicle rate of 1.5 to 2%. Still, the fact that it is trending down is a welcome sign that the housing market may be turning around.

Signs of Economic Recovery, but Unemployment Still a Big Issue

In April the U.S. saw its biggest monthly jobs gain in 4 years, but the unemployment rate actually rose from 9.7% to 9.9%. How is this possible? Well, apparently the increasing number of job seekers caused the increased unemployment numbers. In other words, because an additional 805,000 job seekers - perhaps feeling better about their job prospects - resumed their search for work, this caused the unemployment numbers to climb.

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Does this data give mixed signals about the economicy recovery? Perhaps. But there is no doubt that the additional 290,000 jobs added last month is a strong sign that businesses are confident about their earnings prospects. And as history has shown, confidence can go a long way in helping the economic recovery.

Is judicial modification of mortgages still on the table?

Last year, the U.S. House of Representative passed a measure that would allow bankruptcy judges to reduce the principle amount on mortgage loans for homes that were "underwater" - e.g., the house is worth less than what is owed. Unfortunately, the measure was defeated in the Senate so it never became law. Well, this article from the Huffington Post indicates that a similar measure is still being considered by lawmakers. The measure under consideration would have the same effect as the measure that failed last year but would be modified slightly. It would still allow qualified homeowner's to "cramdown" their mortgages in bankruptcy so that the principle mortgage is equal to the value of the house. Similar provisions exist in bankruptcy for car loans, but not for home loans. The new "cramdown" measure is being considered as an addition to the financial reform bill being debated in Congress.

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