| | QUESTION: WHAT TO DO RIGHT NOW IF YOU CAN'T REFI OR SELL?
(advice for U.S. Homeowners)
The question is, what if I am one of the affected homeowners who have a mortgage rate reset and can't really afford the new payments, and can't sell?
Here's what I would start with:
1) Call the bank. It does not prejudice your loan if you call them and tell them that you "may" have problems making payments in the future. Until then - do NOT go too long paying just the minimum option because if you build up too high a loan balance the bank will force you to pay a much higher monthly payment for the rest of the 30 year term.
You know how people call the credit card companies and ask for a lower rate? you can call your mortgage lender to see if you can make whatever arrangements to compromise. The bank would much rather have you work with them rather than have you dump the shit on their door. If you can't pay the full amount - pay SOMETHING but TALK TO YOUR BANK. They are sick of foreclosing on a record number of homes. Your honest sincere phone call will be a welcome relief.
2) Get another job or find new avenues of revenue in your business. I would find ways to earn small amounts of money from LOTS of people, rather than lots of money from a few clients. You could gain more income by creative ways of selling prints, design new types of low-cost photography sessions. Wedding photography as a profession is not nearly as recession-proof as it was in the past now that everybody has digital cameras. Brides will ask their friends for their image files and will be more inclined to create their own books. So I would concentrate on smaller sized orders with a higher volume of clients. I honestly would.
3) Try to get roommates into your house, if there is room. I actually did this in my five bedroom house in L.A. in the last real estate recession. My house was upside down in equity and I filled it with roommates, so it only cost me $500/month to live in the house. It wasn't comfortable all the time but dude it sure was better than losing the house. I was in my 20's and I waited it out. But as I've said before, waiting it out may not be a great option this time because I don't think the market is going to recover so why wait what out?
4) Wait until Congress comes up with a bailout plan. If you think about how amazingly political it can get when so far 1 MILLION families have lost their homes already (and it has only just begun) then you know that the U.S. Government will create a bailout plan to assist you. My prediction is that they will come up with a federally subsidized/guaranteed plan like they did in the last Savings and Loan crisis when they created the Resolution Trust Corporation. The U.S. lost billions in that disaster, but it's not as bad as the impact could have been had it not stepped in. The U.S. Government came in and infused a ton of cash to save depositors.
You probably will find some relief in the fairly near future - until then write your two state senators and your congressperson, explain your situation and ask for help. No doubt politicians will try to be heroes and trumpet a bailout plan, and all of the House and Senate would vote to help you. Having said that, a bailout plan of probably 3 trillion dollars will completely make inflation and interest rates fly through the roof and pretty much bankrupt the U.S. economy. There is no way that this kind of bailout will not make the U.S. Dollar lose value like crazy because of the emergency printing of fresh cash - therefore....
5) I would buy gold coins if it was at all possible in your budget. I've said this in the past but when you think about it - if the government starts to print a ton of money and infusing the money supply with a lot of funny money, then its value will be in question.
PLEASE do not walk away from your home. I am begging you. The new laws will chase you and you cannot escape the loan that you owe the lender. You could owe money and have your wages seized for the rest of your life.
Right now, in Landcaster/Palmdale areas of L.A., subprime defaults have caused entire neighborhoods to evacuate because people can't keep up on the new loans. That is completely the wrong thing to do. Under the new bankruptcy laws - YOU CANNOT JUST WALK AWAY FROM THE HOUSE. Because here's what would happen:
1) Of course the mortgagor is going to foreclose on you. New laws give creditors much more power than before. When the mortgagor forecloses on you - they take a loss and they report the loss to the I.R.S., and now YOU have a taxable gain. So say that you owed $400,000 on your loan, you walk away from it, the bank forecloses and they only recovered 200k in a liquidation sale, you have now received 200k in income - and that is taxable this coming year - due payable in full right now. So now you owe the IRS, and now you owe the bank. Going bankrupt will not shield you from the IRS garnishing wages, nor will it protect you from the lender who now has power to seize your future earnings. How long would it take you to pay back a few hundred grand? Maybe your lifetime?
2) I forgot number two
3) You would be in this position if you don't take action now. You would have a hard time finding gainful employment in the worst economic collapse in history. If you do get a job, then you have two people garnishing ALL your wages, the IRS and the lender. So you say, why work and try to collect welfare/unemployment but the government won't really be able to help you because of the entitlement programs coming and the baby boomers starting to collect a massive amount of the budget for Social Security payments, there will not be really much government left to help you eat or have shelter.
Until Kennedy, the U.S. Government wasn't allowed to spend more money than it took in. Up to that point, the USG had to have a balanced budget at the end of every year. With nearly 500 billion dollars in the hole this year under President Bush - (compared to nearly 500 billion dollars extra at year end when Clinton was in office)... just imagine what this graph would look like adding another 2,000 billion dollars to the deficit to finance a homeowner buyout!!
My close friends, quoting Greenspan, "Economic forecasting is simply a projection of how imbalances will resolve" I absolutely cannot reconcile how a bailout plan is going to be paid for. The U.S. is completely half a trillion dollars in the hole right now, with an economic crisis of TRILLIONS of dollars that it cannot really afford to bailout without massive inflation and collapse of the U.S. Dollar. If you will recall the president standing in front of the historic building in New Orleans proposing a 200 billion dollar recovery plan for New Orleans which didn't happen - it didn't happen because the U.S. simply does not have 200 billion dollars to rescue the Katrina ravaged areas.
If you have read this far then maybe you will see why I am jumping up and down saying that what is around the corner is unfathomable. I really hope I am wrong but I am sure that I am not. |
| | Posted 9/20/2007 12:27 AM - 1276 Views - 18 eProps - 13 comments
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