Foreclosure filings across the United States rose 47% in April compared to the year before. The rate is up to 1 out of every 775 households. The housing boom of the 1990’s and early 2000’s caused many people to speculate in the housing market. They would purchase and try to “flip” properties almost as if they were sitting at the craps table in Vegas. People would buy houses they never intended to occupy simply to ride the market. Unfortunately, the speculation has exacerbated the housing downturn.

The downturn coming on the heels of rampant speculation has seen more and more houses available on the market now. This has increased the market listing times and forced sellers to reduce prices. Builders have been slashing new construction prices, thereby making it more difficult to sell existing homes. These “flippers” never anticipated having to meet mortgage payments for as long a time period and more and more houses are now going into foreclosure.

I read some recent reports indicating that default rates on mortgages, especially “sub-prime” mortgages have jumped in the face of the slowing housing market. Credit card delinquencies, on the other hand, have not increased, as some had predicted. Defaults on credit card payments during the 4th Quarter of 2006 remained steady at 4.56%, as compared to 4.57% in the third quarter. In comparison, credit card default rates were around 5% back in June 2005.

This is interesting because usually people will struggle to make their mortgage payments at the expense of their payments to credit card companies. Logically, it would seem that credit card default rates would increase before mortgage default rates. That doesn’t appear to be what is happening right now.

I have also read news reports about mortgage companies tightening their money policies. In other words, it’s not as easy these days to get a mortgage or second mortgage as it used to just a year or two ago. I would think eventually we will start to see credit card default rates increasing because equity loans and equity lines of credit won’t be so readily available as an option to pay off unsecured debt, like credit cards. But, that doesn’t appear to be the case as of yet. I suspect it might have to do with the huge push in advertising of credit counseling firms touting debt management plans and debt settlements. I have no statistical data to support my opinion, but it just seems to me that I’m hearing a lot more commercials for these “not-for-profit” credit counseling agencies than I heard in years past. Unfortunately for consumers who need help paying debt, I don’t think these are good solutions. I’ve blogged before about reports from the credit counseling agencies that only approximately 25% of debt management plans complete. In my opinion a 25% completion rate doesn’t sound like success.

I’ve read a lot of articles and listened to a lot of reports in the media about the very high foreclosure rates across the country. It seems a lot of people are behind on mortgage payments and face foreclosure. While this news saddens me as I think about the families that are struggling with this problem, I know there could be a solution. Bankruptcy could stop a foreclosure or protect a person from any deficiency balance that might result from a foreclosure sale.

While bankruptcy law generally can not change your payment amount on your residence, it can certainly provide a way to help you get caught up on payments. Even with a voluntary mortgage modification or repayment plan through your mortgage company, you would normally have to catch up on payments (including late fees, accumulated interest, escrow deficiencies, and any attorney fees) within a short amount of time (usually 3-6 months). Through a chapter 13 bankruptcy, you could stretch out payments on the arrears over as much as 5 years…60 months! Obviously paying back the arrears over 5 years as opposed to 3 or 6 months would be more affordable.

The other way bankruptcy could help a person facing foreclosure is through a chapter 7. If you simply can’t afford your mortgage payments, chapter 7 could protect you from owing any deficiency balance on any mortgage once the house is sold at a foreclosure sale.

Either way, if you’re facing foreclosure and don’t know what to do, you might consider calling a bankruptcy lawyer and getting some advice about how bankruptcy could save your house!

The New York Times news service has reported that 1 out of every 5 subprime loans are likely to go into foreclosure over the next two years. The highest default rates are expected to be in cities in California, New Jersey, Washington, DC, Michigan, and Nevada.

Translated into raw numbers, the report, based on a study done by the Research Center of Responsible Lending using data supplied by Moody’s Economy.com, predicts that about 2.2 million borrowers who took out loans from 1998-2001 will lose their homes!

Subprime loans make up one-quarter of the mortgage market, so what happens to subprime loans has an important impact on the entire industry.

For more details, you can access the story at: http://www.signonsandiego.com/uniontrib/20061220/news_1b20foreclos.html.