US Foreclosure risk on rise, analysts say

The Mortgage Bankers Association said yesterday that 8.4 percent of homeowners missed at least one mortgage payment in the April-June quarter.

That figure rose 0.12 percentage point from the January-March period.

In a normal market, the percentage of delinquent borrowers is about 1.1 percent, according to the trade group.

Delinquent mortgages have plummeted from a record high of more than 10 percent of residential mortgages a year ago.

But the decline is due partly to delays in foreclosure filings that are backlogged in state courts, including in Florida, New Jersey, Illinois, and New York.

The end of a state and federal investigation into faulty foreclosure paperwork will probably lead to more foreclosures later this year.

Analysts say the increase is especially worrisome because it is due mainly to high unemployment, which tends to raise the number of missed payments and foreclosures over time.

Once delayed foreclosures are restarted, the economy could suffer a hit.

“The current processing delays mean this will not happen quickly, underlining our view that both the housing market and the economy will remain weak for a few years,’’ said Paul Dales, senior US economist at Capital Economics.

Can You Discharge Student Loans in Bankruptcy?

Can You Discharge Student Loans in Bankruptcy?

Question:  I have student loans from 15 years ago.  I have been paying them back slowly, but I recently lost my job and am struggling to keep current on my payments. I am 55 years old and am having trouble finding another job. I am thinking of filing for Chapter 7 bankruptcy to get rid of other debts. Can I get rid of the student loans in bankruptcy?

Answer: Student loans are rarely discharged in bankruptcy.  But given your age and payment history, you might be able to get a court to discharge yours. Here’s how the law works.

Generally, in order to have student loans discharged in Chapter 7 bankruptcy, you must show that continued payment would cause you “undue hardship.” Most courts determine if you have met the undue hardship standard by applying what is called the Brunner Test. The Brunner Test consists of these three factors:

• Based upon your current income and expenses, you cannot maintain a minimal standard of living for yourself and your dependents if you are forced to repay your loans.
• Your current financial situation is likely to continue for a big part of the repayment period.
• You  have made a good faith effort to repay your student loans.

Courts are very reluctant to wipe out student loans in bankruptcy, and rarely find that debtors have met the Brunner Test (or any other test the court may use). However, they are more likely to discharge student loans if you are over 50, will probably remain poor or with very low income for the remainder of your working years, and have demonstrated an effort to pay off your loans.

In certain situations, you may be one of the lucky few able to discharge student loans in bankruptcy. Sometimes different bankruptcy judges treat treat student loans different than the next judge. So its important to check decisions in your area.

And keep in mind that there may be other ways to handle your student loan payments, from reducing payments to possibly even cancelling them. 

No criminal charges against WaMu: 'Revolution, anyone?'

It was the biggest bank failure in U.S. history, and the announcement by the U.S. Attorney's office in Seattle that no criminal charges will be filed against former executives of Washington Mutual generated a good head of righteous steam over the weekend.

"This is an outrage! Revolution, anyone?" one commentator wrote the Seattle Times, while another complained: "So the regular Joe makes a mistake and gets his hand cut off, but if the big kingsmen make a mistake, nothing happens."

A brief statement by U.S. Atty. Jenny A. Durkan's office Friday said that a federal task force looking into the September 2008 failure, which followed years of high-risk loans in the midst of the nation's increasingly tenuous housing bubble, found no evidence of prosecutable criminal wrongdoing -- however dubious the management seemed to the thousands of investors who lost their shirts.

"Investigators have conducted an extensive investigation that included hundreds of interviews and the review of millions of documents relating to the operations, and the subsequent failure, of Washington Mutual Bank," the Justice Department statement said. "Based upon its investigation, the Department of Justice has concluded that the evidence does not meet the exacting standards for criminal charges in connection with the bank’s failure."

The department is cooperating with the Federal Depositors Insurance Corp. in a lawsuit against three former executives of the bank alleging gross negligence and breach of fiduciary duty, the statement said.

Those would be the executives who were still earning millions of dollars as the bank plummeted toward insolvency, issuing risky subprime mortgages, often based, according to the bank's own internal audits, on fraudulent documents. Former WaMu chairman Kerry Killinger earned $65.9 million in compensation during the nearly four years before the bank's failure, the FDIC said in its suit, which targets Killinger and two other former WaMu executives, former president Stephen J. Rotella and ex-loan executive David Schneider. The top managers have strongly denied any wrongdoing.

The Seattle Times in an editorial earlier this year already made it clear there was little sympathy for the executives' protests that the bank had been well-managed: "When Rotella ... answers a federal lawsuit by calling himself 'an effective, hardworking bank manager,' and Killinger, the former CEO, answers the same lawsuit by saying he 'responsibly and consistently served the interests of its depositors, customers and shareholders,' our sympathy shrivels to the size of a raisin," the editorial board said.

Over the weekend, there were similar protests. "The bottom line: Large-scale white collar crime goes unpunished in America, except for out-and-out Ponzi schemes," Seattle PI.com columnist Joel Connelly proclaimed.

"Who, I ask, has gone to jail among those who issued reckless and fraudulent loans that triggered the housing crisis?" he said. "I can't help but wonder whether the failure to go after architects of this bank failure is itself rooted in a fear of failure."