Financial Experts Recommend New Bankruptcy Option
Black Rock, the world’s leading asset management company, suggests that consumers befallen by falling home values and longstanding unemployment need a new bankruptcy option. Under current U.S. bankruptcy laws, consumers can file Chapter 13, Chapter 7, or in some cases a Chapter 11 bankruptcy. None of these options allow for modifying the terms of a primary mortgage loan. Mortgage lenders can petition the bankruptcy court for permission to foreclose a delinquent mortgage loan; this typically occurs within a few months of filing, so homeowners don’t receive lasting protection under existing bankruptcy laws.
Financial Experts Recommend New Bankruptcy Code: How it Would Help
Although unsecured debt and mortgage loans for certain types of properties can be modified, homeowners struggling with high mortgage rates, falling home values, and long term unemployment cannot receive permanent relief from home mortgage problems by filing bankruptcy.
In response to failed “cram down” legislation that would allow bankruptcy judges to reduce mortgage balances at will, Black Rock asserts that under its “Great Recession” bankruptcy plan, judges would formulate mortgage balance reductions using a formula. This would ensure fairness and predictability in mortgage principal reductions instead of allowing judges to modify mortgage amounts at will.
Reducing Mortgage Amounts Essential to Foreclosure Prevention
Unfortunately for struggling homeowners, amendments to the federal bankruptcy code could take years, but financial analysts are beginning to understand that reducing mortgage balances may be the only way to keep homeowners who owe more on their mortgage loans than their homes are worth from walking away.
The U.S. Treasury reports that only 7% of homeowners have converted temporary mortgage modifications approved through the Home Affordable Modification Program (HAMP) into permanent modifications. Problems with the HAMP program include the practice of adding delinquent interest and fees to mortgage balances, which can increase monthly payments on a go-forward basis. This does not help upside down homeowners or those who remain unemployed or under-employed. A group of state leaders is calling for federal programs designed to assist unemployed homeowners.
Mortgage Loan Refinance and Debt Consolidation
Even if you’re not having financial problems, refinancing to current low mortgage rates can provide protection against future problems. Minimizing your monthly mortgage payment obligation provides extra cash for savings or paying off high cost credit card debt. If you have enough home equity, another option is combining mortgage loan refinance and debt consolidation using a cash out refinance mortgage. Discussing options with a financial advisor can help you find debt consolidation options suited to your situation.
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Archie Corlis says:
What are considerations I should take into account to be certain I’m truly comparing loans and not looking at two loans that have completely different rate and yield equivalences?