The Vida Law firm PLLC

MORTGAGE DELINQUENCIES CONTINUE TO INCREASE

TransUnion financial services group reported that mortgage loan delinquencies increased for the fifth consecutive quarter, CreditandCollectionsWorld.com reported today. The credit and information management company reported that the national average delinquency rate edged up to 3.23 percent in the first quarter ended March 31, up from 2 percent in the year-ago period. Nevada reported the highest mortgage borrower delinquency rates in the first quarter, at 5.81 percent, followed by Florida at 5.38 percent. Average national mortgage debt per mortgage borrower in the first quarter ticked upward (0.29 percent) to $191,917 from the previous quarter’s $191,370 total. However, the first quarter average represents a 5.38 percent increase compared to the first quarter 2007 of $182,126.  

Effect of Hardship Withdrawals and Borrwoing From 401(k) Plan.

According to Dallas Morning News, there has been a double-digit spike in hardship withdarwals and loans from 401(k) plans in 2007.  The loans are used to pay mortgages, credit cards, and utilities.  A hardship withdarwal is one in which a plan participant takes money out of a 401(k) plan to cover dire financial needs as defined by the retirement plan.  Withdrwals are taxed as income and are subject to a 10% distribution penalty if the participant is under 59 and a half years old.  A participant may borrow up to $50,000 or 50% of the amount invested in the plan, whichever is less.  If the participant defaults on the loan, then, the loan will be treated as a withdrawal and the participant will face the tax consequences of a withdrawal.  While a quick withdrawal or a large loan may resolve a financial problem now, it will most likely deplete retirement savings by tens of thousands of dollars.  Statistics from The Center for Retirement Reserach at Boston College indicate that 49% of Americans between ages of 36 and 43 whose main retirement plans are 401(k) risk not being able to fund the same standard of living during retirement as in working years.  Some plan do not allow participants to contribute to their plans while they have outstanding loans; others, require the participant to wait a set period of time before starting to contribute again after a withdrawal.  Not being able to contribute due to a loan or withdrawal is especially costly if the employer matches the participant’s contributions.  Many participants believe in the myth that by borrowing from their 401(k) plan and repaying the loan with interest they will not only not lose in the long run but gain.  The problem with this myth is that the borrower will pay back the loan with after-tax dollars.

April 2008 Consumer Bankruptcy Filings Increase by More Than 47% Over Previous Year

U.S. consumer bankruptcy filings increased 47.7% nationwide in April from the same period a year ago, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC). The overall April consumer filing total of 92,291 also represented a 7.1% increase from the 86,165 filings in March 2008. Chapter 13 filings constituted 31.14%  of all consumer cases in April 2008, a slight decrease from March 2008.

First Quarter Foreclosure Activity Rises 112% Over 2007

RealtyTrac’s first quarter 2008 U.S. Foreclosure Market Report showed that foreclosure filings were submitted on 649,917 properties during the first quarter, representing a 112 percent increase from the first quarter of 2007 and a 23 percent increase from the fourth quarter, CreditandCollectionsWorld.com reported today. The report showed that one in every 194 U.S. households received a foreclosure filing during the quarter. Nevada registered the highest rate of households receiving a foreclosure notice during the first quarter as one in every 54 households in the state received a notice. Foreclosure filings were reported on 19,595 Nevada properties during the quarter, up 3 percent from the previous quarter and up 137 percent from the first quarter of 2007. Filings occurred on 169,831 California properties during the quarter, the highest total among the states and a rate of one in every 78 households – the nation’s second-highest foreclosure rate. Foreclosure activity in California increased 32 percent from the fourth quarter and 213 percent from first-quarter 2007.

 Loan Industry Fighting Rules on Mortgages

The New York Times reports that the mortgage industry facing the prospect of tougher regulations for its central role in the housing crisis, has begun an intensive campaign to fight back.  The Federal Reserve work on rules to root out abuses by lenders has run into criticism from bankers, mortgage brokers and other parts of the housing industry. One common industry criticism is that at a time of tight credit, tighter rules could make many mortgages more expensive by creating more paperwork and potentially exposing lenders to more lawsuits. Four months ago, the Fed proposed the new standards on exotic mortgages and high-cost loans for people with weak credit. The Fed’s proposals came after it was criticized sharply as a captive of the mortgage lending industry that had failed over many years to supervise it adequately. Proposals are pending in Congress on mortgage standards, but it is not clear whether they will be adopted this year. The Fed has its own authority under housing and lending laws to adopt mortgage standards.

Delinquent Auto Loans Increase

The American Bankers Association reported that delinquencies on indirect auto loans, which are made through a third party and constitute roughly 90 percent of car loans, reached the highest rate in at least 17 years as more than 3 percent of such loans were delinquent in the fourth quarter of last year, according to the Washington Post on Sunday. The reasons for that rapid rise are varied, and anecdotal evidence suggests that the delinquencies affect a broad swath of economic classes. Some are the result of homeowners with ballooning mortgages making tough decisions about which bills they can afford to pay. Other car owners succumbed to repayment plans of as long as seven years, compared with the traditional maximum of five years. As a result, Edmunds.com estimates, more than a quarter of auto loans are “upside down,” meaning the borrower owes more than the car is worth. The average negative equity was $4,305.05 in March, up 32 percent from March 2002.

Senate Panel Calls For SEC Vigilance Against Firms Issuing Faulty Credit Ratings

The Senate Banking Committee suggested at a hearing today that the Securities and Exchange Commission should consider taking action against credit rating agencies that consistently miss the mark, including stripping them of their national certification status if they continue to engage in shoddy work, CongressDaily reported. Both Chairman Christopher Dodd (D-Conn.) and ranking member Sen. Richard Shelby (R-Ala.) raised the proposal of imposing a “death penalty” on firms whose ratings were widely off and triggered serious market turmoil. Dodd noted that the SEC has the authority to not grant a charter to a firm if it found that “the applicant does not have adequate financial and managerial resources to consistently produce credit ratings with integrity.” The SEC is currently updating its rules on oversight of the credit-rating industry, with preliminary rules to be issued by early summer. However, SEC Chairman Christopher Cox said that actions such as revoking a credit rating company’s charter would have to be predicated on areas such as a lack of transparency and conflicts of interest, and not because they simply missed the mark, as the firms have free-speech protection covered under the First Amendment. Cox reiterated that he has sufficient authority to impose tough sanctions, but he was concerned about any attempt to judge a firm’s call if it was made with due diligence.