Archive for the 'Bankruptcy' Category

Houses at foreclosure and bankruptcy auction sales are offered at very low prices. With interest rates also remaining low, now would have been a great time for families and individuals to buy a home. However, most of them are unable to do so because of lack of savings that they can use to pay for the down payment.

In Kentucky, potential buyers of non-foreclosed and even foreclosed properties at home auctions in Louisville and in other areas of the state are able to secure their first homes with the assistance of the Kentucky Housing Corp. (KHC). The home financing agency is assisting first time buyers in coming up with the down payment for a house purchase and also operates a foreclosure mitigation center aimed at troubled homeowners.

KHC's Kentucky Homeownership Protection Center is geared towards troubled borrowers in danger of losing their homes to foreclosure auctions in Kentucky. Aside from the center and the down payment assistance, the agency also offers affordable residential grants. Recently, the housing group has expanded its assistance coverage by including residents who have owned homes before. Prior to the service expansion, KHC only provides assistance to first time house buyers who have household incomes of a maximum of 120% of the median income in their county.

The change in the coverage of the agency's services means that previous homeowners will also get a chance to purchase non-foreclosed or distressed properties in foreclosure and bankruptcy auction sales with the help of KHC. The group is also set to offer services for refinancing mortgage loans. Furthermore, the agency is also planning to provide home buying assistance to firefighters and police officers whose incomes may slightly exceed the household income limit specified in the program.

According to local officials, the recession has resulted in fewer people having the ability to purchase a home, even low-priced properties offered at foreclosure house auctions. The agency can to help them secure affordable terms and raise the necessary amount needed to pay for the down payment. The expansion of its services, officials further added, will also mean more people will benefit from the agency's aid.

For low-income borrowers who wish to borrow down payment money from the agency to purchase a regular home or a house offered at bankruptcy auction sales, they will be allowed to write off the down payment loan as long as they live in their purchased house for at least five years.

Four to eight million homeowners are now foreclosure-troubled. The congress has been searching for solutions like voluntary readjustments from the lenders but nothing seems to be working efficiently. So a risky solution called the amendment of the Bankruptcy Law was formulated.

The old Bankruptcy Law does not allow judges to adjust the total loan, principal payments, and interest rates of homes. But the proposed change wishes to let the foreclosure-troubled use bankruptcy claims to save their homes from repossession. Lenders will lose their control in primary home loans.

Bankruptcy claims may pile-up that if the legislation will not be very specific in implementation.

Three provisions were formulated: 1. only prevailing mortgages would be entertained; 2. the foreclosure-troubled must present a proof that they contacted their lenders for loan modification before filing for bankruptcy; and 3. only a main Truth Lending Act provision allows a lender to cancel the borrower’s bankruptcy.

But the greatest jeopardy of changing the bankruptcy law is the possibility of higher mortgage rates in the future. Interest rates had been low since foreclosure attacked the housing industry. But if borrowers get to keep their homes through bankruptcy claims to the judge, lenders will have no choice but to increase mortgage rates.

A way to liberate the credit market is making a market for billions in Collateral Debt Obligations and other securitized mortgages. This is only possible if investors can assess the value of underlying mortgages. But if mortgages can not be modified because of bankruptcy claims, no investor assessment of underlying mortgages can be done.

The change in the bankruptcy law hopes voluntary loan modifications of lenders, for if they do not modify, bankruptcy judges would bring rates lower. Yet, if mortgage rates are lower, investor may be able to determine the market value of CDO and other security loans to get the secondary mortgage market trading again.

Lenders and investors have already experienced losses. The changing of the bankruptcy law may be risky but it may also be helpful. So, the law revision must be clear and must only apply to the victims of predatory lenders. If not, mortgage rates may take its revenge in the future.