Southern California Bankruptcy Law Blog

Mortgage Modification And Bankruptcy

Posted in Home Loans

In a recent blog I discussed the abysmal failure of the HAMP program.  It looks like things are even worse than I stated.

In a recent headline from the Wall Street Journal’s Market Watch: “New recession begins next year, Shilling says.”  Who is Shilling, and why should I care?

According to Howard Gold, Gary Shilling, economist and author of “The Age of Deleveraging” was of “one of the few people who saw the housing bust and financial crisis coming years before they happened.  Gold states that: 

Shilling . . . [is] looking for another 20% drop in housing prices before we hit bottom in 2013. . . .  Since housing prices nationally already have fallen by a third from their peak, that means that, if he’s right, they’ll end up a stomach-churning 45% off their early 2006 highs.  Yale Prof. Robert Shiller, co-creator of the Standard & Poor’s/Case-Shiller Home Price index, has a similar prediction.  For Shilling, it’s all about inventories:  He estimates there are upwards of two million homes on the market that people want to sell but can’t.  That’s deflated housing starts, which now stand at about a third of their normal 1.5 million a year.  From a high 6.3% of GDP in the fourth quarter of 2005, residential construction now represents only 2.2% of GDP.  Not only is that a half-a-trillion-dollar gap; housing’s volatility makes it an important force in a cyclical recovery, said Shilling, and the paucity of home building has clearly taken a toll on this one. . . . Lenders have foreclosed on 3.5 million American homes since 2007; Shilling expects millions of more foreclosures in the years ahead. . . . The government and the Federal Reserve have thrown everything at the economy, with minimal results.  The Fed’s quantitative easing programs did little except boost commodities prices and stimulate the stock market, he said, and he thinks the commodities mini-bubble already has burst.  The Obama administration’s own attempt to “fix” the housing market — the Home Affordable Modification Program (HAMP) — was, in Shilling’s words, “a miserable failure.”

In sum, it doesn’t look like the economy is going to improve in the near future. 

What does this mean to you if you are underwater, are having trouble making your mortgage payments, and have significant unsecured debt such as credit card liabilities?  It could mean that you will be unable to make much progress in dealing with those debts for years to come.  This is where a dose of realism is helpful.  If you look down the road of your life and do not foresee freedom from debt within the next five years, you should seriously consider seeking bankruptcy protection.  Bankruptcy can get rid of those debts and make it possible to start over.  Once the debts are gone you can begin saving for the future.