One in five mortgage borrowers are underwater

by Sundeep Kothari

Atlanta Georgia Bankruptcy Attorney

One in five homeowners underwater

One in five homeowners in the U.S. are underwater, with over 50% of homeowners in Nevada underwater. More declines are expected to follow.

This is a huge factor of why I believe the economy will not start rebounding until 2011. When a home goes underwater by a significant amount, a lot of people refuse to leave their home and file for bankruptcy. They do this because they like living there, they think the economy will rebound soon, they think the government will step in with a plan to save them, they think the mortgage company will step in with a plan to help them, they have put in a lot of money, effort, time, and life into their home.

This is a very emotional issue. In many situations, it is simply best for the person to leave the home, file for bankruptcy, rebuild savings and then purchase a smaller home in a few years. However, this sounds much easier to say than for people to do.

Home ownership is for many people the most important purchase of their life, and losing it is like losing a part of their own soul. And even when the economic realities say otherwise, people would rather be stubborn than lose not only their place to live, and continue to live somewhere where their money is getting eaten rather than move to a smaller place and save liquid cash. The pain of dealing with the present economic realities is simply too painful to be rational.

President Obama and Speaker Pelosi both call for bankruptcy reform

by Sundeep Kothari

Atlanta Georgia Bankruptcy Attorney

Tonight President Obama called for bankruptcy reform, echoing statements of support from Speaker Pelosi.

President Obama to unveil $75 billion home foreclosure plan

by Sundeep Kothari

Atlanta Georgia Bankruptcy Attorney

Obama to unveil $75 billion mortgage plan

President Obama is set to unveil a $75 billion home mortgage relief plan later today in an effort to stop the foreclosure crisis. Obama’s program is intended to help 5 million borrowers refinance and provide payment incentives for up to 4 million borrowers.

Two key components:

1. Homeowner Stabilization Initiative – which would provide incentives to lenders to cut monthly mortgage payments to sustainable levels, defined at no more than 31% of a homeowner’s income.

2. Programs to help homeowners who are “underwater” – i.e. owe more on the mortgage than it is currently worth – by helping these homeowners refinance their mortgages.

President Obama’s plan also includes provisions to help Fannie Mae and Freddie Mac, by increasing the Treasury’s funding commitments to the two and continuing purchasing mortgage-backed securities from them.

Trustee in Madoff bankruptcy case returns six autos to dealers

by Sundeep Kothari

Atlanta Georgia Bankruptcy Attorney

Madoff trustee returns six cars

The trustee in Bernie Madoff’s bankruptcy case returned six cars to their dealers, saying the cars had no value to the bankruptcy estate. The vehicles are a 2007 Land Rover Range Rover, a 2008 Cadillac DTS, a 2009 Mercedes S550-4, a 2007 Mercedes S550V, a 2008 Mercedes GL450, and a 2006 Lexus.

Pelosi, Hoyer support bankruptcy reform

by Sundeep Kothari

Atlanta Bankruptcy Attorney

Pelosi, Hoyer support bankruptcy reform

House Speaker Nancy Pelosi and House Majority Leader Steny Hoyer break from President Obama and support an immediate change to bankruptcy laws to help homeowners and consumers.

Both Pelosi and Hoyer state they see an immediate need to allow bankruptcy judges the power to modify primary home mortgages to prevent foreclosures and keep homeowners in their homes.

Pelosi and Hoyer, however, do disagree on whether the bankruptcy reform measures should be part of the initial stimulus package or stand alone. Pelosi favors the first, while Hoyer favors bankruptcy reform as a stand alone measure.

Helpful to the cause are Blue Dog, conservative Democrats Brad Miller and Jim Marshall supporting the reform, complaining that banks have done very little to help homeowners during the foreclosure crisis.

Hopefully Speaker Pelosi and Majority Leader Hoyer will use the bully pulpit to push this reform, and then make this reform a reality.

Atlanta Jeweler Shane Co. files for Chapter 11 reorganization

by Sundeep Kothari

Atlanta, Georgia Bankruptcy Attorney

Shane Co. files for Chapter 11 protection

Famous longtime Atlanta jeweler Shane Co. files for Chapter 11 bankruptcy. This will allow the company to get rid of some unsecured debts, but continue as a viable entity.

No store closings in Atlanta are scheduled.

GMAC awaiting approval of debt swap by shareholders to avoid bankruptcy

by Sundeep Kothari

Roswell, Georgia bankruptcy lawyer

GMAC awaiting approval of debt swap

One minute before midnight Friday is GMAC’s deadline for bondholders to swap $38 billion in debt for new bonds that are worth less money — a deal that could help the finance company avert bankruptcy and qualify to become a bank holding company.

Becoming a bank holding company would give GMAC access to financing under the $700 billion government bank rescue fund. The financing company needs about 75% of its bondholders to agree to restructure the debt.

The government has said GMAC must have $30 billion in assets to qualify as a bank holding company. The debt swap is a significant part of the financing arm’s attempt to raise that money.

If it fails to meet that target, bankruptcy looms as a real threat for GMAC, which once was General Motors’ (GM)crown jewel. GMAC has said that failing to become a bank holding company would have dire effects on its business.

Standard & Poor’s said earlier this month that failure would mean “the potential for a bankruptcy filing would be high.”

However, President Bush’s decision last week to use federal financing to help bail out the automakers could be a good sign for GMAC, says Himanshu Patel, an analyst at JPMorgan.

 

“GMAC will probably be safe, regardless of GMAC’s bond-exchange results,” Patel said in a recent research note. “We think Treasury will take the needed steps, in the end, to help GMAC remain solvent.”

So, GM is in good shape, but not totally out of the woods yet. Yesterday, I was reading how Detroit’s unemployment rate right now is at 21%. If the Big 3 had been allowed to go into bankruptcy at this point, that number might have reached 30-40%.

That doesn’t change the fact that the Big 3 still don’t have a realistic plan to make cuts and reorganize to adapt to today’s market. They still are running their companies like it is the 1960s or 1970s or 1980s.