208,078 New Listings - November 2009 - Last update November 20, 2009 12:30 PM EST 
Foreclosures Erase Gains Of Revised Bankruptcy Law
When Washington Mutual, J.P. Morgan Chase & Company and Bank of America Corporation lobbyed for revisions in the bankruptcy laws back in 2004-2005, Their intention was to protect credit card income from being discharged in bankruptcy proceedings. They succeeded and the law was revised to prevent cardholders from escaping credit card debt. Now, the epic nationwide foreclosure rate and associated losses have literally offset gains from people who have continued to pay their card balances even after being declared insolvent.
The banks, who invested $25 million in pushing through the revised bankruptcy law are paying dearly for that decision. The huge increase in foreclosures has reduced the value of securities that are backed by mortgages and resulted in more than $40 billion in write-downs for American financial institutions.
Even as foreclosure losses have skyrocketed upward, banks are still seeing improvements in the profits they realize from their credit card accounts. At this point in time, the money owed on credit cards with oayments in excess of thirty days late fell to $t-billion plus in the second quarter of this year. Just two years earlier, that figure was $8.4-billion. In the identical time period, foreclosed homes now owned by insured banks went up to $4.2-billion according to federal statistics. And according to Mortgage Bankers Association statistics, foreclosures in the 2nd quarter of 2007 rose to a record as the result of subprime adjustable rate mortgage (ARM) defaults.
The simple fact is that people are making their credit card payments a higher priority than their mortgage payments due to the fact that these debts cannot be discharged in bankruptcy under the revised law. Records show that more than 70% of people who are 90-days late on their mortgage payments are current on their credit cards.
The revised bankruptcy law makes it substantially more difficult for people to file a Chapter 7 bankruptcy to erase non-mortgage related debt. It also made people with median incomes higher than the average in their areas file a Chapter 13 bankruptcy action in lieu of Chapter 7 which allows them up as many as five years to pay off non-housing debts. The resetting of ARM interest rates are said to likely cause a major portion of Chapter 13 debtors to be unable to settle their bankruptcy payment plans as approved by the courts.
Right now, finance industry professionals are anticipating that as many as 4-million subprime mortgage borrowers with lower credit scores or poor credit histories will see their mortgage payments increase by up to 40% during the next year and a half. About 1.5-million of those individuals will end up in foreclosure by the time December, 31, 2008 comes around according to Moody’s Economy.com executive and Chief Economist Mark Zandi.
Personal bankruptcies went up by 48% to 391,105 during the first two quarters of 2007 compared to 2006 figures for the same period. Chapter 13 filings accounted for 33% of those.
Meanwhile Washington Mutual showed profits reduced by 72% during the third quarter of this year as the result of failed mortgage loans and Citigroup’s earnings fell 57 percent due to mortgage failures. In addition, J.P. Morgan had the smallest profit growth in more than two years. It appears that the dye is cast for the big boys thanks to the current foreclosure mess.
- What is the Best Method to Enter in to a Profit Making Investment in Foreclosures?
- How to Purchase the Real Estate in the Foreclosures?
- Are Foreclosures Considered a Viable Option for Home Buyers who Buy for the First Time?
- Florida Foreclosures for Homes with Excellent Offers
- Mansfield Helps Fight Foreclosures
- Foreclosures Drive the Recession
[...] saman put an intriguing blog post on Foreclosures Erase Gains Of Revised Bankruptcy Law.Here’s a quick excerpt:Even as foreclosure losses have skyrocketed upward, banks are still seeing improvements in the profits they realize from their credit card accounts. At this point in time, the money owed on credit cards with oayments in excess of thirty … [...]