Mortgage Modifications

Reading the news about mortgage modifications is discouraging because for the $75 Billion allocated to fund mortgage modifications, most modifications have never left the trial stage, which was not the intent of the law that funding the modification program. Last week, I read that only 1176 mortgages had been modified nationwide.

I also read today in the financial news that the homes in the Puget Sound area are now decreasing in value at an increased rate along with the worst cities in the country. The main reason is that the downturn in economy in the Seattle/Tacoma area is unfortunately taking its toll. In my former profession as a financial planner, I was fortunate to have the opportunity to learn from John Templeton, the most successful long-term international money manager in history. I would receive tapes of his investment advise at least quarterly, and his predictions always became reality. In 2006, two years before his death, he predicted that U.S. housing prices would drop to half of their 2006 values. Unfortunately, he was right again. In our area, we are seeing houses selling for less than 50 percent of their 2006 values. Only a few communities in our area have not seen such a precipitous decline.

The intent of my blog today is not discourage our readers, just to remind us that we need to plan and carefully evaluate where we are. Are we paying for a home whose fair market value is so far below the value of the mortgages that we should consider letting our homes go to foreclosure or sell them in a short sale? Or if we could only get rid of a second mortgage because there is not a $1 of equity to cover the 2nd mortgage, that would make it worthwhile to keep the home. That is what a Chapter 13 bankruptcy can do. If your home is worth less than the balance of your first mortgage, you can turn the second mortgage into an unsecured debt, like a credit card. And if you have a lot of credit card debt, discharge that debt in your Chapter 13 reorganization. Consider the possibilities.