LEARNING HOW TO FIGHT THE COLLECTOR
By ANDREW MARTIN
Among debt collectors, Steven Katz is known as a “credit terrorist.” For years, he has run what he calls the Steven Katz School of Bill Collector Education, otherwise known as the “credit terrorist training camp.”
Mr. Katz, a 58-year-old accountant in suburban Tucson, spends his free time schooling debtors on the finer points of consumer protection law to help them turn the tables on debt collectors. On occasion, he thumbs his own nose at them too.
“How many times can I sue you? Let me count the ways,” he wrote under his pseudonym, Dr. Tax, in a March posting on Inside ARM, a debt collectors’ Web site.
A former bill collector himself, Mr. Katz rebelled after a debt buyer damaged his credit score with what he says was a bogus bill. Mr. Katz sued, and in 2003 he collected his first damage award, a $1,000 check that he now keeps framed behind his desk.
“The bill collectors, when they call, make you feel like the only option you have is to lay down and play dead. That’s not true,” said Mr. Katz said, who does not charge for his advice. “Nothing validates this more than getting a check.”
Call this movement revenge of the (alleged) deadbeats. Even as collectors try to recoup debts from millions of Americans struggling to pay their bills, a small but growing number of lawyers and consumers are fighting back against what they describe as harassment, unscrupulous practices — and, most important to their litigiousness, violations of the Fair Debt Collection Practices Act.
In fact, 8,287 federal lawsuits were filed citing violations of the act in 2009, a 60 percent rise over the previous year, according to WebRecon, a site that tracks collection-related litigation and the most litigious consumers and lawyers on behalf of debt collectors.
On Wednesday, the Supreme Court made it even easier for consumers to use the courts to fight debt collectors, ruling that collectors cannot be shielded from suits by claiming they made a mistake in interpreting the law.
When a consumer stops paying a bill, creditors often try to collect on their own for a few months. In many instances, the creditor hires another company to collect the debt. In other cases, they may dispose of the debt by selling it to a debt buyer for a steep discount.
Debt collectors and debt buyers are the targets of litigious consumers, since the debt collection law primarily applies to third-party collectors.
Peter Barry, a Minneapolis trial lawyer, is so bullish on the future of debt collection litigation that he holds several “boot camps” each year to share his secrets with other lawyers who want in on the action. If the debtor wins a court case under the act, the debt collector must pay the lawyer’s fees.
The next boot camp is being held in early May in San Francisco, at a cost of $2,495 a person for two and a half days of instruction.
“I can’t sue every illegal debt collector in America, although I’d like to try,” Mr. Barry said.
Mr. Katz can also claim some credit for the increase in lawsuits. For six years, he has run a free Web site called Debtorboards.com, where people share tips on topics like keeping a paper trail and recording calls from collectors.
He said the site received two million hits in 2009, a 60 percent increase over the previous year.
“Debtorboards is geared to help people use the laws as they are on the books as both a shield and a sword,” said Mr. Katz, who says he has won $36,000 from his own litigation against collection agencies. (Since many of the settlements are confidential, it is difficult to prove the claims of Mr. Katz and others).
Of course, debt collectors are hardly pleased with the litigation trend.
Rozanne M. Andersen, chief executive of ACA International, a trade association for the debt collection industry, said she was “extremely concerned” about the increase in lawsuits, which she said cost her industry hundreds of millions of dollars a year. She said much of the increase was the result of ambiguous language in the Fair Debt Collection Act.
Debt collectors are required, for example, to identify themselves on a voice message left for a consumer, she said. But they are also prohibited from telling a third party — including someone who might overhear a phone message — about a consumer’s debt.
“We are between a rock and a hard place,” Ms. Andersen said.
Ms. Andersen said she had little patience for Web sites that encouraged consumers to thwart debt collectors.
“We believe those types of Web sites are encouraging people to not take responsibility for just debt,” she said.
Jack Gordon, who runs the fee-based WebRecon site, said it was no wonder lawsuits were increasing, because consumers were being bombarded with ads from lawyers when they searched online for information on debt collection. He said the proliferation of discussion sites like Mr. Katz’s had, to a lesser extent, also contributed to the trend.
On the boards, he said, “There’s a lot of hot air, a lot of people who overinflate their accomplishments.”
Regardless, Mr. Gordon’s database has become a badge of honor among the devotees of Debtorboards.com. As Brandon Scroggin, a 37-year-old from Little Rock, Ark., puts it, “That’s one list I’m a proud card-carrying member of.”
Mr. Scroggin, who provides price estimates at a body shop, said he was the type of person who refused to be taken advantage of, even for petty offenses. For instance, years ago, he said he joined in the class-action suit against the pop group Milli Vanilli, accused of lip synching, and collected a $1.25 check.
After a messy divorce, Mr. Scroggin was stuck with a $7,000 bill that he said belonged to his ex-wife. Instead of paying it, he began researching the law and stumbled on Debtorboards.com.
Armed with lessons he learned on the site, he demanded proof of the debt from the collection agency, and the calls stopped. But two and a half years later, they started up again so he sued the collection agency, National Loan Recoveries, for failing to provide proof of the debt, among other things.
The case was settled in 2008. The terms were confidential, but he says he never paid National Loan a dime. “Let’s just say I’m a very happy person,” he said. A lawyer for National Loan, Kathryn Bridges, did not return messages seeking comment.
Mr. Katz said his Web site was not intended to help people avoid paying legitimate debts. But if they do so, so be it — he feels no need to apologize.
He said Congress gave consumers certain rights, and he is simply making people aware of them, sometimes colorfully.
As Mr. Katz says at the bottom of each Dr. Tax posting, “A telephone in the hands of a collector is like a crowbar — it can be used to pry a mouth open wide enough to insert a foot.”
Barbara Thompson, 46, of Atlanta, said she challenged $11,000 in credit card debt using online research about collection laws. She does not dispute the debts but reasons that the credit card company wrote off her charges long ago. By her account, she owes the credit card company, not the debt collector.
“The credit card company, they sell it off, they charge it off, it’s just business as usual,” she said, adding, “I’m adamant about not paying a collection agency.”
Mr. Katz, a 58-year-old accountant in suburban Tucson, spends his free time schooling debtors on the finer points of consumer protection law to help them turn the tables on debt collectors. On occasion, he thumbs his own nose at them too.
“How many times can I sue you? Let me count the ways,” he wrote under his pseudonym, Dr. Tax, in a March posting on Inside ARM, a debt collectors’ Web site.
A former bill collector himself, Mr. Katz rebelled after a debt buyer damaged his credit score with what he says was a bogus bill. Mr. Katz sued, and in 2003 he collected his first damage award, a $1,000 check that he now keeps framed behind his desk.
“The bill collectors, when they call, make you feel like the only option you have is to lay down and play dead. That’s not true,” said Mr. Katz said, who does not charge for his advice. “Nothing validates this more than getting a check.”
Call this movement revenge of the (alleged) deadbeats. Even as collectors try to recoup debts from millions of Americans struggling to pay their bills, a small but growing number of lawyers and consumers are fighting back against what they describe as harassment, unscrupulous practices — and, most important to their litigiousness, violations of the Fair Debt Collection Practices Act.
In fact, 8,287 federal lawsuits were filed citing violations of the act in 2009, a 60 percent rise over the previous year, according to WebRecon, a site that tracks collection-related litigation and the most litigious consumers and lawyers on behalf of debt collectors.
On Wednesday, the Supreme Court made it even easier for consumers to use the courts to fight debt collectors, ruling that collectors cannot be shielded from suits by claiming they made a mistake in interpreting the law.
When a consumer stops paying a bill, creditors often try to collect on their own for a few months. In many instances, the creditor hires another company to collect the debt. In other cases, they may dispose of the debt by selling it to a debt buyer for a steep discount.
Debt collectors and debt buyers are the targets of litigious consumers, since the debt collection law primarily applies to third-party collectors.
Peter Barry, a Minneapolis trial lawyer, is so bullish on the future of debt collection litigation that he holds several “boot camps” each year to share his secrets with other lawyers who want in on the action. If the debtor wins a court case under the act, the debt collector must pay the lawyer’s fees.
The next boot camp is being held in early May in San Francisco, at a cost of $2,495 a person for two and a half days of instruction.
“I can’t sue every illegal debt collector in America, although I’d like to try,” Mr. Barry said.
Mr. Katz can also claim some credit for the increase in lawsuits. For six years, he has run a free Web site called Debtorboards.com, where people share tips on topics like keeping a paper trail and recording calls from collectors.
He said the site received two million hits in 2009, a 60 percent increase over the previous year.
“Debtorboards is geared to help people use the laws as they are on the books as both a shield and a sword,” said Mr. Katz, who says he has won $36,000 from his own litigation against collection agencies. (Since many of the settlements are confidential, it is difficult to prove the claims of Mr. Katz and others).
Of course, debt collectors are hardly pleased with the litigation trend.
Rozanne M. Andersen, chief executive of ACA International, a trade association for the debt collection industry, said she was “extremely concerned” about the increase in lawsuits, which she said cost her industry hundreds of millions of dollars a year. She said much of the increase was the result of ambiguous language in the Fair Debt Collection Act.
Debt collectors are required, for example, to identify themselves on a voice message left for a consumer, she said. But they are also prohibited from telling a third party — including someone who might overhear a phone message — about a consumer’s debt.
“We are between a rock and a hard place,” Ms. Andersen said.
Ms. Andersen said she had little patience for Web sites that encouraged consumers to thwart debt collectors.
“We believe those types of Web sites are encouraging people to not take responsibility for just debt,” she said.
Jack Gordon, who runs the fee-based WebRecon site, said it was no wonder lawsuits were increasing, because consumers were being bombarded with ads from lawyers when they searched online for information on debt collection. He said the proliferation of discussion sites like Mr. Katz’s had, to a lesser extent, also contributed to the trend.
On the boards, he said, “There’s a lot of hot air, a lot of people who overinflate their accomplishments.”
Regardless, Mr. Gordon’s database has become a badge of honor among the devotees of Debtorboards.com. As Brandon Scroggin, a 37-year-old from Little Rock, Ark., puts it, “That’s one list I’m a proud card-carrying member of.”
Mr. Scroggin, who provides price estimates at a body shop, said he was the type of person who refused to be taken advantage of, even for petty offenses. For instance, years ago, he said he joined in the class-action suit against the pop group Milli Vanilli, accused of lip synching, and collected a $1.25 check.
After a messy divorce, Mr. Scroggin was stuck with a $7,000 bill that he said belonged to his ex-wife. Instead of paying it, he began researching the law and stumbled on Debtorboards.com.
Armed with lessons he learned on the site, he demanded proof of the debt from the collection agency, and the calls stopped. But two and a half years later, they started up again so he sued the collection agency, National Loan Recoveries, for failing to provide proof of the debt, among other things.
The case was settled in 2008. The terms were confidential, but he says he never paid National Loan a dime. “Let’s just say I’m a very happy person,” he said. A lawyer for National Loan, Kathryn Bridges, did not return messages seeking comment.
Mr. Katz said his Web site was not intended to help people avoid paying legitimate debts. But if they do so, so be it — he feels no need to apologize.
He said Congress gave consumers certain rights, and he is simply making people aware of them, sometimes colorfully.
As Mr. Katz says at the bottom of each Dr. Tax posting, “A telephone in the hands of a collector is like a crowbar — it can be used to pry a mouth open wide enough to insert a foot.”
Barbara Thompson, 46, of Atlanta, said she challenged $11,000 in credit card debt using online research about collection laws. She does not dispute the debts but reasons that the credit card company wrote off her charges long ago. By her account, she owes the credit card company, not the debt collector.
“The credit card company, they sell it off, they charge it off, it’s just business as usual,” she said, adding, “I’m adamant about not paying a collection agency.”
What Bankruptcy Can and Cannot Do
What Bankruptcy Can and Cannot Do
Copyright 2010 Nolo
Bankruptcy is a powerful tool for debtors, but some kinds of debts can't be wiped out in bankruptcy.
Bankruptcy is good at wiping out credit card debt, but you may have trouble eliminating some other kinds of debts, including child support, alimony, most tax debts, student loans, and secured debts.
What Bankruptcy Can Do
If you are facing serious debt problems, bankruptcy may offer a powerful remedy. Here are some of the things filing for bankruptcy can do:
Wipe out credit card debt and other unsecured debts. Bankruptcy is very good at wiping out credit card debt. Unless you have a special "secured" credit card, your credit card balance is an unsecured debt -- that is, the creditor does not have a lien on any of your property and cannot repossess any items if you fail to pay the debt. This is precisely the kind of debt that bankruptcy is designed to eliminate. Besides credit card debt, you may have other unsecured debts, and bankruptcy can wipe these out as well.
If you file for Chapter 13 rather than Chapter 7, you may have to pay back some portion of your unsecured debts. However, any unsecured debts that remain once your repayment plan is complete will be discharged.
Stop creditor harassment and collection activities. Bankruptcy can stop creditor harassment, but if the "harassment"' is simply phone calls and letters, there are simpler ways to stop it; . If the harassment is more serious -- for instance, if the creditor is about to repossess your car or foreclose your mortgage -- bankruptcy can help; .
Eliminate certain kinds of liens. A lien is a creditor's right to take some or all of your property and will survive bankruptcy unless you invoke certain procedures during your bankruptcy case. For more information, see How to File for Chapter 7 Bankruptcy, by attorney Stephen Elias, attorney Albin Renauer, and Robin Leonard, J.D. (Nolo).
What Bankruptcy Can't Do
Here's what bankruptcy cannot do for you:
Prevent a secured creditor from repossessing property. A bankruptcy discharge eliminates debts, but it does not eliminate liens. So, if you have a secured debt (a debt where the creditor has a lien on your property and can repossess it if you don't pay the debt), bankruptcy can eliminate the debt, but it does not prevent the creditor from repossessing the property.
Eliminate child support and alimony obligations. Child support and alimony obligations survive bankruptcy -- you will continue to owe these debts in full, just as if you had never filed for bankruptcy. And if you use Chapter 13, your plan will have to provide for these debts to be repaid in full.
Wipe out student loans, except in very limited circumstances. Student loans can be discharged in bankruptcy only if you can show that repaying the loan would cause you "undue hardship," a very tough standard to meet. You must be able to show not only that you cannot afford to pay your loans now, but also that you have very little likelihood of being able to pay your loans in the future.
Eliminate most tax debts. Eliminating tax debt in bankruptcy is not easy, but it is sometimes possible for older debts for unpaid income taxes. There are many requirements to be met, however.
Eliminate other nondischargeable debts. The following debts are not dischargeable under either Chapter 7 or Chapter 13 bankruptcy: debts you forget to list in your bankruptcy papers, unless the creditor learns of your bankruptcy case debts for personal injury or death caused by your intoxicated driving, and fines and penalties imposed for violating the law, such as traffic tickets and criminal restitution.
If you file for Chapter 7, these debts will remain when your case is over. If you file for Chapter 13, these debts will have to be paid in full during your repayment plan. If they are not repaid in full, the balance will remain at the end of your case.
In addition, some types of debts may not be discharged if the creditor convinces the judge that they should survive your bankruptcy. These include debts incurred through fraud, such as lying on a credit application or passing off borrowed property as your own to use as collateral for a loan.
What Only Chapter 13 Bankruptcy Can Do
Chapter 7 can't help you with these situations, but Chapter 13 can:
Stop a mortgage foreclosure. Filing for Chapter 13 bankruptcy will stop a foreclosure and force the lender to accept a plan where you make up the missed payments over time while staying current on your regular monthly payments. To make this plan work, you must be able to demonstrate that you will have enough income in the future to support such a repayment plan.
Allow you to keep nonexempt property. You don't have to give up any property in Chapter 13 because you use your income to fund your repayment plan.
"Cram down" secured debts that are worth more than the property that secures them. You can sometimes use Chapter 13 to reduce a debt to the replacement value of the property securing it, then pay off that debt through your plan. For example, if you owe $10,000 on a car loan and the car is worth only $6,000, you can propose a plan that pays the creditor $6,000 and have the rest of the loan discharged. However, under the new bankruptcy law, you can’t cram down a car debt if you purchased the car during the 30-month period before you filed for bankruptcy. For other types of personal property, you can’t cram down a secured debt if you purchased the property within one year of filing for bankruptcy.
For more information on Chapter 13 bankruptcy, see Chapter 13 Bankruptcy: Repay Your Debts, by attorney Stephen Elias and Robin Leonard, J.D. (Nolo).
Copyright 2010 Nolo
Bankruptcy is a powerful tool for debtors, but some kinds of debts can't be wiped out in bankruptcy.
Bankruptcy is good at wiping out credit card debt, but you may have trouble eliminating some other kinds of debts, including child support, alimony, most tax debts, student loans, and secured debts.
What Bankruptcy Can Do
If you are facing serious debt problems, bankruptcy may offer a powerful remedy. Here are some of the things filing for bankruptcy can do:
Wipe out credit card debt and other unsecured debts. Bankruptcy is very good at wiping out credit card debt. Unless you have a special "secured" credit card, your credit card balance is an unsecured debt -- that is, the creditor does not have a lien on any of your property and cannot repossess any items if you fail to pay the debt. This is precisely the kind of debt that bankruptcy is designed to eliminate. Besides credit card debt, you may have other unsecured debts, and bankruptcy can wipe these out as well.
If you file for Chapter 13 rather than Chapter 7, you may have to pay back some portion of your unsecured debts. However, any unsecured debts that remain once your repayment plan is complete will be discharged.
Stop creditor harassment and collection activities. Bankruptcy can stop creditor harassment, but if the "harassment"' is simply phone calls and letters, there are simpler ways to stop it; . If the harassment is more serious -- for instance, if the creditor is about to repossess your car or foreclose your mortgage -- bankruptcy can help; .
Eliminate certain kinds of liens. A lien is a creditor's right to take some or all of your property and will survive bankruptcy unless you invoke certain procedures during your bankruptcy case. For more information, see How to File for Chapter 7 Bankruptcy, by attorney Stephen Elias, attorney Albin Renauer, and Robin Leonard, J.D. (Nolo).
What Bankruptcy Can't Do
Here's what bankruptcy cannot do for you:
Prevent a secured creditor from repossessing property. A bankruptcy discharge eliminates debts, but it does not eliminate liens. So, if you have a secured debt (a debt where the creditor has a lien on your property and can repossess it if you don't pay the debt), bankruptcy can eliminate the debt, but it does not prevent the creditor from repossessing the property.
Eliminate child support and alimony obligations. Child support and alimony obligations survive bankruptcy -- you will continue to owe these debts in full, just as if you had never filed for bankruptcy. And if you use Chapter 13, your plan will have to provide for these debts to be repaid in full.
Wipe out student loans, except in very limited circumstances. Student loans can be discharged in bankruptcy only if you can show that repaying the loan would cause you "undue hardship," a very tough standard to meet. You must be able to show not only that you cannot afford to pay your loans now, but also that you have very little likelihood of being able to pay your loans in the future.
Eliminate most tax debts. Eliminating tax debt in bankruptcy is not easy, but it is sometimes possible for older debts for unpaid income taxes. There are many requirements to be met, however.
Eliminate other nondischargeable debts. The following debts are not dischargeable under either Chapter 7 or Chapter 13 bankruptcy: debts you forget to list in your bankruptcy papers, unless the creditor learns of your bankruptcy case debts for personal injury or death caused by your intoxicated driving, and fines and penalties imposed for violating the law, such as traffic tickets and criminal restitution.
If you file for Chapter 7, these debts will remain when your case is over. If you file for Chapter 13, these debts will have to be paid in full during your repayment plan. If they are not repaid in full, the balance will remain at the end of your case.
In addition, some types of debts may not be discharged if the creditor convinces the judge that they should survive your bankruptcy. These include debts incurred through fraud, such as lying on a credit application or passing off borrowed property as your own to use as collateral for a loan.
What Only Chapter 13 Bankruptcy Can Do
Chapter 7 can't help you with these situations, but Chapter 13 can:
Stop a mortgage foreclosure. Filing for Chapter 13 bankruptcy will stop a foreclosure and force the lender to accept a plan where you make up the missed payments over time while staying current on your regular monthly payments. To make this plan work, you must be able to demonstrate that you will have enough income in the future to support such a repayment plan.
Allow you to keep nonexempt property. You don't have to give up any property in Chapter 13 because you use your income to fund your repayment plan.
"Cram down" secured debts that are worth more than the property that secures them. You can sometimes use Chapter 13 to reduce a debt to the replacement value of the property securing it, then pay off that debt through your plan. For example, if you owe $10,000 on a car loan and the car is worth only $6,000, you can propose a plan that pays the creditor $6,000 and have the rest of the loan discharged. However, under the new bankruptcy law, you can’t cram down a car debt if you purchased the car during the 30-month period before you filed for bankruptcy. For other types of personal property, you can’t cram down a secured debt if you purchased the property within one year of filing for bankruptcy.
For more information on Chapter 13 bankruptcy, see Chapter 13 Bankruptcy: Repay Your Debts, by attorney Stephen Elias and Robin Leonard, J.D. (Nolo).
NEW DEBT LIMITS FOR CHAPTER 13 BANKRUPTCY DEBTORS
As of April 1, 2010, the 109(e) debt limits increased to the following amounts:
Unsecured Debt: $ 360,475.00
Secured Debt: $1,081,400.00
11 USC 109(e) defines who can be a debtor under chapter 13. Of course, you can still file bankruptcy if you owe more than these amounts.
Unsecured Debt: $ 360,475.00
Secured Debt: $1,081,400.00
11 USC 109(e) defines who can be a debtor under chapter 13. Of course, you can still file bankruptcy if you owe more than these amounts.
FANNIE MAE POLL: CONSUMER FAITH IN HOMEOWNERSHIP DROPS
Interesting article in the Washington Post about Fannie Mae's recent survey, which found that many people are less likely to take risks related to home-buying. In 2003, 83 percent of those interviewed in a similar Fannie Mae study said real estate was a safe investment, compared with about 70 percent in the most recent survey. About 48 percent of those surveyed said that banks should foreclose on people who are unable to pay their mortgages. A softer attitude was reflected if the homeowners in trouble owed more than their home was worth.
http://www.washingtonpost.com/wp-dyn/content/article/2010/04/06/AR2010040600134_pf.html
http://www.washingtonpost.com/wp-dyn/content/article/2010/04/06/AR2010040600134_pf.html
Things Debt Collectors Cannot Do
Here are a list of Things Debt Collectors Cannot Do:
Debt collectors cannot:
• Harass you or people who know you;
• Talk to anyone except you (or your attorney ) about the debt;
• Call people you know for any reason except to locate you;
• Physically or verbally threaten you;
• Swear at you;
• Call you repeatedly;
• Imply they're government employees;
• Say they're attorneys, if they're not;
• Falsely imply you've committed a crime (debts are civil, not criminal);
• Misrepresent the amount you owe;
• Ignore your written denial of the debt--they must show you proof it's your's.
Debt collectors cannot:
• Harass you or people who know you;
• Talk to anyone except you (or your attorney ) about the debt;
• Call people you know for any reason except to locate you;
• Physically or verbally threaten you;
• Swear at you;
• Call you repeatedly;
• Imply they're government employees;
• Say they're attorneys, if they're not;
• Falsely imply you've committed a crime (debts are civil, not criminal);
• Misrepresent the amount you owe;
• Ignore your written denial of the debt--they must show you proof it's your's.
Bankruptcy Filing Statistics Increase
April 04, 2010
Some Quarterly Filing Statistics
Total 7 11 12 13
3/31/2010 378,400
12/31/2009 366,000 258,100 3,615 145 104,200
9/30/2009 381,500 270,200 3,525 158 107,600
6/30/2009 375,100 270,700 4,338 131 99,900
3/31/2009 330,500 233,500 3,649 102 93,200
Total 2009 1,453,100 1,032,500 15,127 536 404,900
12/31/2008 301,300 202,100 3,175 90 95,900
9/30/2008 292,300 195,200 2,712 89 94,300
6/30/2008 276,500 187,400 1,888 85 87,100
3/31/2008 245,700 158,500 2,012 81 85,100
Total 2008 1,115,800 743,200 9,787 345 362,400
12/31/2007 226,400 137,600 1,793 77 86,900
9/30/2007 218,900 132,000 1,583 71 85,200
6/30/2007 210,400 131,500 1,574 112 77,200
3/31/2007 193,600 117,700 1,406 104 74,400
Total 2007 849,300 518,800 6,356 364 323,700
Statistics from 3/31/09 back come from US Courts.gov;
from 6/30/09 forward from Bankruptcy Data Project
Some Quarterly Filing Statistics
Total 7 11 12 13
3/31/2010 378,400
12/31/2009 366,000 258,100 3,615 145 104,200
9/30/2009 381,500 270,200 3,525 158 107,600
6/30/2009 375,100 270,700 4,338 131 99,900
3/31/2009 330,500 233,500 3,649 102 93,200
Total 2009 1,453,100 1,032,500 15,127 536 404,900
12/31/2008 301,300 202,100 3,175 90 95,900
9/30/2008 292,300 195,200 2,712 89 94,300
6/30/2008 276,500 187,400 1,888 85 87,100
3/31/2008 245,700 158,500 2,012 81 85,100
Total 2008 1,115,800 743,200 9,787 345 362,400
12/31/2007 226,400 137,600 1,793 77 86,900
9/30/2007 218,900 132,000 1,583 71 85,200
6/30/2007 210,400 131,500 1,574 112 77,200
3/31/2007 193,600 117,700 1,406 104 74,400
Total 2007 849,300 518,800 6,356 364 323,700
Statistics from 3/31/09 back come from US Courts.gov;
from 6/30/09 forward from Bankruptcy Data Project
Mortgage Crisis Update: Treasury Tinkers with Failed HAMP Program, Delinquencies and Foreclosures Stubbornly Refuse to Go Away
Mortgage Crisis Update: Treasury Tinkers with Failed HAMP Program, Delinquencies and Foreclosures Stubbornly Refuse to Go Away
Posted: 03 Apr 2010 09:51 AM PDT
By Alan White
While the stimulus package and bank bailouts have treated the symptoms of the crisis and saved the banking and mortgage finance systems from collapse, the foreclosure crisis itself is about as bad as ever. As the foreclosure crisis enters its fourth year, there are some signs that things are not getting worse, but little evidence they will get better any time soon. New foreclosure starts reached a peak of about 250,000 monthly in the third quarter of 2009, or about quadruple their level in mid-2006 just before the crisis. The fourth quarter saw a significant decline in foreclosures starts, in both the Mortgage Bankers survey and the OCC/OTS report, to something like triple the pre-crisis numbers. On the other hand the inventory of foreclosures remains at their peak of more than three times pre-crisis levels, as do total delinquent mortgages (about one in seven mortgages are now delinquent or in foreclosure, compared to less than one in twenty just before the crisis began.)
Something like 2.2 million foreclosure sales have been completed since July 2007, which should have eliminated almost half a trillion dollars in mortgage debt. On the other hand, an equal number of mortgages have been modified, in the majority of cases resulting in significant increases in mortgage principal through capitalization. Net mortgage borrowing for all Americans has been negative for the past six quarters, but total mortgage debt has declined only slightly, from $10.5 trillion to about $10.2 trillion, from the peak in March 2008 to the Fed’s latest sounding on December 31, 2009. The deleveraging of American homeowners has a long way to go (total mortgage debt was less than $5 trillion at the beginning of 2001.)
Another way to think about it is to compare the drop in mortgage debt to the drop in home values, i.e. just how underwater are we? The Case-Shiller index of home prices has declined about 30% from its peak, and mortgage debt is down by only 3%. This can’t be good. Incidentally, credit card and other consumer debt is down only about 5% from its 2008 peak, after a 30% runup in the five years prior.
The Administration’s HAMP program to address foreclosures by paying servicers to modify mortgages they should be modifying anyway, has failed. It has resulted in a net decline in monthly modifications and no perceptible dent in the foreclosure inventory. The HOPE NOW servicer coalition claims that in January 2010 for the first time HAMP modifications plus modifications servicers did without Treasury help rose to 150,000, significantly higher than the 120,000 monthly total modifications done before HAMP was launched in March 2009. If true this would be good news, but the investor reports I follow are not showing the large increase in modifications HOPE NOW is touting. In any event, 100,000 to 150,000 monthly modifications, even if they were all successful, does not solve the problem of 200,000 new foreclosures filed every month and an inventory of 6 million mortgages delinquent or in foreclosure.
Two weeks ago Treasury announced some tweaks to HAMP that I doubt will have much impact. The tweaks address two important issues, but with inadequate half measures. Servicers are encouraged to assist unemployed homeowners by reducing payments further for three to six months. Most servicers can do this under non-HAMP programs already. A serious program to help the unemployed would subsidize their monthly payments for 12 to 24 months, as Pennsylvania’s HEMAP loan program does.
The second HAMP tweak is an effort to get servicers to include permanent loan principal reduction in their mods. The Hope for Homeowners refinance program already proved that servicers have no interest in voluntarily reducing mortgage debt. Treasury’s new version will offer 10% to 20% subsidies for principal write-down in conjunction with permanent modifications. To date, fewer than 1% of HAMP modifications have included principal write-down. It seems unlikely that a 10% subsidy will change servicer behavior dramatically.
The main difficulty with HAMP has been Treasury’s insistence on being excessively prescriptive in telling servicers how to work out loans. A year into the program, servicers still do two-thirds of their modifications outside HAMP, despite the generous taxpayer subsidies HAMP offers.
Sooner or later banks and investors will realize the absolute necessity of writing down mortgage principal. Instead of nudging, Treasury needs to consider seriously some compulsory write-offs of underwater second mortgages and mandatory principal reduction for owner-occupants who are making modified payments faithfully, often on temporary plans that never seem to become permanent. Unless taxpayer intervention is speeding up the necessary deleveraging process, HAMP expenditures are simply wasted.
Posted: 03 Apr 2010 09:51 AM PDT
By Alan White
While the stimulus package and bank bailouts have treated the symptoms of the crisis and saved the banking and mortgage finance systems from collapse, the foreclosure crisis itself is about as bad as ever. As the foreclosure crisis enters its fourth year, there are some signs that things are not getting worse, but little evidence they will get better any time soon. New foreclosure starts reached a peak of about 250,000 monthly in the third quarter of 2009, or about quadruple their level in mid-2006 just before the crisis. The fourth quarter saw a significant decline in foreclosures starts, in both the Mortgage Bankers survey and the OCC/OTS report, to something like triple the pre-crisis numbers. On the other hand the inventory of foreclosures remains at their peak of more than three times pre-crisis levels, as do total delinquent mortgages (about one in seven mortgages are now delinquent or in foreclosure, compared to less than one in twenty just before the crisis began.)
Something like 2.2 million foreclosure sales have been completed since July 2007, which should have eliminated almost half a trillion dollars in mortgage debt. On the other hand, an equal number of mortgages have been modified, in the majority of cases resulting in significant increases in mortgage principal through capitalization. Net mortgage borrowing for all Americans has been negative for the past six quarters, but total mortgage debt has declined only slightly, from $10.5 trillion to about $10.2 trillion, from the peak in March 2008 to the Fed’s latest sounding on December 31, 2009. The deleveraging of American homeowners has a long way to go (total mortgage debt was less than $5 trillion at the beginning of 2001.)
Another way to think about it is to compare the drop in mortgage debt to the drop in home values, i.e. just how underwater are we? The Case-Shiller index of home prices has declined about 30% from its peak, and mortgage debt is down by only 3%. This can’t be good. Incidentally, credit card and other consumer debt is down only about 5% from its 2008 peak, after a 30% runup in the five years prior.
The Administration’s HAMP program to address foreclosures by paying servicers to modify mortgages they should be modifying anyway, has failed. It has resulted in a net decline in monthly modifications and no perceptible dent in the foreclosure inventory. The HOPE NOW servicer coalition claims that in January 2010 for the first time HAMP modifications plus modifications servicers did without Treasury help rose to 150,000, significantly higher than the 120,000 monthly total modifications done before HAMP was launched in March 2009. If true this would be good news, but the investor reports I follow are not showing the large increase in modifications HOPE NOW is touting. In any event, 100,000 to 150,000 monthly modifications, even if they were all successful, does not solve the problem of 200,000 new foreclosures filed every month and an inventory of 6 million mortgages delinquent or in foreclosure.
Two weeks ago Treasury announced some tweaks to HAMP that I doubt will have much impact. The tweaks address two important issues, but with inadequate half measures. Servicers are encouraged to assist unemployed homeowners by reducing payments further for three to six months. Most servicers can do this under non-HAMP programs already. A serious program to help the unemployed would subsidize their monthly payments for 12 to 24 months, as Pennsylvania’s HEMAP loan program does.
The second HAMP tweak is an effort to get servicers to include permanent loan principal reduction in their mods. The Hope for Homeowners refinance program already proved that servicers have no interest in voluntarily reducing mortgage debt. Treasury’s new version will offer 10% to 20% subsidies for principal write-down in conjunction with permanent modifications. To date, fewer than 1% of HAMP modifications have included principal write-down. It seems unlikely that a 10% subsidy will change servicer behavior dramatically.
The main difficulty with HAMP has been Treasury’s insistence on being excessively prescriptive in telling servicers how to work out loans. A year into the program, servicers still do two-thirds of their modifications outside HAMP, despite the generous taxpayer subsidies HAMP offers.
Sooner or later banks and investors will realize the absolute necessity of writing down mortgage principal. Instead of nudging, Treasury needs to consider seriously some compulsory write-offs of underwater second mortgages and mandatory principal reduction for owner-occupants who are making modified payments faithfully, often on temporary plans that never seem to become permanent. Unless taxpayer intervention is speeding up the necessary deleveraging process, HAMP expenditures are simply wasted.
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