Due to the continued rise in unemployment rates and difficulties in obtaining loan modifications, homeowners in Georgia are turning to bankruptcy to prevent their homes from entering repo homes lists.

According to bnkrauptcy attorneys in Georgia, out of the 50,385 consumers who underwent counseling for bankruptcy filing from April to June, 10,682 clients said their primary reason for seeking bankruptcy protection was foreclosure prevention.

The other major reasons for bankruptcy filings were job loss, divorce and major medical expenses, according to Ed Boltz, a bankruptcy lawyer and member of the board of directors of the National Association of Consumer Bankruptcy Attorneys.

Boltz said that typically consumers who file for Chapter 13 bankruptcy protection are able to reorganize their debts and create an affordable loan repayment plan over a longer period of time.

He also added that home loan terms are not changed by the bankruptcy court, but troubled borrowers can reduce their other personal debts such as credit card loans and auto loans so they can save amounts to make their monthly home loan payments.

Distressed homeowners could have obtained the right to modify their loans in bankruptcy this year if a bankruptcy revamp legislation was passed last April. The House passed it, but the Senate rejected it.

The Making Home Affordable Program was offered to distressed borrowers and was even enhanced to reach out to more homeowners, but the mortgage lenders were not carrying loan modifications as efficiently as expected by the public and the federal government.

Suzanne Boas, president of CCCS of Greater Atlanta, said the loan modification program is not working out for a lot of troubled homeowners, so these homeowners turn to bankruptcy to give them some breathing space and reduce their overwhelming level of stress.

Boas also said that mortgage lenders have not been doing something to adjust their systems so they can accommodate the large number of borrowers applying for loan modifications. As time passes and the foreclosure process moves, distressed borrowers are forced to consider bankruptcy even if bankruptcy filing was not in their original plans.

Another major factor for bankruptcy filing is the continued layoffs and the continued rise in unemployment. In Georgia, the seasonally adjusted unemployment rate surpassed the 10-percent rate in June, hitting 10.1 percent, and analysts expect the rate to climb higher.

According to Boltz, distressed homeowners turn to bankruptcy protection even if loan modification was their first choice.

Members of the Independent Mortgage Servicers Coalition are asking the Federal Reserve, the Treasury and Congress for financial assistance in their efforts to help contain bank repo homes.

Independent mortgage servicers are the firms collecting and distributing payments on over $700 billion in home loans taken out during the boom years. The coalition, led by California-based Carrington Mortgage Services, includes Ocwen Financial Corporation and the Nationstar Mortgage unit of Fortress Investment Group.

These mortgage firms are following up on their request for federal help after the Treasury Department obtained a pledge from the country’s 25 mortgage banks to modify at least 500,000 troubled home loans by November 1 to help contain bank repo homes.

The independent servicers explained that if delinquent borrowers are given more time to have their loans modified, the servicers carry the increased costs of paying bond investors according to investment contracts.

According to Bruce Rose, general partner and CEO of Carrington Mortgage’s parent company Carrington Capital Management LLC, the Treasury mandate of loan modifications to contain bank repo homes is largely an unfunded federal government mandate.

Rose explained that the $1,000 cash incentive given to servicers for every loan modification done and another $1,000 per year for 3 years if the homeowner keeps up with payments are not enough to cover the costs of financing payments to investors.

The Term Asset-Backed Securities Loan Facility, which was launched by the Fed to help servicers, has failed and has even increased financing costs, according to Rose.

This month, according to Rose, Standard & Poor’s worsened the situation of servicers when it reduced the value of assets involved in TALF-eligible bonds.

As explained by Rose, to reduce borrowing costs, servicers need to foreclose faster and not more slowly as demanded by the Obama administration’s program to contain bank repo homes.

Rose warned that unless independent mortgage servicers are helped by the federal government to improve their liquidity, they could not help achieve the objective of modifying 500,000 troubled home loans by November 1.

Nonetheless, Rose said that Carrington has already modified around 45 percent of its loan servicing portfolio of subprime home loans taken out from 2005 through 2007.

At the meeting between Treasury Department officials and top bank executives, at least 4 executives of independent mortgage servicers attended, including Carrington general partner Rose. Rose reiterated that the federal government needs to help them solve their liquidity problem so they can help curb the rising number of bank repo homes.

The overbuilding of condo complexes in downtown Miami has been putting many condo units into repo house listings, based on an analysis of condo projects in the city.

Since 2003, almost 23,000 newly-developed condominium units have been added to the Miami condo market, far beyond what the city’s population of 400,000 can use. As of June 30, approximately 9,400 condo units have remained unsold, still included in real estate listings and in repo house listings.

Because of the oversupply of condos and the supply of low-priced single-family homes in repo house listings, condo developers were unable to sell their condo units, leaving them with no funds to pay their construction loans and ultimately forcing them to face foreclosures.

According to Jack McCabe, CEO of McCabe Research and Consulting, there are many condo complexes in the city where approximately one-third of total condo units are in repo house listings.

To remedy the foreclosure situation and to prevent the total collapse of their businesses and investments, some condo developers have been negotiating uncontested foreclosure with their lenders.

In an uncontested foreclosure, condo developers avoid a costly and long litigation and they retain whatever assets they have offered as collateral for the construction loan. Additionally, they are able to retain the right to manage the condo businesses for sizeable fees.

The Related Group has negotiated such a deal with a consortium of banks led by Bank of Nova Scotia. It surrendered the ownership of its CityPlace condo project in West Palm Beach, where it has sold only 39 units out of 420 units. It paid a certain amount to cancel its loan of $119 million, and then was given the right to keep on managing the project.

Related Group is also working out similar deals to manage its maturing construction loans for other condo projects in South Florida, including the Icon Brickell condo complex, where only 31 out of 1,646 units were sold.

Miami lawyer Thomas Lehman related that he has been negotiating friendly foreclosures for many condo projects. He said lenders have finally realized they cannot sell their construction loans and have decided that managing the foreclosed projects is the better option.

The oversupply of condos also pushed down condo prices sharply, enticing out-of-state investors to buy condos in bulk from repo house listings. The oversupply also prompted some developers to offer rent-to-own programs in which rental payments are accumulated to comprise the down payment for condo units.

Signs of recovery in Hidalgo County, Texas’ housing market prompted some real estate experts to suggest that the economic downturn is finally on the upward trend. Month-to-month home sales and prices remain stable despite the onslaught of house repos on the market.
Some experts said that Hidalgo County has reached its bottom while others argue that [...]