Posts filed under “Taxes and Policy”

Mortgage Resets? Try Chapter 13 Bankruptcy!

Fascinating front page WSJ article today, titled More Debtors Use Bankruptcy To Keep Homes.

It seems that Chapter 13 filings are gaining in popularity. Why? Because they halt foreclosure proceedings:

“Last month, as the nation’s housing slump continued, consumer
bankruptcy filings increased almost 23% from a year earlier –
representing nearly 69,000 people — according to the American
Bankruptcy Institute, a nonprofit research group whose members include bankruptcy attorneys, judges and lenders. Overall, consumer bankruptcy filings were up 44.76% during the first nine months of this year.

In some areas where the real-estate boom was especially heated, the increase in filings has been even sharper — especially for a type of bankruptcy that allows homeowners to halt foreclosures on their homes . . .

In recent months, however, an increasing number of homeowners have filed for bankruptcy under Chapter 13, which staves off foreclosure proceedings while the homeowner works out a plan to pay off mortgage debt and other obligations over time — usually three to five years. To qualify, debtors must have a regular income and must stay current on their new bills. About four in 10 filers today are filing under Chapter 13 — up from three in 10 two years ago. The 2005 change in bankruptcy laws was designed in part to shift more filers to Chapter 13, which forgives less debt than Chapter 7.”

We can expect to see a whole lot more these types of filings in the coming months and years. Why? One word: RESETS.

The ongoing APR mortgage reset process isn’t expected to peak until some time in 2008. Following that, we see a new surge in resets, as Option Adjustable Mortgages begin to come up in 2010-11.  Note that these are non-subprime mortgages.

Econbrowser called this Monthly Mortgage Resets from Credit Suisse (via the IMF) graphic their Distressing Picture of the Day:


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Here is is another intriguing pair of charts, this one from Merrill Lynch (via the IMF):

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The pair of charts above suggests that as the last cycle progressed, Credit quality
mattered less each subsequent year. Eventually, it seems that mortgage underwriters were giving loans to
just about anyone in order to generate fees, commissions, and re-sellable paper . . .

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Sources:
More Debtors Use Bankruptcy To Keep Homes
Chapter 13 Filings Gain In Popularity Because They Halt Foreclosures
AMY MERRICK
WSJ, October 23, 2007; Page A1

http://online.wsj.com/article/SB119309633953367729.html

Global Financial Stability Report:
Financial Market Turbulence: Causes, Consequences, and Policies
IMF, September 2007

http://www.imf.org/external/pubs/ft/gfsr/2007/02/index.htm

http://www.imf.org/external/pubs/ft/gfsr/2007/02/pdf/chap1.pdf

Category: Credit, Economy, Psychology, Real Estate, Taxes and Policy

No Free Lunch: Ongoing Ramifications of an Easy Fed

Category: Commodities, Currency, Federal Reserve, Inflation, Taxes and Policy

Global Taxes as a Percentage of GDP

Category: Economy, Taxes and Policy

Real World Consequences of Core Inflation Focus

Category: Federal Reserve, Financial Press, Inflation, Taxes and Policy

Ease of Doing Business by Country

Category: Data Analysis, Politics, Taxes and Policy

The Economic Far Right & the G.O.P.

Category: Economy, Politics, Psychology, Taxes and Policy

Bloomberg: CPI Inflation Data is a “Lie”

Category: Data Analysis, Economy, Employment, Federal Reserve, Inflation, Real Estate, Taxes and Policy

The Widening Gap Between the Rich and the Super-Rich

Category: Psychology, Taxes and Policy, Television

A Fix for the Alternative Minimum Tax?

Category: Politics, Taxes and Policy

China Triple Whammy

Category: Currency, Fixed Income/Interest Rates, Inflation, Psychology, Taxes and Policy