Homeowners who have sold their property, or whose homes have gone through a short sale or foreclosure, no longer have that daunting task of scrambling for every penny to make the house payment they had previously been saddled with. They now have income to address the necessities of keeping a household together, like food and clothing, or little lifestyle luxuries like that bicycle or running shoes.

The downturn of the housing market has had varying degrees of impact on every economic level, in every household, market and institution — from the gas pump to the corner grocery store. However, the fact that less money is being spent on inflated mortgages has acted as an economic stimulus in other areas of the economy, say some experts.

As this trend continues, which it will, more cash will be saved and used by those who are looking to jump into the housing market. This will then result in lower interest rate as those who have saved will have far better bargaining power. Which will then, in turn, mean less of the mortgage payments being allocated towards interest, and more towards the principle balance.

For those who are not looking to purchase real estate, more will be saved than spent on mortgage interest. Not a bad thing at all. More of the credit card debt will then be addressed, so overall, the average credit card balance in the average household should also be reduced, and this is a very good thing.

The limit for insured mortgage loans is about to be lowered even further. No longer will the Fed be insuring higher-end mortgages. The Federal Housing Administration and both Democrats and Republicans agree that there is no right to a Federally backed mortgage if the mortgage is beyond the national average. In other words, if you want to live in a very expensive home, the lender will be free to make that high of a mortgage, or not, without the assistance of the Fed.

What does this mean to the average San Diegan?

In San Diego, this means the housing crunch will no longer be limited to homes valued at under $500,000. The higher-priced homes in pricey neighborhoods will now feel the pressure as well. Prices in those areas will drop considerably as the ability to purchase those homes will be less because the lenders will be very cautions about lending large amounts for mortgages. Additionally, the cost of lending in the form of interest rates will also go up. This will result in more higher-end homes going into foreclosure, and the ability to purchase or refinance those homes will be lessened.

More bad news: More affluent home buyers are about to get hit with watching their home value drop, and new borrowers will be required to come up with down payments of 30 percent or more while showing greater assets, higher credit ratings and lower debt-to-income ratios.

It may be a great time to stay in the smaller home that you now own and wait to upgrade to that larger, more expensive home.

First, the mortgage lenders now have added the staff to complete the foreclosure process to sale. Meaning that more homes are being sold at auction.

Secondly, this has motivated homeowners who are struggling with their mortgages to sell before they go into foreclosure in an attempt to get the best price for their property.

Home sales are up as is the number of building permits, which clearly indicate a slow recovery. Interest rates are at one of the lowest rates which have helped boost home sales.

The nationwide trend may be a little different, however. The governmental plans to assist home owners have failed miserably. There is no other way to state it. The Federal Government has a complete inability to watch over mortgage lenders to ensure they comply with the regulations and help distressed property owners. Mortgage lenders are unmotivated to make the process timely or efficient. This only leads to a completely frustrating experience.

The trend is called “Strategic Default” and it effects even the most reluctant and proud homeowner. Once they have concluded that the existing mortgage is not going to be adjusted to make the home affordable, they plan the timing of the foreclosure. Often times this planning involves the school year, graduation, work relocation, etc.

The major question becomes “How much longer can I remain in my house until I am forced out?” This is where the engagement of a professional is so critical. Once the move becomes a reality, the timing of the move becomes the focus.

As an article about strategic default practices said, severe negative equity is a massive and corrosive problem across the country. If the value of the home is far less than the balance of the primary mortgage, then there is negative equity. If there is a second mortgage on the home, then the negative equity is far more acute. The problems that are associated with a second mortgage can be even more devastating as the second mortgage holder may, and probably will, pursue the collections of balance of their loan after foreclosure. This could also result in a heavy tax liability in the form of a capital gain for forgiveness of debt.

It is critical to engage the services of a professional San Diego bankruptcy firm early, long before the foreclosure begins and long before the liquidation of any retirement accounts.

But as this article points out, the recession has hit men and women alike, coming down hardest on families and couples. When one paycheck in a two-paycheck home ceases to exist, many couples — perhaps almost all couples — will struggle. And combine the job loss with other challenges of the economy such as credit card changes and the drop in the housing market, and you’re definitely in trouble. Thus, this “mancession” left plenty of women in financial hardship as they had to struggle to pick up extra jobs to make ends meet.

Another recent analysis revealed that although there are signs that the jobs are coming back, only one in five of the people who have been unemployed for more than six months have recently found jobs. That means that many of the people who were laid off during the “mancession” are still living without an adequate income.

The key to keeping ahead of the debt and the accompanying stress is to be proactive about taking charge of your finances. No matter when you were laid off, you can still follow the guidelines I laid out in “Four Things to Do As Soon As You Lose Your Job.” And, as always, the very best advice if you get laid off or are having trouble paying the bills is to come in for a free consultation with a San Diego Bankruptcy Lawyer.

Please feel free to contact our office at 619.295.3322 to inquire about a presentation for your organization, workplace, association, real estate group, banking group and more.

For more information about my recent speaking engagements, click here.

Banks have been making millions of dollars from consumers by simply covering small purchases made with an ATM card when there’s not enough money in the account, then charging big fees for doing so. That is why a little $4 latte can cost you $34 on your bank statement. You charged the $4 when your balance was almost zero, and the bank charged you another $30 to cover the balance.

Come this summer one bank, Bank of America, recently announced that it will no longer cover the price of the purchase if the money is not there. They will simply decline the purchase. Now that makes sense. It is too bad that the bank has to save the customer from themselves, but, in today’s economy, it is necessary.

In the future, I expect this to be a mandated practice for all banks. The only way an overdraft fee can be allowed would be at the election of the customer. I also think that the fees associated with the overdraft protection will be more costly to make up for the lost revenues.

The tax break preventing the issuance of a 1099 cancellation of debt is no longer available starting tax year 2009. Previously, for tax year 2007 and 2008, mortgage companies who held second mortgages were not allowed to issue 1099s for cancellation of debt on short sales or foreclosed primary residences. Now they can, do, and will in the future.

As a result, the State of California will be assessing an income tax based on the amount of debt forgiven. A huge tax bill may result, depending on the net loss. Further, the holder of that mortgage can pursue collections of the total amount of outstanding balance. The biggest losers will be homeowners who have lost their residences.

The best way to not only avoid the tax liability but to prevent collections of the deficiency balance is to file a bankruptcy.

In theory, the changes should help San Diego consumers with credit card debt manage their bills better, but it’s not a bed of roses. Sure, credit card companies have to play by more rules now, but they are still going to find ways to make their money.

Here is how the new way of handling credit card debt will affect you.

• Interest Rates:
  Credit card companies can no longer jack up your interest rate on the existing balance, and they must notify you of an increase in the rate on new purchases 45 days before the rate increase. But they will more than make up for this by increasing the interest rate on new purchases and eliminating fixed-rate credit cards. That way they can vary the interest rate on a balance.

• Fees:
  Companies can no longer charge fees when you go over your limit or when you pay your bill over the phone. But rest assured that they’ll probably find new and more costly fees for services that are currently free.

• Statements:
  The new credit card statements are supposed to be more informative, with information on how long it will take you to pay off the balance, etc. This is likely to be more confusing to most consumers, making it harder to understand the cost of credit.

• Due Dates:
  Your statement must arrive 21 days before the due date, and your due date will be the same every month. If the day falls on a weekend or holiday, it is due the next normal business day.

• Minimum Payments:
  Credit Card Companies are now required to apply any amounts over the minimum payment to the balance with the highest interest rate. If you are just making minimum payments, you never reduce the balance by very much.

• What Stays the Same:
  Credit card companies can still lower your available balance and cancel your card for any reason and without notice.
• And the best advice about your credit card doesn’t change either:
  • Never use your credit cards to finance other debt, such as pay taxes or insurance, and, if you do use your credit cards, try to pay them off each month.
  • Do your best not to use your credit cards for normal living expenses, such as food, gas, etc.
  • If you’re starting to get into trouble with your credit card payments, do not hesitate… consult a bankruptcy professional right away before the situation becomes worse. You can put your house, car and other possessions into danger if you find yourself too far behind on payments.

There are 3 major credit reporting agencies out there: Experian, Trans Union, and Equifax, plus dozens of other less-known ones.

What information you need from a credit report may dictate what agency you should go to and how much you should spend to obtain one. Some versions of the credit reports may only give you balances and names of companies you may owe, but no contact information for those creditors and no mailing addresses.

According to Money Magazine, freecreditreport.com is not really free at all. What is being sold is a subscription to credit monitoring for approximately $15.00 per month. Try annualcreditreport.com for a copy of your report.  It should not cost you anything.

Remember that a credit report is nothing but a guide and should not be taken to be 100% accurate. When evaluating a client’s total debt, I like to see the actual bills that are less than 90 days old. That way I am confident that the information I have is as accurate as it can be.