Bankruptcy Abuse Prevention

The housing crisis of the late 2000s rocked the economy and changed the landscape of the real estate business for years to come. Decades of people purchasing houses unfordable houses and properties with lenient loans policies led to a collective housing bubble. When the banking system faltered and the economy wilted, interest rates were raised, mortgages increased, and people lost their jobs amidst the chaos. This all culminated in tens of thousands of American losing their houses to foreclosures and short sales, as they could no longer afford the mortgage payments on their homes. The United States entered a recession and homeownership no longer appeared to be a feasible goal as many questioned whether the country could continue to support a middle-class. Former home owners became renters and in some cases homeless as the American Dream was delayed with no foreseeable return. While the future of the economy looked bleak, conditions gradually improved. American citizens regained their jobs, the United States government bailed out the banking industry, and regulations were put in place to deter such events as the mortgage crash from ever taking place again. The path to homeowner ship has been forever altered, as loans in general are now more difficult to acquire and can be accompanied by a substantial down payment.

Consumer protection laws are federal and state statues governing sales and credit practices involving consumer goods. Consumer Product Safety Commission, Unfair or Deceptive Trade Practices, Truth in Lending Act, Fair Debt Collection Practices Act, Warranties and Consumer Remedies are laws that were establish to give the consumer a fair shake at buying or borrowing money. Goods that were purchase or service for personal use were presumed fair that buyers and sellers would bargained for equal positions. The consumer protection is a law that has to contribute to safety, protecting the health of consumers and the economic interest of consumers. Local trade practices consider unfair or deceptive may fall with Federal Trade Commission laws and regulations and have an effect on interstate commerce. Federal and state laws governing sales, credit financing and reporting, product quality, leases, sales practices, debt collection and other aspects of consumer transactions may be regulated as deceptive trade practices. Consumers are protected by several types of agencies and statues that are enforced by state and federal laws. Today many of consumer protection issues are involve with the

In 2008 the real estate market crashed because of the Graham-Leach-Bliley Act and Commodities Futures Modernization Act, which led to shady mortgage lending or “liar loans” (Hartman). The loans primarily approved for lower income and middle class borrowers with little income or no job income verification, which lead to many buyers purchasing homes they could not afford because everyone wants a piece of the American dream; homeownership. Because of “reckless lending to lower- and middle-income borrowers who could not afford to repay their loans many of the home buyers lost everything when the market collapsed” (Tankersley 3). Homeowners often continued to live in their houses for months or years without paying any

However with a recent act passed by the government maybe it doesn’t go far enough in preventing businesses and its practices from protecting consumers. But with implementation, it’s the ensurance of what businesses ultimately do o in the best interests of the American people.

However, these mortgages required no income verification, or resources to pay for the mortgage, as long as they signed the mortgage papers. Fanny Mae and Freddie Mac were the lending arms that provided the money. Both are now government run, but formerly were privately held companies, unlike Ginnie Mae, which is fully backed by the government. When the homeowners could no longer pay their mortgages, the house of cards collapsed. With the lack of education in this country, the middle and lower class were greatly affected by the government’s intervention in Mortgage rates. The subprime mortgage crisis can be blamed for much of this country’s economic problems, but we don’t need to point fingers at what went wrong, we need to address the problems and find solutions.

The financial crisis emerged because of an excessive deregulation of business operation of financial institutions and of abusing the securitization mechanism in the absence of clearly defined rules to regulate this area in the American mortgage market (Krstić, Jemović, & Radojičić, 2013). Deregulation gives larger banks the opportunity to loosen underwriting lender guidelines and generate increase opportunity for homeownership (Kroszner & Strahan, 2013). After deregulation, banks utilized many versions of mortgage loans. Mortgage loans such as subprime and Alternative-A paper loans became available for borrowers challenged to find mortgage lenders before deregulation (Elbarouki, 2016; Palmer, 2015). The housing market has been severely affected by fluctuating interest rates and the requirement of large down payment (Follain, & Giertz, 2013). The subprime lending crisis has taken a toll on the nation’s economy since 2007. Individuals who lacked sufficient credit ratings or down payments resorted to subprime mortgages to finance their homes Defaults on subprime and other mortgages precipitated the foreclosure crisis, which contributed to the recent recession and national financial crisis (Odetunde, 2015). Subprime mortgages were appropriate for borrowers with substandard credit and Alternate-A paper loans were

Prior to the 2008 economic depression, obtaining a mortgage was relatively simple for home buyers. However, many of those mortgages had provisions that made it difficult for borrowers to repay their mortgages (“Dodd-Frank,” n.d.). As a result, many homeowners lost their homes when they were unable to repay their mortgages, which led to the real estate crisis. In 2010 the Mortgage Reform and Anti-Predatory Lending Act, also known as the Dodd-Frank Act, was enacted to reform how mortgage servicers vetted borrowers and to eliminate the use of predatory loan practices (Cheeseman, 2013, p. 485). Under the Dodd-Frank Act, creditors must establish borrower’s credit history, income and expected income, debt-to-income ratio, and other factors before

The City of Detroit, Michigan filed for Chapter 9 Bankruptcy in July 2013, becoming the largest U.S. municipality to do so in U.S. history (Stone et al 2015). The state of Michigan does not allow a municipality to file for Chapter 9 of bankruptcy “until after the state has first intervened and appointed an emergency manager” (Skeel 2013, p.1065). In terms of the financial history of Detroit, “whereas some municipal bankruptcies can be traced to one primary cause, the factors that led Detroit’s bankruptcy are multiple and cumulative”( Stone et al 2015, p.91). Despite this, the cause for implementing a fiscal control board like the one in Washington D.C. and Puerto Rico is the same for Detroit: the city lost the ability to meet

The past decades have dictated our economic policies; the housing market was fed by the politicians instilling the thought that every person should be a homeowner. According to a speech by President William Clinton in 1995, he boasted about making homeownership a reality, “The goal of this strategy, to boost homeownership to 67.5 percent by the year 2000, which would take us to an all-time high”(Wooley). As a result of political ploys like this, banks and lending institutions came up with products such as the 107% financing, interest only loans, negative amortization programs which allowed loans to start at a 1% interest rate, sub-prime credit packages for those homeowners only 1 day out of bankruptcy, and the no document qualifier

A few years later the market took a turn for the worse, where interest rates were on the rise, and homes were losing their value quickly. Now borrowers that were in these interest only ARM’s needed to refinance these loans because the rates were going up, to a point where the homeowner was not be able to afford the payment. The Federal Reserve tried to stimulate the economy by lowering interest rates during the recession in early 2001, from over 6% in 2000, to a rate just above 1.25% in 2002. These low rates encouraged many Americans to apply for loans for homes that a few years ago they would have not been able to. To encourage the homeownership boom, the Bush administration urged Fannie Mae and Freddie Mac to allot more money for low-income borrowers so they could buy their own homes. This resulted in the subprime mortgage

In Chapter 1 from Ten Letters written by Eli Saslow, the lawyer that filed Jen and Jays bankruptcy believed that their bankruptcy was a combination of misfortune, reduction of salary and many more. As for me, I agree with this idea where Jay and Jen’s bankruptcy was inevitable and the most unfortunate thing was because they were stuck at the wrong place in a wrong time. All of this situations were due to the Michigan worst economic crisis in 2008 in which had affected not only Jen’s family but entire people in the United States especially Michigan state. In this paper I will explain in details about important factor of Michigan economic crisis and two main efforts that Michigan authority did with the help of President Obama towards Michigan

Americans are weary of the market still, and who can blame them? Even as the economy is improving, 7.4 million current homeowners are still drowning in home debt. RealyTrac defines mortgage debt as having a loan amount that is a minimum of 25 percent higher than the property’s market value. More than 13 percent of all mortgaged properties in the U.S. are in this group. Nonetheless, it’s still much lower than the more than 17 percent of mortgages that were underwater in early 2014.

“Bankruptcy doesn’t discriminate: in 2001, almost one in five Americans from ages 18 to 24 declared bankruptcy…”(Walsh).

With all of the incentives and mortgage products given so easily to people that couldn’t afford the high prices (including interest rates), many people defaulted on their first mortgages because they were no longer were able to receive the profit from the homes they first intended to flip. “During the first quarter of 2008, nearly 9% of all mortgage holders were delinquent or in foreclosure, the highest rate since recordkeeping began in 1979. Foreclosure filings more than

Due to such events as the subprime mortgage crisis, the auto market and Wall Street’s failure, the United States suffered a severe economic blow. Looking at the situation from an economic view, supply is supposed to equal demand. Due to the mortgage crisis and the careless attempts of some to make money, there is a superfluous amount of empty homes throughout the United States. In the subprime mortgage crisis, the nature of the failure was the inability to account for money given to individuals, who lack the appropriate requirements. In order to obtain a loan, collateral is needed. References were not being checked and poor credit history went ignored. People were obtaining loans and not paying attention to the interests rates associated. “This time around, the slack standards allowed millions of high-risk borrowers to get easy home mortgages. When this so-called subprime market collapsed beginning about a year ago, ordinary working people bore the brunt” (Gallagher, 2008). Companies were so anxious to place people in homes, that it cost them billions of dollars and