Bankruptcy and Foreclosures

The really smart people at Credit Slips made a good point the other day about homeowners in bankruptcy. Mortgages are the only loans that bankruptcy cannot modify! So it is possible to discharge or modify all your other debts, but if you can't make your mortgage payment, you're still outta there. I did not know that.

So pay your mortgage first, folks. And talk to the mortgage company when you first get into trouble, because if you get to bankruptcy, it may not help.

Did Fannie and Freddie's Demise Help Me?

Welcome Carnival Goers.

This post has been included in The Carnival of Debt Reduction and in Political Calculations On the Moneyed Midways, best posts from the past week's business and money-related blog carnivals.

I find myself wondering if my loan is owned by Fannie Mae or Freddie Mac. Apparently there's a 50-50 chance that it is. It is notoriously difficult to discover who owns your loan, according to ABC News's Betsy Stark, due in part to the complex mortgage-backed securities that have brought the economy crashing down around us.

I find the timing curious. After months of relentless collection calls (like a couple a day) from our mortgage company, and their inability to acknowledge our third-party request for a loan modification , all of a sudden, with no warning, we got a loan mod out of the blue. And it was after the federal goverment took over the mortgage giants. The company didn't ask us to verify our income or anything. Curiouser and curiouser.

Mortgage News Daily speculated after the takeover that since the government doesn't want to own thousands of homes, homeowners already in danger of foreclosure may actually fare better under the bailout. It's probably too soon to tell.

This thing is huge, isn't it? And I have to say that it actually makes me feel better to know that we are not alone in this, that we aren't just irresponsible, that there's something larger at work here. Or so I tell myself. Sometimes.

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• Freddie, Fannie and you

Prioritizing the Bills--Pay Your Mortgage First

I wish I had come across this list of Top Tips to forestall foreclosure from Laura T. Coffey at MSNBC a few months ago.

Here's her list, with my comments.

1. Face the problem head-on.
No more piling up the bills and refusing to read them.

2. Contact your lender and explain your situation.
The best outcome is that you'll get a loan modification, like we did. The trick is that your mortgage servicer is unlikely to grant a loan modification if you can't show sufficient income to carry the new terms of the loan. So it may not work if you request it, say, if you're still unemployed. But, hey, it couldn't hoit. And if you're talking to them, they know you haven't abandoned the property for a South American hideout.

3. Understand your mortgage rights.
In other words, read your loan.

4. Consider selling your home.

5. Explore the “short sale” or “deed in lieu of foreclosure” options.

These last too are horrible to contemplate, but if you can't afford the house and have no prospects of being able to afford it, they may be your only choices. (I know. I KNOW. This is where it gets tough.) Read the article for how these sales work.

(By the way, this is EVERYWHERE. My daughter's teacher is buying a house closer to the school from a buyer through short sale.)

6. Don’t give your money away to the wrong people.
No matter how little money you have, there are always unscruplous low-lifes willing to help you part with it.

7. Seek out legitimate help.
Find a legitimate debt counselor, perhaps one affiliated with the National Association of Credit Counselors.

8. Set financial priorities that fit your current circumstances.
In other words, pay your mortgage first. The other bills can wait.

9. Consider filing for personal bankruptcy protection.
This is not something we considered. I mean, we borrowed the money, didn't we? We bought the stuff, or paid the taxes, or whatever with the money, right? For some people it may be the only way out, and you may be able to keep your home to boot.

10. Maintain your self-esteem.
Now that's easier said than done, isn't it?

Another suggestion is to pay mortgage payments sporadically, even if you can't afford them monthly. It's when you go 60, 90, 120, or 150 days with no payment or communication that the mortgage company starts to get a little antsy.

Further Reading:
Forestalling Foreclosure by Gerry Willis at CNNmoney.com
suggests trying all the tactics above before raiding the retirement account.

The Link Between Debt and Depression

I had a bad day.

Too often these days, things seem overwhelming.

But I'm trying to remember that life is big. This present horror is but a blip that will earn me my gray hairs.

Fifty-three year old Carlene Balderrama of Taunton, Massachussetts was so beseiged by debt, and I'm guessing, shame, that she committed suicide a few months ago immediately before the bank was to foreclose on her home.

Her husband didn't know they were about to lose her home. Her neighbors didn't know the family was in trouble.

We have a real taboo against talking about money problems in our society. Secrets and shame combined with stress can contribute to physical and psychological illnesses. People think that setbacks represent a long-term catastrophe. They may avoid getting treatment because they have inadequate or insurance coverage for mental health problems. Marital or family tensions can become worse. Even abuse and neglect may occur.

Polly's Pointers

1. Please, if you're reading this and are having problems that are interfering with your health and wellbeing or that of those around, you, get help.

2. Talk to someone you trust. Find a counselor, social worker, minister, friend, or doctor.

3. If you have thoughts of harming yourself call a suicide hotline. If anyone is in danger, get help now.

It's just a house. It's just a car. It's just stuff. Life is big. You can make it better. Take it one day, one bill, one phone call, one hug at a time.

Be well.

Polly

Further Reading

Facing foreclosure, Taunton woman commits suicide from the Boston Globe
Debt and Depression at Debt Prison blog

Severe debt can cause depression and even suicide by Emily Starbuck Gerson

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• The Emotional Toll of Home Foreclosure

Welcome to Economic Crunch

Hi, I'm Polly Poorhouse. You probably know me. You may be my boss, my cubicle mate, my kid's teacher, my neighbor, or my babysitter. Or maybe we sat next to each other on an airplane, on a speaker's panel, or in church choir. You may have bought something from my husband's store, or chatted with me at the dog park. Maybe we've met in an online forum or at an arts or library event. Did we go to grad school, college, or high school together? Maybe you have been in one of the graduate classes I've taught.

But you probably don't know some of my secrets. Like I'm one of more than 700,000 Americans who received a foreclosure notice in the 2nd quarter of this year (or so says RealtyTrac). Like I have a close relative that is homeless. (They are harder to count, but there appear to be close to 700,000 as well according to the 2007 Annual Homeless Assessment Report conducted by National Alliance to End Homelessness).

How did this happen to middle class, intelligent, well-educated people?

Well, we obviously screwed up. I got laid off--three times. My business failed, leaving me sadled with unpaid debt and unpaid taxes. My husband lost his job. My relative has an undiagnosed anxiety disorder. Yes, we are part of Phil Gramm's ("nation of whiners") people who dug ourselves into holes and are having tough time grabbing on to those sliding rocks to get out.

We have told a few loving friends and family members of our situation, but not our neighbors, colleagues, or casual acquaintances.

We are lucky in many ways. Despite the financial stress, my husband and I have turned to each other for comfort and support rather than away from each other in anger. Our wonderful children are adjusting to life without piano lessons, new clothes and school supplies, and toys. We have each found new jobs, although combined they do not pay enough for us to erase our debt in the short term. We will be OK. But the journey is a bear. Just when we think we have dodged one bullet, another zooms towards us.

This blog will document our journey back to economic stability. I'm not looking for advice. But I know we are not alone. Maybe our story can help you.

With frugal fondness,

Polly Poorhouse