In the midst of the foreclosure crisis and the lingering economic recession, many homeowners are struggling to make their mortgage payments. Now, it appears yet another hurdle stands before troubled homeowners: investment institutions that bundle and sell mortgages are creating significant headaches for those facing foreclosure or exploring refinancing options.
Mortgage-Backed Securities Causing Trouble
Sometimes, mortgage loans are purchased from banks or other lending institutions and gathering into pools. Securities are then issued representing claims to the cash flow that comes in from the pool (principal and interest payments made by the mortgage holders). This type of security is known as a mortgage-backed security (MBS).
MBSs were blamed by many for setting into motion the financial collapse, and they are now causing a new wave of problems for homeowners. As mortgages are bundled and traded repeatedly among investors, the legal documentation behind many mortgages is lost in the shuffle.
When a foreclosure proceeding begins and the paperwork comes up missing, some banks are turning to crafting counterfeit documents according to a recent "60 minutes" investigation; this can have disastrous effects for families trying to save their homes. And, even for those not facing foreclosure, murky or absent mortgage paperwork can affect the chain of title to a home, complicating refinancing and other transactions.
Bankruptcy Could Be Solution for Some
If you are facing entanglements with mortgage-backed securities or other mortgage problems, you may wish to explore bankruptcy.
Chapter 13 bankruptcy is a tool many individuals use to help save their homes. Unlike a Chapter 7 bankruptcy, a Chapter 13 bankruptcy filing involves making payments to the court over a period of three to five years.
Typically people pay off only a portion of their unsecured debts such as credit cards, medical bills or loans over the course of a Chapter 13 plan. Those unsecured debts that are not paid are discharged by the bankruptcy court upon completion of the plan. Certain secured debts such as car loans or mortgage arrears are paid in full.
Chapter 13 bankruptcy has a number of advantages for homeowners in arrears with their mortgages. For instance, filing for Chapter 13 bankruptcy automatically halts foreclosure proceedings and gives homeowners the chance to cure delinquent mortgage payments. In addition, if your home is currently valued at less than the outstanding amount of your first mortgage, second mortgages may be stripped and added to your unsecured debt (this lowers payments in a Chapter 13 plan and ensures your home cannot be foreclosed upon for delinquency on these debts).
If you have concerns about your home loan, contact a local bankruptcy attorney today to explore whether bankruptcy could alleviate problems created by MBSs or other mortgage issues.
