Category Archives: Debt and Credit

Bankruptcy And Budgeting

I blog about this a lot, bankruptcy and budgeting,

Bankruptcy budget
Bankruptcy budget

because bankruptcy results when there is more

money going out than coming in.

Many of my clients just assume that, if the lender

is giving them the money, that means they can afford to repay the loan.

How Much House Payment Is Too Much?

Kathryn Vasel writes about this at money.CNN:

Experts generally advise budgeting about 30% of monthly income for rent or mortgage costs.

I remember when it was 25%, nevertheless:

One-third of households in 2015 were “cost burdened,” meaning they spend 30% or more of their incomes to cover housing costs. Of that group, nearly 19 million are paying more than 50% of their income to cover their housing needs.

No matter how you slice it, big problem.

Not much you can do if you are already in this situation, unless your house is worth less than the first mortgage, and you have a second.  Then you can strip off that second mortgage in a Chapter 13 bankruptcy.

But there is still no way to force the holder of a first mortgage on your residence to change the terms.

If you have not  yet purchased a house, stick to the old 25% rule, and have at least 6 months worth of payments saved, to get you through unexpected, though guaranteed, future bumps in the road.

Mortgage Lenders Are NOT Smart

One of my conclusions from the real estate bubble bursting was, and remains, that my average bankruptcy client is better at handling money than the average banker.

John Allison, former CEO of BB&T Corporation and former CEO of the Cato Institute, argued that government subsidies distort markets and reduce standard of living. He said government subsidies from Fannie and Freddie have not enabled people to buy houses but have encouraged people to buy bigger houses. He said the GSE structure was well-intentioned, but it’s ultimately destructive.

The real estate bubble would not have existed but for various government interventions into the mortgage market, with good intentions, of extending home ownership.

The result?  Home ownership is at its lowest level in decades.

And the bubble was never allowed to fully inflate, with FHA loans and other interventions to keep home prices from dropping further.

According to Brannon, new housing starts in 2016 were recorded at 60 percent of what they had been before the Great Recession. One would have to go back as far as 1966 to find a housing starts rate as low as 2016. Regulatory burdens have increased the costs of building a new home by about 30 percent in the last eight years, he said, leading to greater demand for existing housing stock.

So, just because you qualify for a loan, does NOT mean it makes sense for you.

This just in from Instapundit:

THE DYING MIDDLE CLASS: The Number Of Americans That Can’t Afford Their Own Homes Has More Than Doubled.

For years I have been documenting all of the numbers that show that the middle class in America has been steadily shrinking, and we just got another one. According to a report that was produced by researchers at Harvard University, the number of Americans that spend more than 30 percent of their incomes on housing has more than doubled. In 2001, nearly 16 million Americans couldn’t afford the homes that they were currently living in, but by 2015 that figure had jumped to 38 million.

When I write about “economic collapse”, I am writing about a process that has been unfolding for decades in this country. Back in the early 1970s, well over 60 percent of all Americans were considered to be “middle class”, but now that number has fallen below 50 percent. Never before in our history has the middle class been a minority of the population, but that is where we are at now, and the middle class continues to get even smaller with each passing day.

Michael Snyder argues the main culprit is health insurance premiums rising far faster than mostly stagnant incomes, but the longterm decline in entrepreneurship isn’t exactly helping.

California’s war on affordable housing is undoubtedly another factor.

Be conservative in your borrowing, even if you cannot live up to Polonios’ advice: “Neither a borrower nor a lender be.”

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