FDIC and the Treasury Department to Solve Foreclosure Crisis?

Foreclosure activity in September rose 21 percent from a year earlier but fell by double-digits from the prior month as some state laws slowed the foreclosure process, according to a monthly report by research firm RealtyTrac.

Foreclosure filings -- default notices, auction sale notices and bank repossessions -- fell by 12 percent from August to 265,968 in September, according to RealtyTrac, which records property in various stages of foreclosure.

In view of these souring conditions, Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., told the Senate Banking Committee that her agency and the Treasury Department are working closely to find ways to prevent avoidable foreclosures. The plan would use the Treasury Secretary's new authority under the Emergency Economic Stabilization Act to provide guarantees to mortgage lenders.

"Loan guarantees could be used as an incentive for servicers to modify loans," Bair said. "Specifically the government could establish standards for loan modifications and provide guarantees for loans meeting those standards."

That way, she said, "unaffordable loans could be converted into loans that are sustainable over the long term."

Americans have made it clear they are not happy that the $700 billion financial rescue package is focused so heavily on financial institutions and less so on helping homeownwers directly.

"Now that the administration has taken strong measures to stabilize financial institutions, it is imperative that we apply the same sharp and urgent focus to help the individual homeowners whose plight is at the root cause of this crisis," said Senate Banking Committee Chairman Christopher Dodd, D-Conn.

Bair, who worked with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke in crafting the financial rescue law, has been a longtime advocate of streamlining the modification process for homeowners who realistically have a chance of affording their mortgages once modified.

After the FDIC became conservator of mortgage lender IndyMac this summer, Bair instituted a loan modification process for loans that were 60 days or more past due and which IndyMac either owned directly or serviced. About two-thirds of the 60,000 loans under IndyMac's umbrella are considered potentially eligible for the new program, she said.

"Through this week, IndyMac Federal has mailed more than 15,000 modification proposals to borrowers and has called many thousands more in continuing efforts to help avoid unnecessary foreclosures," Bair said. So far, more than 3,500 have accepted the offers and others are being "processed."

The modifications on average have cut borrowers' monthly payments by more than $380, Bair said.

Not all foreclosures are preventable since some homeowners still won't be able to afford their homes, even under modified loan terms. Bair said the loans being modified at IndyMac must provide "improved value" for the bank or for the investors who own the loans.

She added that she hoped the IndyMac modification program will serve as a "catalyst" for more loan modifications around the country.

Other witnesses at Thursday's hearing include Neel Kashkari, the Treasury's interim assistant secretary for financial stability; Brian Montgomery, the assistant secretary for housing at the Department of Housing and Urban Development; James Lockhart, director of the Federal Housing Finance Agency; and Elizabeth Duke, a member of the Federal Reserve Board of Governors.

Kashkari is leading the Treasury's efforts under the $700 billion bailout to buy mortgage-backed securities and invest in banks. He said Thursday that Treasury "will look for every opportunity possible to help homeowners" as it carries out the plan.

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Taking A Closer Look At Foreclosure

A situation where a loan is recovered, given on a defaulted property either by selling the property or by taking possession on it, is known as foreclosure.

If you are facing foreclosure, filing for bankruptcy will delay the process. However, this is only a temporary delay as until the mortgage is either refinanced reinstated, or the house is sold, the auction is bound to happen sooner or later. Filing for bankruptcy will not indefinitely delay or prevent the foreclosure of your house, but it will certainly delay the process to a very large extent.

Since your mortgage is on your home, filing for bankruptcy does not guarantee that your house will not undergo a forced sale. If you have income after filing for bankruptcy, you can arrange for your debts to be paid off in a certain fixed period of time. Under chapter 13 bankruptcy you can make up for all the times that you defaulted on your repayments, but the problem is that if you default under this program, your lender can legally facilitate the foreclosure of your home. On the other hand, chapter 7 bankruptcy is the stage where you can be forced to sell your assets to pay for your liabilities, and all the home equity will go to your lender.

Since these are huge steps, never be forced to file for bankruptcy and discuss your options with a reliable and recommended bankruptcy counselor. Also, beware of scams such as ones which tell you that you will receive a certified copy of your deed if you pay a certain amount of money. Your local deed recorder or county will give you a certified copy of your deed for about ten dollars, while scammers will ask you for much more money than is fair. You should consider a home equity line of credit when debating between the same and a fixed rate mortgage, as the line of credit is much more flexible. It is easy to get and no closing costs are involved. Unless you write a check to use the money, you are not charged for it.

Then after you have paid it off, you can decide whether you want a new first mortgage. If an elderly citizen passes away without a will, a local probate court will decide who will inherit the deceased’s assets. The surviving family members will be seen in a specific order with regard to who is considered first as entitled to the inheritance. A will can be prepared for as low as a hundred or a couple of hundred dollars and will ensure after your death that your assets and money will go to the individuals you want them to go to.

If someone remarries, their new spouse’s name is not required on the mortgage loan papers. However, the spouse who legally owns the house can sign and record a quitclaim deed, thus giving the other spouse part of the interest in the house. Joint tenancy has many advantages, two of which include equal rights to joint tenants and the avoidance of probate if one of the joint tenants dies. The title can even be put into a revocable living trust.

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Getting A Home Equity Loan Tax Deduction

Home equity loan become very popular among people because of its low interest rates and the rising of the values of properties. Home equity loans have lots of advantages over other loan type. One of these advantages is that the interest rates of home equity loans are very competitive. One of the most essential advantages is that home equity loans are tax deductible. On top of all that, the home equity loan tax deductions are also very hard to beat.

The amount of the home equity loan tax deductions apply on some certain circumstances. The interest rate of the home equity loans is a detailed deduction if you paid the interest and secured the home equity loan with your property. There are some conditions set by home equity lenders so that if you can not meet their conditions, you can still be able to deduct the interest that are set on another category.

The Internal Revenue Service has set three basic requirements that a borrower require, in order for the borrower to qualify for a home equity loan tax deductions. The first basic requirement is that the borrower will held legal responsibility of the home equity loan so that the borrower will not qualify additional home equity loan tax deductions even if the borrower is paying for the home equity loan of another person. The second requirement in order to be qualified for home equity loan tax deductions is that the home equity loan will be a secured debt for a qualified property. The property will be either being your main home or second property. It will not be leased or used for business uses. In an event that the borrower is using any part of the property of the house as a business office, then that room or that part of the house will be stated as a business expense. And the last rules in order to qualify for home equity loan tax deductions is that the borrower must file the form 1040 with all the details of the itemized deductions.

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The Lasting Pains Of Foreclosure

SANDRA BLOCK
USA TODAY

If you're lying awake at night, fretting about whether you'll lose your house to foreclosure, you may not be the only insomniac on your block.

More than 2.1 million Americans with home loans missed at least one payment last year, according to the Mortgage Bankers Association. Even more troubling, the rate of new foreclosures hit a record.

The problem is likely to get worse. As adjustable-rate mortgages adjust to higher rates, many borrowers are finding they can't afford their payments. And the collapse of the subprime market has made it harder for those with tarnished credit to refinance.

But be aware: Even if your mortgage has become an intolerable burden, letting the bank foreclose could lead to a lifetime of hurt. Losing your home is just the beginning. A foreclosure will wreck your credit report for years, making it impossible — or at least extremely expensive — to buy another home.

Many borrowers who lose their homes to foreclosure haven't tried to negotiate with their lenders. That's unfortunate, because lenders are usually willing to work with borrowers to avoid foreclosure, says John Lamb, co-author of "Solve Your Money Troubles." "Lenders are going to be more willing to work with people, because it doesn't do anybody good to have a glut of foreclosed houses on the market."

Ideally, you should call your lender before you miss your first payment, says Bob Walters, chief economist for Quicken Loans. If your payment is due on the first of the month, call before the 15th, which he says is usually when your lender will report the late payment to credit-reporting agencies. Once your loan is declared in default, typically after you've missed three or four payments, you're "past the point of no return," Walters says. Unless you can come up with the money to cover all your missed payments, plus any late fees, your lender will start foreclosure.

Avoiding default

If you're suffering a temporary financial setback, your lender may offer programs that will help you get back on track. They include:

# Forbearance. This is an agreement that lets borrowers make a reduced payment, or none, for a specific period. You might have to make larger payments once the crisis has passed. To qualify, you might need to show that you're expecting a bonus, a tax refund or other income that will let you catch up.

# Reinstatement. You agree to pay the full amount of your missed payments by a specific date. Reinstatement is sometimes combined with forbearance.

# Modification. Your lender agrees to change the terms of the loan to make payments more affordable. Your lender may agree to add missed payments to your loan balance or extend the term of your loan, reducing the size of your payments.

Before asking for forbearance or loan modification, be prepared to show that you are making a good-faith effort to pay your mortgage.

Moving on

If you're in a home you can't afford, loan forbearance won't help. But even if you have to move, you can take steps to avoid foreclosure:

# Put your home up for sale. This may be the best choice, Walters says, if you've been in your home for several years and have built up some equity. The proceeds from the sale might cover your mortgage and selling costs.

# If you have no equity or your local real estate market is depressed, ask your lender to consider a "short sale" where the lender agrees to accept the proceeds from the sale of your home, even if they don't cover the amount you owe.

# Ask your lender to accept a deed in lieu of foreclosure. If you can't sell, your lender may agree to take the deed to your home and cancel your debt.

There's one serious drawback to a short sale or a deed in lieu of foreclosure: You could find yourself stuck with a hefty tax bill. In most cases, debt forgiven by a lender is considered taxable income.

So why opt for a short sale or a title transfer instead of foreclosure? For one thing, foreclosure won't get you off the hook, either. If the lender sells your foreclosed house for less than you owe, it might sue you for the balance. And if the lender writes off the remaining debt, you could still end up with a tax bill, Roth says.

Though a short sale or a title transfer will hurt your credit report, you might still be able to work with your lender to reduce the damage — which isn't possible with a foreclosure, Lamb says.

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