Foreclosure is becoming a dirty word that is being uttered ever so much more frequently throughout New York. From Albany to Long Island, foreclosures are on the rise. In fact, so many people are being foreclosed upon that it is almost becoming normal. All of this is occurring despite our best attempts to alleviate the problem. We have Federal programs for homeowners that are not working, and we have banks granting leniencies on loans and terms that are having a minute effect overall on the amount of people still going through foreclosure. Clearly, the government and banking industry solutions are not working quickly enough.

 

The vast majority of foreclosures are occurring relative to the devaluation of homes. In short, there are thousands of Americans who are holding mortgage notes that have balances far greater than the actual value of the home. Many have simply thrown up their hands and given the keys back to the bank. However, there are a number of steps that could be taken in order to mitigate these foreclosures. In fact, there are 3 specific avenues a homeowner should explore to combat the devaluation of their home.

 

Landscaping is a great way to improve the value of your home. Immediately, many people think that this would cost a substantial amount of money. However, there is a great deal of landscaping projects that you can accomplish with your bare hands, a shovel, and a wheelbarrow. You can build walkways and paths around your home and grounds by using stones found naturally on your property. Consider diverting a nearby stream to run along a pathway close to your house. Contemplate transplanting trees from wooded areas to line your grounds, lawn, form a screen, or even a fence. Brainstorm ideas for projects that will beautify your property but cost very little.

 

Indoor projects can increase home value as well, and often require the simplest of tools: hammers, screwdrivers, a saw, a level, sandpaper, and a little paint. Knock down walls that create a cluttered or cramped atmosphere. Repair, replace, or repaint baseboards, door and window frames, or cabinet doors. Enlist the aid and skills of family members or friends that have construction or design experience. Pay them for a day’s work with refreshing beverages, a beautiful dinner or barbecue, and by offering to help them on projects they may have with their own home.

 

Consider forming a neighborhood coalition. Talk to the members of your immediate locality about the importance of maintaining and beautifying their properties in order for properties in the area in general to hold or increase their value. As a group, you may be able to create a pool of funds for needed neighborhood improvements, and/or form teams that spend a weekend improving one house or property, another property another weekend, and so on. Together, we are much more effective than separate. Remember- if the value of your neighbors’ homes go up, then it stands likely to reason that your will too.

 

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We now have a full year ahead of us.  This means that we have 12 months to create a more realistic plan for our immediate and long-term future.  We must learn from the mistakes we have made in the past.  Americans in general are operating at 130% debt to income ratio.  Is that realistic?  We spent $700 billion on fast food in the 6 years leading up to this nationwide financial debacle.  Does that make sense?  We transferred the use of crops from food to fuel.  Is that a wise idea?  We are quickly exhausting our natural resources.  What will we do when they are gone?  This type of unrealistic thinking has not only gotten us into trouble, but is also keeping us in and deepening these dire straits we are experiencing. 

 

There are thousands of Americans experiencing severe financial distress.  We can see how we got to this stage; however, even our most intelligent minds cannot seem to see a rational way out of it.  For example, let’s consider for a moment Obama’s new stimulus plan.  His plan, of course, rests heavily on top of the first bailout plan of $700 billion.  We can, at least initially, use this as an example of how we have started to show some limited foresight.  With Bush’s bailout, we accomplished very little, although we have only spent about half of the money so far.  The credit situation has certainly not been alleviated.  So, seizing on that information, and wanting to make a splash with a strong move as he comes into office, Obama wrote policy into his stimulus package that seeks to correct the economy by adding more jobs.  One could argue that he is simply following Roosevelt’s lead by instituting changes similar to The New Deal.  And by well he should, as our country grew exponentially after the changes brought about by the Depression. 

 

The creation of jobs by improving our infrastructure is a wise move.  Seeking alternate means of energy makes sense.  Both of these policies have been quite delayed, but at least there is now hope they will actually occur.  However, the third part of Obama’s plan makes no sense at all.  Saying so is probably not what the general American public would want to hear.  Nevertheless, tax cuts for individuals and businesses are probably not going to have tangible effects other than increasing Obama’s popularity.  For most Americans, a few hundred dollar tax cut is not going to mean anything except that another bill gets paid.  In order for the money to be used to boost the economy, we need consumers to use the money on consumables- televisions, automobiles, snow-blowers, and virtually anything sold at the retail level.  Try asking someone in Nassau County who is considering Chapter 7 Bankruptcy to spend their money on a new flat screen T.V.  This is laughable.  People are going to use the money to pay the bills they are already or nearly behind on.  It is going to go to mortgage payments, utility payments, loans, other bills, and possibly groceries and gasoline.  If Americans use the money for these items, as they have in the past when given stimulus checks, then the purpose of providing those funds in the first place are null and void. 

 

But above all else, let us not forget who is going to pay for all of this- the same people getting the “stimulus” checks.  We’ll all be made to suffer when taxes increase in order to fund these congressional bills.  Talk about robbing Peter to pay Paul.  Is the fleecing of America beginning all over again?    

 

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In a country that can often be overly zealous in preventing what it perceives to be threats to its security, Americans still sometimes make serious mistakes by simply acting in good (but perhaps oblivious) faith.  We scrutinize every detail of our children’s daycare centers.  We search aggressively for trustworthy mechanics to work on our vehicles.  We read food labels and make decisions based on research we might have conducted.  We wear our seatbelts and have front, side, and curtain airbags.  We buy things like credit protection insurance.  We investigate potential employees, employers, and even our landscapers and maintenance workers.  With the level of security-mindedness of most Americans, one would think that it would be difficult to fool us.  However, despite all of our precautions, we are now facing what is perhaps the largest swindle ever committed in the world.  Apparently, when it came to Bernard Madoff, all of our natural and learned safety senses went out the window of a high-rise in Manhattan. 

 

Even before these frauds- both alleged and admitted- were revealed to the public, we were already facing serious economic difficulties, as evidenced by the sharp increase search engines experienced for terms such as “qualified bankruptcy attorney in Long Island” and “chapter 7 bankruptcy in Suffolk County.”  While most of the filings that probably resulted from those searches were personal, the Madoff fiasco is shaking the country in its financial core.  Especially in New York, there are a number of great and prestigious companies and organizations that are now considering those same lawful financial protection options afforded to every day consumers.   

 

So, is it really fair that the American public is being made to suffer even more?  This “ponzi scheme” is robbing countless aid and charity programs and organizations of critically needed funds.  As a result, many of them are closing down operations.  In addition, investors and other large financial firms are in danger.  All of this means that the American people are yet again bearing the brunt of these poor decisions.  The most tasteless aspect of this is that we simply must accept at least partial blame.  Dozens of reports are surfacing that Madoff’s operations were rarely investigated or scrutinized.  Very intelligent people trusted enormous amounts of money with Madoff while knowing full well that what he promised was virtually impossible by all accounts.  But sometimes, greed warps our better judgment, and we may choose to ignore that little voice that says: “If it sounds too good to be true, then it probably is.”

 

We can therefore add this to our New Year’s resolutions: to be as diligent and safe with our financial matters as we are with the safety of our family, our bodies, and our neighbors.  Because after all, the act of each of us making smart decisions about our money will help everybody- all over the world.  That is, as long as we recognize this as the wake-up call that it really is.    

 

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With the Holidays fast approaching, many people are facing the distasteful choice of either cutting back on what they give to their friends and families, or spending beyond their means and either going into debt or forgoing necessary payments (such as mortgage payments, bills, etc). A rash of irresponsible spending, while giving a quick superficial bump to the national economic numbers, would result in disaster in the coming months as it would likely lead directly to an increase in home foreclosures and chapter 13 bankruptcy in Long Island. Luckily for most of the country (excepting retailers), the Commerce Department reported a 1.8 percent drop in sales last month. This seems to be evidence that people are cutting back on spending, but it could have other causes.

 

The drop in monthly retail spending was the fifth consecutive one, and the longest extended period of falling sales since the Federal Government began keeping track of such numbers. This drop may have been due to consumers re-prioritizing how they spend their money, but it is more likely a result of less disposable income being available. The economy shed over 50,000 jobs last month, bringing the number of unemployed in our country nearer to six million than it has ever been.

 

While this news is clearly negative, it becomes even worse if two other facts are considered in conjunction with it. First, the government assumes that due to a constantly expanding workforce, 150,000 jobs must be created per month just to keep pace. A loss of 50,000 jobs, therefore, translates to a month in which 200,000 people are unable to find work. Second, people who are employed part time, underemployed, or who are employed for less than a living wage are not counted in these numbers. Many such people cannot keep up with bills and living expenses, let alone spend extra money for gifts, dinners, and other economic boosters. As the economy worsens, many workers will find their positions redefined, relegating them to the ranks of the working poor. These losses will not show up in unemployment figures, however, and so will be another unmeasured strain on the economy at large.

 

A weakening economy is an entity that fast becomes like a self-fulfilling prophecy. As jobs are lost discretionary spending decreases, which in turn strains retailers who then must cut more jobs, which further exacerbates the problem. With the prospect of the loss of the “big three” automakers looming, it is easy to see how fast things could get exponentially worse. While some may think it is their patriotic duty to go out and “shop ‘til they drop,” it is far wiser to ensure that you meet your major financial obligations before spending on luxuries. The number of people facing the prospect of unemployment, a decrease in wages or available hours to work, or other financial disaster is fast increasing, and no-one is immune. If you are in such a position as this and feeling increasingly desperate, then you should visit a local bankruptcy attorney to discuss your options. You may be able to improve your financial position and consequently your quality of life. 

 

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Times are tough. Our entire economy is in severe crisis, and with the rest of the world experiencing similar hardship it is unlikely that we will encounter a quick, easy solution. Home values are plummeting, causing people stuck with less than ideal mortgages major financial distress. Companies are folding and laying people off, making jobs even scarcer than they already are. Costs are skyrocketing for nearly all goods and services in our daily lives, and every indication is that things are probably going to get worse before they get better. If you are having a tough time right now, you are not alone. The good news is that there are solutions that you can use to improve your situation and relieve the burden of debt that is currently crushing you.

 

One very good option for some people is to declare bankruptcy. Bankruptcy rates are rapidly increasing from San Francisco, California, to Long Island, New York and everywhere in between. The people making the decision to declare bankruptcy are from all walks of life, and all income levels. There is no archetypal bankruptcy case. The one thing that they have in common is that they all made a business decision to help ease their burden and start over with a clean slate.

 

Some people with loads of personal debt do not consider bankruptcy as an option because they think that it is something to be ashamed of. This could not be farther from the truth. Declaring bankruptcy is not weaseling out of your financial obligations- it is making a serious and well thought-out business decision to utilize an established financial tool to help improve your quality of life.

 

Bankruptcy as an institution exists because people get caught in unexpected situations that turn their world upside-down. It is not designed to protect lazy people that are trying to game the system, but instead to protect people like you- hard working individuals that due to falling home values, rising medical expenses, or some other previously unforeseen trouble now find themselves on the verge of drowning. If the owners of a big corporation find themselves with mounting debt and little to no chance of recovery, they sell off their assets and declare bankruptcy, effectively canceling their debt. They do this without apology to laid-off workers or upset shareholders. They do not feel bad about the decision because they exercised their right to use an existing solution to minimize future hardship. This tool is available to you as well, and you should not discount it as an option because of a non-existent moral obligation to a creditor.

 

Declaring bankruptcy is an entirely valid way to address crippling debt before it is too late, and it can be the best decision for many people. As with any other business decision that you make, it is important to understand all of the facts. If you are experiencing financial trouble, talk to an experienced bankruptcy attorney who will be able to inform you about your myriad options and whether or not bankruptcy is a viable solution for you.

 

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How will this affect bankruptcies and foreclosures?

    Critics of the federal Bailout plan are many in number, and are ever more ferociously shouting their opposition.  Even to those who know nothing of financial matters, it can be clearly seen that the United States Government is treading in dangerous territory.  Essentially, the government has agreed to buy the sick and troubled assets of institutions that neared or fell into collapse as a result of those assets.  How does that make any sense?  Treasury Secretary Henry Paulson tells us that the purchase of these unhealthy assets will allow banks to distribute capital in the form of credit and other types of loans.  The idea is that the outflow of this credit will move the economy forward again, which will in turn increase the value of the assets held by the government, which can then be sold or returned to the issuing institutions.     While there is a possibility that this plan will work, it will in all likelihood only be for a short period of time.  What the bailout plan does not allow for is the fact that the troubled assets were troubled before the crisis began.  In fact, they were troubled because the borrowers themselves were in danger of defaulting.  Is it any wonder?  Subprime loans are exactly that- substandard.  American borrowers- be they individuals or businesses, carry far too much debt.  That simple fact is the cause of most of our current financial woes: we are over-burdened with debt, and as a whole will never be able to pay back what we owe.  Now, that being the case, how can buying the bad loans of banks so that they can make more loans to people who already could not repay the original loans solve the crisis that has rapidly turned global?  The answer is simple: it can’t.      Many critics of the bailout plan are in support of an alternative plan- one not likely to occur, that would aid the borrower as opposed to aiding the institution.  It makes absolute sense that by alleviating the current debt load of borrowers, there would be an immediate rise in spending, which would mean a rise in the production of goods and services- the healthiest type of stimulation an economy can receive.  Instead, the bailout plan seeks to do nothing more than continue the current status quo; and we have already seen where that will lead us.     So is there a “Plan B?”  Other than theories that will be posted everywhere in frustration and never attempted, the answer is no.  Nevertheless, for some, taking control of their own debt eradication comes in the form of a foreclosure or a bankruptcy.  In many cases, a borrower is better off financially by letting the bank foreclose on their home, rather than owing on a mortgage that is higher than the value of the home.  Bankruptcy is also an increasingly popular option to wipe debts clean and start over financially.  In many cases, bankruptcy even allows the owner to keep their home.  One thing is for certain- in these most trying of times, we should allow all options to remain open, because the only thing we can say for sure is that we cannot continue to do things the way we have been.   As Mike Bergeron from Nassau County, New York, put it:

        “We need a Plan B, C, and D- and they all need to be in action at the same time…”

  Agreed.  Now how exactly should Main Street communicate that to Wall Street and the Fed?                –

 

Can it Help Me Prevent Foreclosure or Bankruptcy?

  The bailout plan has passed, and we can all breathe a sigh of relief.  Or can we?  The uncomfortable fact of this matter is that most Americans do not even understand what the bailout plan is, never-mind how it will supposedly work.  The real truth is that this decision was out of the hands of the public anyway.  Driven by precisely marketed fear, our politicians approved the bailout, and we must now deal with it.  So what exactly does that mean, and why do we need the bailout in the first place?   In order to even begin to understand the bailout plan, a working comprehension of banking in general is necessary.  In order to achieve this, let’s take a look at banking on a sixth-grade level- the reading level most newspapers are written in.  We will start with Bank 1.  Bank 1 has 10 customers, who each have $100 in deposits.  Bank 1 now has a total of $1000 in deposits.  Of those 10 customers that Bank 1 has, 3 of them apply for loans totaling $3000.  Bank 1 uses its $1000 in deposits and borrows $2000 from Bank 2 to fund the loans.  Unfortunately, Bank 1 provided these loans to people with substandard credit conditions, and the loans went into default.  Consequently, Bank 1 fails.  Now Bank 2 has lost $2000.  It seeks to borrow money from Bank 3, but Bank 3 won’t lend any money because it is afraid that what happened to Bank 1 will happen to Bank 2.  So now banks in general stop lending to each other.  This means that when “Joe Plumber” or “Mary Real Estate” requires money to improve their businesses, buy more products, or for any other business need, the banks are not making loans.  This freezes spending, and when that happens, the economy dives into a recession.     While the preceding is a fairly easy scenario to try to imagine, that idea of it needs to be extrapolated many times over in order to understand what actually happened.  Thousands of consumers defaulted on obligations, and thousands of banks stopped lending.  That defines the credit crunch: when liquid credit markets that enabled the flow of currency to occur literally stopped.  This affected every part of the economy: banks failed, insurance giants disintegrated, the dollar lost value dramatically, and there was the sense of impending panic worldwide.  Thankfully, the Feds stepped in, bullied the bailout plan through congress, and here we are…   While our leaders are touting the bailout plan as providing relief for the everyday American citizen, this is not entirely accurate.  In fact, the plan is to be paid for by American taxpayers at a time when they can least afford it.  The plan does call for interest rates to be frozen on qualifying mortgages; however, this will only help an estimated 300,000 homeowners for about five years- if the plan moves along as originally intended.  So who is the plan really helping, and where is $700 billion dollars going?   First, the bailout plan does not mandate that $700 billion must be spent.  The plan allows up to that amount, which is a balanced projection of what it might cost to get us out of this financial mess.  What the Federal Government intends to do with the money is to invest in the securitized assets of banks that are in trouble, and have frozen or substantially slowed their lending.  Yes, that means that the United States Government will then own the same troubled and unhealthy assets that caused the meltdown in the first place.  This will allow banks to clear up their ledgers by removing risk-laden debt, and theoretically will provide the incentive banks need to start lending again.  This way, Joe Plumber spends money by growing his business, the bank profits from his loan, credit remains liquid, and the economy flows once again.  The most pressing question that remains now is whether or not the banks will swallow their fears and start lending again.  In addition to that query, and perhaps an even more vital question, is exactly what the Federal government plans to do with all those unhealthy assets they intend to buy with our money.  Bookmark this blog to find out.   –

 

When you model an economy on Vegas principles, you’re bound to lose.  That is precisely what we have done.  Americans gambled by borrowing and living beyond our means, and our banking systems gambled that we would somehow miraculously find a way to pay it all back.  Well, we didn’t find a way, and so here we are- scalding in the lava of a financial meltdown.   Furthermore, if history is any indicator of what to expect, this situation will potentially worsen before it gets better.  To minimize the damage and rebuild what we have lost, we must gain a unilateral understanding of how we got into this mess.  First and foremost, we need to accept some responsibility, and recognize that we all played an important part in this crisis.   In 2007, the debt to income ratio for Americans was 130%.  This means that we were spending all the income we generated, and then some.  In plain terms, we spent nearly a trillion dollars more than we earned.  Because of the housing boom and liquid credit markets that existed since the late nineties, we assumed challenging mortgages, purchased investment and vacation homes, demanded high-energy vehicles, and maxed out our credit cards- assuming the boom would continue and we would meet all our financial obligations.  Who did we turn to in order to finance all this?  That’s right- American banks.   Would you lend money to someone whose debt to income ratio was 130%?  Well, our lending institutions in this country did exactly that.  Banks made what are called subprime loans.  Subprime loans are issued to people whose credit is substandard.  These types of loans carry high interest rates and thus are profitable, but they also carry high default rates, and thus are considered risky.  Banks leveraged this risk by securitizing mortgage payments and credit portfolios and selling them to investors; turning an enormous profit in the meantime.  The most important of these are known as Mortgage-Backed Securities (MBS), and they are an integral part of the global marketplace.   Risk often means great rewards to investors; the riskier the investment, the higher the return.  American investors purchased the MBS, betting that more borrowers would pay than would default, and that the housing boom would continue.  However, as we all know, the housing boom did not continue.   Eventually, homeowners began to default on their loans.  The predatory lending practices that were widespread during the housing boom were starting to have an effect as teaser rates and other favorable terms expired, and homeowners found their interest and payment sometimes doubling or more.   Investors began to flee mortgage-backed securities too late, while banks simultaneously either failed altogether, or greatly tightened lending requirements.  In fact, the tightening of credit not only applied to mortgages and credit cards, but banks also stopped lending to each other.  This resulted in the credit “freeze”.  The credit freeze has made it nearly impossible for most companies and businesses to perform or procure work; resulting in layoffs, closings, sell-offs, and one of the highest unemployment rates in American history.   As homeowners defaulted on their loans and abandoned their properties, this coupled with the great surplus of homes built during the preceding few years served to drive the price of existing homes downward dramatically.  For many, homes were devalued to the point that they were worth less than the mortgage itself.   Thousands of people lost more than just money- they lost their life-savings and their livelihoods.  The personal wealth of Americans in general plummeted.   It certainly didn’t help that, during all of this, we also experienced an oil crisis.  Because of this, we are paying more for literally everything; from daily commuting expenses to groceries.  For the first time, Americans as a whole have begun to feel the strain of an economy gone astray.   We can see now where we have gone wrong: we as individuals gambled our personal wealth and spent beyond our means.  Our banking institutions gambled by looking the other way and ignoring pertinent information while making us loans that they should not have made.  Investors gambled that just the right amount of people would pay, and that just the right amount would default.  We all gambled that the housing boom would continue, and we all bet that our prized American lifestyle could not be interfered with.  But this is one bet that we lost- so far to the depressing tune of $700,000,000,000.   The question now is: “What are we going to do about it?”  Well, some tottering steps have been taken.  Six months ago Americans received an economic stimulus package.  Recently, our government rescued several organizations, and assumed a great deal of unhealthy mortgages.  Last week, we passed the “bailout” legislation.  But what more is the financial sector doing to solve these problems, and what will all this mean as we move toward 2009?  Bookmark this blog for clear, accurate answers!     –