Why the housing mess is such a mess

by Sundeep Kothari

Atlanta Georgia Bankruptcy Attorney

Why is the housing mess such a mess?

1. There are a glut of unsold houses and condos due to overbuilding. Banks kept building and building and building and they didn’t really consider whether people would buy these houses or not. They simply assumed that there would always be sufficient numbers of buyers.

2. In addition, there are currently people that own houses that they simply can’t afford. It would be better for them to leave their houses and move into apartments. But if they do that, then those houses go onto the market and add to problem #1.

3. Many people are afraid of buying homes because of deflating home equity – i.e. today the home is worth 200,000, but then in one year it could be worth 180,000. This is a gigantic disincentive for people to people to want to invest in homes in the short term.

4. Bad word of mouth on home buying – when people lose their home, they tell their family and friends what a horrible nightmare it was. This bad word of mouth scares some people not to buy a home.

5. Job losses and wage cuts – people who are renting and who could qualify are terrified of losing their jobs or having their wages cut and being stuck in a mortgage that they might not be able to afford in the future.

6. Bad word of mouth on selling a home – many people who are trying to sell their home complain to their family and friends about how hard it is to find a buyer. This scares qualified, potential new home buyers from purchasing new homes.

7. Banks afraid of deflating home values – similar to buyers being afraid of deflating home equity, banks have the same fear – i.e. today the house is worth $150,000, but in three years that house could be worth $75,000. Banks have the fear that they will give out loans, and their loan will be worth less than the collateral on the note. Meaning they have created more “toxic assets” or “bad paper”.

8. Sellers competing with foreclosures – i.e. a new house in a subdivision is worth 250,000. A foreclosed house in that subdivision that is only one year old can be purchased for 175,000. This is a significant price difference and why new buyers are strongly considering foreclosed properties over new homes. The seller of the new house can’t compete with that price, unless the seller of the new house is willing to take a massive loss.

Citi offers new mortgage payment plan

by Sundeep Kothari

Atlanta Georgia Bankruptcy Attorney

Citi’s new mortgage payment plan

From the article:

Citigroup Inc. will announce Tuesday a new program aimed at addressing the latest challenge facing the mortgage industry: unemployed homeowners.

Under the program, Citigroup will temporarily lower mortgage payments to an average of $500 a month for certain borrowers who have recently lost their jobs and are at least 60 days behind on their mortgage payments. Borrowers will be allowed to make the lower payments for three months. Citigroup will waive interest and penalties during this period.

Citigroup’s announcement comes days before the Obama administration is expected to announce guidelines for its massive loan-modification program, a cornerstone of its effort to fight the housing crisis. The bank’s new initiative takes aim at one of the hardest groups of borrowers to assist: those who have seen their income fall sharply.

“We expect that there will be thousands of people we can help,” said Sanjiv Das, chief executive of CitiMortgage, who called rising unemployment “the single biggest issue facing mortgage servicers.” Although the novel program will help just a small fraction of troubled borrowers, Mr. Das said he hopes it will be copied by others in the industry.

To qualify for the program, borrowers must live in the home and have a mortgage that is owned and serviced by CitiMortgage. The program applies only to loans of $417,500 or lower. Citigroup holds 1.4 million mortgages on its books. It also services another four million loans for others, but those don’t qualify for the program.

—————-

Of course, there will be people out there who are paying their mortgage on time and will say, “Hey! What about me? I am paying on time, I didn’t burn my cash on a second mortgage or an equity line to rebuild my kitchen or basement, I didn’t burn my cash on going to Vegas or buying a more expensive car than I need. These people were irresponsible and they should suffer for it, not benefit!”

This is a legitimate concern – that as Rick Santelli said, is the reward of bad behavior. These types of arguments make bankruptcy reform very difficult, and a very emotional issue.

Report: Falcons will trade Michael Vick after completion of criminal case

by Sundeep Kothari

Atlanta, Georgia Bankruptcy Attorney

Falcons to trade Michael Vick

The Atlanta Falcons will trade former starter and All-Pro Michael Vick upon completion of his sentence for criminal convictions related to dogfighting.

Vick filed for Chapter 11 bankruptcy protection in July 2008.

NY Times calls for credit card reform

by Sundeep Kothari, Roswell, GA Bankruptcy Attorney

NY Times Editorial on credit card reform

Excellent article on credit card reform.

One way to help the economy is simply if Congress were to pass a law limiting the maximum rate on credit cards to 15%. More people would pay down their credit card bills faster, which would leave them with more cash to spend in the economy. Also, there would be less second mortgages and home equity lines, leaving more money for individuals to improve their homes or invest.

This would be a very popular issue with voters, but for whatever reason this issue hasn’t gained steam with the American public.

Factors used in lowering credit card limits

by Sundeep Kothari, Atlanta-Sandy Springs Bankruptcy Attorney

Factors used in lowering credit card limits

This article discusses factors that credit card companies use when lowering credit card charge limits.

These include payment history, whether you exceed your credit limit, credit history with other credit cards, where an individual shops, whether other individuals who shop there default on their cards, which mortgage company you have, if you live in an area with falling housing prices.

Many companies are saying they can no longer guarantee customers will be considered low risk if they pay their bills on time and don’t exceed their credit limits.

New Credit Cards Rules Coming

by Sundeep Kothari

New credit card rules

 

New credit card rules are coming. These rules ban:

_Placing unfair time constraints on payments. A payment can’t be deemed late unless the borrower is given a reasonable period of time, such as 21 days, to pay.

_Placing too-high fees for exceeding the credit limit solely because of a hold placed on the account.

_Unfairly computing balances in a computing tactic known as double-cycle billing.

_Unfairly adding security deposits and fees for issuing credit or making it available.

_Making deceptive offers of credit.

Some opposed the proposed changes as unnecessary government interference. In addition, many are concerned that these rules will make it much more difficult for those with bad credit to get credit cards at subprime rates.

These changes are expected to cost the banking industry more than $10 billion per year in interest payments.

Dealing with credit card line cuts

by Sundeep Kothari

Credit Card Cuts

 

This article discusses the reasons for the expected $2 trillion in credit card line cuts and some strategies for how consumers may deal with those cuts.

Credit card lines to be cut by $2 trillion

by Sundeep Kothari

Credit card lines to be cut by $2 trillion

Credit card companies are expected to cut credit lines by $2 trillion over the next 18 months.

This will lead to a sharp drop in consumer spending, which will lead to more trouble for retail businesses, which will lead to retailers laying off workers, which will lead to more foreclosures, which will worsen the economy.

But since banks have no money to lend out, they have no choice.

More customers resume using old-fashioned cash

by Sundeep Kothari

via Print Story: More customers resume using old-fashioned cash – Yahoo! News

More purchasers shunning credit cards, store cards and charge cards and using cash instead.