Earlier today, I was listening to a business report on the radio in which an economist actually recommended that homeowners who purchased a home in the mid-2000’s with little or no money down, who are now at least 12 months behind on their mortgage and have been unable to modify their mortgage because of insufficient income, actually file for Chapter 7 bankruptcy and GET IT OVER WITH – MR. OBAMA IS NOT GOING TO SAVE YOUR HOME!!!
Unfortunately, this mantra is going to going to get louder in the coming months as (a) banks may have already modified the vast majority of those who can truly afford to make timely mortgage payments, and (b) State Courts are now beginning to allow more foreclosure actions to move forward.
One of the ways that the economy can get moving again is to allow these remaining foreclosure actions to begin to again flow through the system. There are too many properties in the pipeline that are being stalled by my brethren without any legitimate financial grounds – namely – THESE HOMEOWNERS CANNOT AFFORD TO PAY ANYTHING NEAR WHAT MAY BE REQUIRED TO ADEQUATELY SERVICE THEIR DEBT.
Even if some are successful in modifying, has anyone really looked at the terms. In many cases, while the payment may become affordable in the short term, the payment of a modified mortgage has become the equivalent of indentured servitude or glorified rent (whichever cliche you may choose). Banks are not reducing principal balances – they are merely deferring them. A homeowner will may minimal payments over the next 30+ years and at the end of the period, could still owe the bank in excess of $100,000.00.
Doesn’t it just make more financial sense to file bankruptcy, begin to save what you would be paying for a mortgage (or rent), and let the bank foreclose? At the end of the process, when it is time to make the transition to new housing, you will hopefully have a small nest egg to allow you to start over again. ISN’T THIS WHAT BANKRUPTCY IS ALL ABOUT?
Now I am not advocating intentional or structured defaults on mortgage obligations, I am just asking those whose situations have gotten beyond the “point of no return” to temper their expectations and be more realistic in viewing their financial futures. Think about it before you spend more money paying consultants that make unrealistic promises….