Mental Recession Comment Insults American People

Republican John McCain hired former Senator Phil Gramm to prop up his admitted weakness in economic policy. Instead, the financial guru, as McCain has referred to him, has insulted each and every American who struggle to keep their homes, put food on the table and who vote....yeah, remember Mr. Guru...we vote! I would love to see Mr. Gramm come to Montgomery, Alabama and tell Mr. and Mrs. Consumer that their house is not REALLY in foreclosure but rather this is a "mental foreclosure" and if it is a real foreclosure stop whining about it. Perhaps $4 per gallon of gas is just a mirage and if we rub our eyes it will go away. The audacity of such a comment is a clear indication that Mr. Gramm, McCain and the entire Republican party is in an unreasonable, irrational state of denial. Since when did they have to fill up their own vehicle or buy their own groceries even? The next comment from him will be "let them eat cake"!

clipped from www.nytimes.com BELLEVILLE, Mich. — Senator John McCain has spent the week trying to tell people that he feels their economic pain. So it was more than a little unhelpful when one of his top economic advisers was quoted Thursday as saying that the United States was only in a “mental recession” and that it had become a “nation of whiners.”

Bankruptcy May Help You Save Your Home

Just this week my office has had a 100% increase in initial bankruptcy calls. Potential client calls are an informal way to gauge the state of the economy and if accurate, they will indicate we are only seeing the tip of the proverbial iceberg in the housing market. As reported below, the foreclosure problem is only getting worse and consumers who are risking losing their home to foreclosure are turning to the bankruptcy courts to help them save their homes. Filing bankruptcy will stop foreclosures and allow the consumer the ability to cure arrears while they keep their home. Bankruptcy will not change your house payment but it may allow you to take care of the other bills that may make it difficult for you to pay your mortgage. Interestingly, we may soon see a scenario where mortgage companies themselves are going bankruptcy. See the below article on Fannie Mae, a government sponsored mortgage company who is essentially insolvent now. What happens when the government can't bail these upside down lenders out remains to be seen.

clipped from www.bloomberg.com ``The foreclosure problem is getting worse and will stay with us well into the next decade,'' Mark Zandi, chief economist for Moody's Economy.com in West Chester, Pennsylvania, said in an interview. ``The job market is eroding and homeowners have less equity. Lenders are much less willing to work with you if you've got negative equity, and you're more likely to give up your house if you're deeply underwater.'' clipped from www.bloomberg.com Chances are increasing that the U.S. may need to bail out Fannie Mae and the smaller Freddie Mac, former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules, he said. The fair value of Fannie Mae's assets fell 66 percent to $12.2 billion, data provided by the Washington-based company show, and may be negative next quarter, Poole said.

Obama Proposes Bankruptcy Changes

Correctly characterizing the 2008 election as the "fat cats vs. struggling families", Barack Obama called for a change in the bankruptcy code to help military families, the elderly and those with extraordinary medical bills. Perhaps Obama is trying to show that he is the candidate for the average working class voter who previously may have been persuaded to vote for Hillary Clinton or John Edwards. Speaking of John Edwards, the former Senator gave a very vice-presidential speech today. As a consumer advocate, it is my belief this may be the best hope for the struggling families that I represent on a daily basis.

clipped from www.ajc.com Barack Obama moved Tuesday to paint the 2008 presidential election in stark terms of rich vs. poor, fat cats vs. struggling families. Those families, he said, "are being preyed upon by predatory lenders. If you're protecting America, America should be protecting you from unfair bankruptcy laws."

Did Negative Equity Contribute to GM's Downfall

The current industry practice of rolling negative equity in new car loans could be a factor in GM's downward spiral. Negative equity occurs when a car buyer owes more on their vehicle than the vehicle is worth or than the dealer is willing to give on trade-in. In the past, dealerships have traditionally added in the negative equity into the total price of the vehicle which the car buyer finances. Of course, this means that not only does the brand new vehicle lose thousands in value when you drive it off the lot, but now the buyer has to pay thousands more for the vehicle because of the negative equity. (Fortunately, Chapter 13 allows the consumer to strip off the negative equity from the contract if the vehicle was purchased in the last 910 days before filing.) However, if the buyer defaults on the loan, the lender is stuck with the negative equity burden. Despite the potential losses, lenders, including GM who is one step away from bankruptcy, continue to pad loans with this non-existent collateral causing analysts to scratch their head.

clipped from market-ticker.denninger.net We have SIVs, "Covenant Light" (the businessman's version of "no ratio" mortgages), fog-a-mirror mortgages, toggle bonds, securitization with cooked ratings and "errors" in computer programs, negative amortization, rolling balances forward in auto lending and more. We have consumers who have been rolling credit card debt from one zero-interest balance transfer card to another in a desperate attempt to avoid having to make payments they don't have. We have commercial real estate construction loans going out with cap rates that are insanely light - all "on the come" of appreciation in "values", and our Boomers have spent the false appreciation that they never had, destroying the largest store of wealth they owned - their homes. (BTW, GM is still writing negative rollover auto loans! If you're wondering whether GM can or might actually go under, the answer is "yes", and that's why.)

Consumers Blamed for Corporate Greed

Although consumer advocates tried to warn Congress at the time, only now is it becoming apparent that the 2005 Bankruptcy Reform Legislation (BAPCPA) was an attempt to blame falling corporate revenues on consumers. Mortgage and credit card companies blamed their lack of revenue on consumer bankruptcies while continuing to dole out unsafe and impossible loans to consumers and punishing them with foreclosures and rate increases if they couldn't keep up the payments.

clipped from articles.moneycentral.msn.com Furthermore, lenders, not consumers, are the ones that seem to be abusing the system these days. According to U.S. Senate testimony, bankruptcy trustees are seeing "systemic problems" with mortgage servicers that: Tack on exorbitant fees. Miscalculate how much is owed. Refuse to communicate with borrowers or the court. Force homeowners into foreclosure without authority to do so, usually because the servicers can't figure out or prove who actually owns a mortgage, which has typically been chopped up and sold to investors. If you missed the irony, I'll spell it out. Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 because lenders had alleged that consumers were abusing the bankruptcy system.

Florida Bankruptcy Court denies 523 complaint

A Florida bankruptcy judge recently took up a 523(a)(2) complaint but denied that the debt in question was a fraud exception to discharge.

In Loud v. Richie, 2007 WL 4644663, Bankr.M.D.Fla (December, 2007), an unscheduled judgment creditor failed to prove by a preponderance of the evidence that the Chapter 7 debtor, from whom they had purchased their 70-year- old home prepetition, made any misrepresentation regarding the condition of the home with the intent to deceive them. Therefore, the judgment debt was not of a kind specified in 11 U.S.C.A. 523(a)(2)(A), the discharge exception for actual fraud, and it did not fall within 523(a)(3)(B), the discharge exception for unlisted or unscheduled debts. Although the judgment creditors presented evidence that the home's original porch had deteriorated, that tie- backs should be installed to stabilize the basement walls, that groundwater had intruded into the basement, and that permits were not obtained for all contracting jobs completed on the property, they failed to show that the debtor was aware of the conditions at the time of the sale, and that he misrepresented or actively concealed them with the intent to deceive the judgment creditors.

House Committee Passes Mortgage Reform Act

The House Judiciary Committee has passed limited mortgage reform legislation. The bill, H.R. 3609, the Emergency Home Ownership and Mortgage Equity Protection Act, is the first step to giving homeowners with sub-prime mortgages a much needed break.

Maureen Thompson, Legislative Director for the National Association of Consumer Bankruptcy Attorneys, states:

"Though the bill is more limited than we hoped, it nonetheless will provide a bankruptcy remedy for many hundreds of thousands of homeowners where none exists today."

The bill is expected to come before the full House as early as February and even in its watered down form is expected to meet stiff opposition.

Some of the highlights of the bill are:

1. The bill covers only existing loans made after 1/1/2000 and will have no effect on new loans.
2. Covers nontraditional loans and subprime loans only.
3. Applies only to loans where there is a notice of foreclosure.
4. Sunsets after 7 years.
5. Provides guidance to judges so they cannot cramdown value below fair market value and cannot reduce interest rate below conventional mortgage rate.

The Senate Judiciary Committee also is expected to take up S. 2136, Senator Durbin's bill, in February.