Many far-reaching proposals are ongoing to help poor homeowners in debt to be bailed out of a difficult situation. Some of them may be assisted through constructive programs that aim at active participation in places such as FHASecure. This program, though moderated through its eligibility parameters, along with Hope Now, tends to have a limited time span of delivering aid.

A more legislative aspect is thus needed to ensure proper prevention of the foreclosure epidemic. Allen Fishbein, the director to the credit as well as housing project allied with the Consumer Federation of America, said that he supports the foreclosure prevention legislation. Though things are still under considered consolidation, there remains no better alternative to look up to or even choose from, under these situations. The legislation under Congress however requires a principal that would get to the bottom of bankruptcy problems allowing judges to revisit the conditions for mortgage contracts which should help them make the homeowners empowered enough to make their payments.

Bankruptcy reformation sounds like one of the most significant changes that could help positively in alleviating foreclosure related problems. Fishbein has even assured that reforms like this will be directly done and does not involve one in any kind of bail out! Some lawmakers would however like to think that normal market pressures would be good enough to correct these problems. Hundreds and thousands of homeowners tend to lose their homes while the Congress fiddles with choices like enacting a government’s solution. Many people even suggest that mortgage payments should be met up with subsidizing solutions to come to a governmental solution that should end subsidizing the market for all those who haven’t benefited from such solutions.

Under these varying circumstances, some of the most appropriate federal responses were to propose policies aiming for the restoration and management of financial independence. According to a statement made by a Heritage Foundation, this ought to work out fine enacted through the federal policies only.

On his Saturday address to the assembly, President Bush has said that the government is ready to help any responsible homeowner who seeks to get over this rough patch. However, most of his actions belie the responsibility of not causing unnecessary damage to the majority of the people. So, the public does not expect anything hugely beneficial from the President, who also opposes any proposal regarding artificial propping up of housing prices. He takes this stance as nothing less than delaying the correction of a long-winding and prolonged problem.

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Despite stiff bi-partisan opposition, the U.S. House Judiciary on Wednesday, passed after slight alterations, the highly debatable “Conyers Bill” aimed at retaining ownership of “certain” bankrupt property owners. The real estate boom has, over the years seen people investing more than their capability (thus falling short on their payments) or taking more property related loans (mortgage at high interest rates), which they are unable to repay. The government, through this bill attempts to curb the arising foreclosures of such mortgaged properties.

Only those property owners who have filed under Chapter 13 bankruptcy relief, holding sub-prime and non-traditional loans (i.e optional payments or just interest payments) from January 1, 2000 onwards are covered under this legislation. The debtor, of course must prove insufficiency of income after making payments of IRS specified expenses in order to avert foreclosure of the estate.

Under Chapter 13, the courts can restructure and manipulate the payment terms so as to safeguard both the debtor’s and the creditor’s interests. The courts, said Judiciary Chairman John Conyers, could reduce the enormous interests on mortgages, eliminate the excesses and hidden fees levied by the creditors, restructure the principal mortgage amount to highlight the estate’s real value. This would enable the borrower to manage his finances properly to avoid foreclosure and at the same time leave a fair chance for the creditor to recover his loan.

This would considerably modify the “creditor-friendly” code of 2005 whereby, the foreclosures on collaterals were common since the borrowers could seldom repay their loan (bankruptcy filing under Chapter 7).

Passed by a slim margin of two votes (17-15), the legislation’s main issue of contention is the “fairness” factor pertaining to the time frame. Last week, the Bush administration in collaboration with real estate related creditors proposed rate freeze- a relief for up-to-date mortgage payers on real estate loans from January 1, 2005 to July 2007-a far narrower time frame. Moreover, those who received no such solution to their increasing mortgage interest payments or debts felt victimized and unsupportive towards those receiving relief.

A reasonable argument against the Bill appeared on Wall Street Journal’s opinion piece today. It said that though stringent home loan payment terms are in favour of the creditor as there are opportunities to foreclose the property, fact is a softer treatment is meted to the real estate mortgagee in order to encourage capital flow in property lending market. The problem would remain unresolved.

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Washington Mutual had been demanding for an effective bankruptcy code that is revised to ensure that people can’t simply walk off from paying their credit card bills. Having established its forte as the largest U.S. savings and loan, it is clear that the company had been unable to foresee the possibility of a housing recession that would hit the real estate segment and send forth sparks of high foreclosures.

Most of the newly revised laws pertaining to bankruptcy boosted the foreclosures figures to break records because homeowners had no other option but to commit default on their pending mortgages in their desperation to pay off all the existing credit card debts.

Sadly, the devastation in real estate segment and increase in foreclosures can be pinned on Washington Mutual, Bank of America, JPMorgan Chase and Citigroup. These are giant corporates that spent somewhere around $25 million as part of effective lobbying strategy to press for revision of bankruptcy laws. The revision they sought was mainly to safeguard their own credit card profits but it obviously boomeranged and these companies are probably biting the dust for having brought this real estate chaos to absolute doom.

The rapid high surge in the number of foreclosures reduced severely the value of securities that were supported by mortgages. This resulted in devastating write downs of more than $40 billion for some of the best known names among the solid U.S. financial institutions. The top echelons of the financial services industry are now facing career burnouts too.

Charles Prince 3rd who had been the chief executive of Citigroup resigned just this week when the company had no other option left but to write down a sum of $11 billion for its third quarter.

Another banking baron, E. Stanley O’Neal had been forced to leave his position as chief executive of Merrill Lynch, which is highly reputed as the world’s largest brokerage firm. This was due to an $8.4 billion write-down.

Losses are spiraling out of control for most banks but the worst hit scenario is that new foreclosures in real estate soared to a record level for its second quarter. This was mainly due to severe defaults in the sub prime adjustable-rate mortgages. Again, the crux is that people are forced to prioritize their credit card payments ahead of their payments for mortgages.

This is because the revised bankruptcy law has toughened the act for debtors to qualify for bankruptcy under Chapter 7, which is the statutory section to enable non-mortgage debt. People are forced to walk away from their homes…thanks to credit cards of course.

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Agnes Mouser of Texas is a 65-year-old widow, who got a $10,000 tax due bill after foreclosure on her loan to settle credit-card debt.

First foreclosure, and then the series of monetary problems associated with it, are increasing day by day all over the country. For instance, the burden of tax comes as a complimentary package along with foreclosure. It is very likely for the owner of a foreclosed property to fall into a tax trap without realizing it. Only good negotiation skills or bankruptcy can save the owner from this tax trap.

The system works something like this. First, the unpaid tax amount keeps on multiplying on mortgage payments you default on. Secondly, if the owner opts for selling the house at a lesser value than the actual debt amount owed, and the lender excuses this difference, then the owner becomes liable to pay the outstanding tax on the difference amount that he or she owes.

The Internal Revenue Service’s (I.R.S) policy considers excused debt of all types as an income for the owner. This excused income falls under the tax bracket even if the owner has no tangible property or asset to show for it. Only in cases of bankruptcy does the I.R.S. cancel the debt. In such cases, the onus to prove their insolvency lies solely on the owner.

During the boom in the real estate market, some of the lenders and brokers deliberately encouraged people to take more loan amounts than they could afford. Therefore, if the lawyer of the house owner proves that the process of the loan agreement was faulty, then I.R.S does not treat the forgiven amount as an income. Many people have been able to reduce their tax burden in such cases.

The “Center for Responsible Lending” in Durham, N.C. projects about 21 percent failure in home loans extended during 2005 and 2006. All of these loans will probably turn out into foreclosure. These loans were nothing but sub-prime loans given to people with weak credit profile. The value of many of the houses on which loans were taken is generally lower than the owed amount since the down payments were very low.

The owners can also negotiate lower payments with the I.R.S. However, the outcome is not favorable for everyone since the I.R.S. ultimately decides the tax amount to be paid.

Actually, the truth is that the legalese of the tax paper is very difficult for a non-professional to understand. Therefore, it is always advisable to consult a tax advisor in this kind of situation, or it can end up causing some one a lot of grief.

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