If you are like millions of American homeowners with an adjustable rate mortgage, you’re undoubtedly feeling the pinch.
And while it pisses me off to no end that regulators and CEOs allowed the current credit crisis to happen in the first place, I believe that the federal government bailout of our home credit markets is inevitable and absolutely required.
Hopefully the bailout being proposed will relieve many Americans from having to face personal bankruptcy. Hopefully, but not very realistically; many people will not continue to make payments on a home that is worth less than what they owe, unless the real estate market recovers pretty quickly.
Why Should I Bother to Pay More than My Home is Worth?
That’s what fear does to us; too many people will fail to realize that if they could renegotiate for a lower mortgage payment and keep paying it they’d be better off in the long run. Real Estate will recover; we just need to be patient.
And, we need to find ways to help people through this bad time; we need jobs and we need credit. The bailout is supposed to address both of these issues. Think as you listen to our presidential candidates over the final weeks before the election; which candidate do you think will best help us address these issues? I have no opinion to share on this subject yet but I am watching both candidates closely over the coming weeks to see what specific plans they have to propose.
If you can avoid it in any way, don’t walk away from your home loan and declare personal bankruptcy. That’s my thought; keep your commitments if you can. Walking away is the easier way out but it will cost all of us. If you aren’t in a position of having to walk away, just hang in there and see what the new plan holds in a few months’ time.
Will the Government Bail out My Home Loan?
The government proposes buying “toxic” loan portfolios from lenders; this will essentially write off their bad debt (with certain conditions and promises) and allow the lending markets to reignite over the next several years. However, like a really long train, it will take time for this baby to get rolling again.
But what do we do in the mean time to fund businesses that keep people employed? And will it help use keep our homes while things slowly rebound? That will depend mostly on how well the US Government does in managing up to a trillion dollars worth of mortgage-backed securities and the underlying mortgage notes of American homeowners.
The Federal Government Could Be Your New Mortgage Holder
Essentially all those high interest rates on homes that may not even be worth the amount of the note will belong to Uncle Sam. Scary thought that the same people who allowed the crisis in the first place will now manage all that debt on behalf of us the taxpayers!
Systems and business processes must be established and this will cost money and take plenty of time. So don’t expect your loan payment to go down or your mortgage balance to be magically reduced. If you can’t afford to make your mortgage payments now, or have recently lost your job and income, its not that likely you’ll be saved any time soon by the mother of all bailouts.
Talking to Your Creditors
If you are in danger of defaulting on your home loan, do call your lender and discuss your situation. Letting them know your challenges can make a difference, while neglecting phone calls, letters and late notices only makes things far worse.
This is not a problem you can ignore and hope goes away; you have to take action quickly if you are in default on your home loan. We all know that but it’s easy to deny if you’re the one in that position. Don’t let yourself fall into this trap; seek help before it’s too late and you’re left with no further choices.
Deciding to Walk Away from Your House
First of all, if you are even considering declaring personal bankruptcy, talk to lawyers and accountants before you make any decisions. You must know all the consequences and face living with the fact that you’re going to do it.
The main considerations will be:
- Has your home payment gone up to the point you can not pay all your bills?
- Is the current value of your home greater than all outstanding debt it secures?
- What other debts do you have outstanding?
- Can you afford to essentially go without credit for the next several years?
- How will personal bankruptcy affect your business or career?
- Have you ever gone bankrupt before? If so the outcome of doing it again can be different.
- Do you and your spouse or partner agree this is the right move?
- Where will you live and recover after you lose your home?
None of these are things we want to talk about, but talking and considering all your options is never as important as when making serious life decisions that are forced upon you.
You may not feel like you have any choice in the matter but doing something positive and forward-thinking is always better than doing nothing; when you do nothing things only deteriorate and you give away whatever choices you still had coming to you!
Getting Professional Assistance
Please talk to several lawyers and accountants and weigh all your options before you make this choice. Making an enlightened decision will make all the difference in your life moving ahead regardless how difficult it is to face making the choice.
The real estate markets will recover, so don’t get caught up in the negative hype; only consider walking away if you truly have no other option. Good luck and remember it is still in your own hands.
If you are considering personal bankruptcy, have been bankrupt before or provide services to people in this situation, we’d love to hear from you. Please leave your thoughts and comments.