The Mortgage Crisis and Bankruptcy

The financial industry in the U.S. has been battered by the sub prime mortgage crisis. It has affected everything; the stock market, home prices and people’s ability to procure mortgages. According to the Wall Street Journal, the property value of homes in the U.S. will fall by about $1.2 trillion in 2008. An estimated 1.4 million homeowners are expected to lose their properties in foreclosure proceedings this year. These are findings of a study conducted by the forecasting firm Global Insight Inc. It is being predicted that the ongoing housing market problems are going to have a deep and widespread economic impact that may stretch through 2008. Many homeowners face a choice – be ruined financially, or seek financial relief through bankruptcy.

Just the Facts, Ma’am

Although the near future seems bleak, experts feel that there is no reason to panic, although the threat to the battered housing market and a weakening economy is a reality with wide ramifications. The fact is that this situation has not happened overnight, but has been building for quite some time. In 2006, foreclosures numbered 1.2 million. Despite such a large number, the economy survived. This year it is predicted to go up to 1.4 million - which is not much more, compared to earlier figures.

Prime Borrowers also Feeling the Crunch

However, banks’ tightening their lending standards coupled with falling home prices have impacted nearly everyone. Contrary to popular belief, it isn’t only subprime borrowers that are affected - consumers having sound credit histories and good incomes are also defaulting on mortgage payments and other financial obligations in record numbers. Many prime borrowers have been forced to file for bankruptcy, as they are unable to make payments on their mortgages. These consumers are unable to afford the high payments on their variable-rate mortgages; on the other hand, they cannot sell their homes for more than the value of the mortgage debt. Refinancing has become very difficult, leaving them with no option but to file bankruptcy.

Bankruptcy and the Mortgage Industry

With proposed amendments to the Bankruptcy Code targeted to help homeowners burdened with out of control mortgage debt, it is expected that a large number of new bankruptcies will be filed this year. The proposed amendments to the bankruptcy code are bitterly opposed by the mortgage industry and other creditors. However, if the congress has its way with the proposed Emergency Home Ownership and Mortgage Equity Protection Act of 2007, it will be much easier for bankruptcy judges to restructure home mortgages for consumers that are on the brink of foreclosure. The mortgage crisis and bankruptcy situation as it stands, points to a recession in the economy. The situation remains grim overall, though not of unmanageable proportions. For consumers finding themselves in a financial catch-22, bankruptcy is a viable and realistic option.