Monday, January 14, 2013

Fiscal Cliff- We Survived the Fall - Now What??

If there was a real "fiscal" Cliff, at least three-quarters (¾) of Congress would have been thrown over into the abyss far below. Sorting out the facts from the political rhetoric and greed, we are quick to discover that this entire issue was created by Congress itself in 2012 because of a basic moral disconnect within Congress and a desire to stop the President’s re-election.

Congress was deadlocked within itself and with the President on the National Debt-Ceiling (IT'S BACK - NEXT POST - TRILLION DOLLAR COIN?) – that is the amount of money the Country is authorized to borrow; right now it’s about $16 trillion or $16,000,000,000,000. We had hit the limit a year ago when it was nearer to $14.5 trillion and the Republican controlled House of Representatives would not go along with raising the ceiling. The argument is that we, as a nation, already owe too much – that we are mortgaging our childrens’ futures. Congress with the White House decided to pass a law that would force a minimum of $1.2 trillion in cuts to Government agencies’ budgets across the boards. At the same time there’d be an increase in taxes for almost everyone, but especially the highest paid and wealthiest, unless an agreement was reached before January 1, 2013

The idea was to create such a nightmarish picture that Congress and the President (all being reasonable people) could come to a quick agreement to strike a balanced program. If there was no agreement, the law would go into effect and automatic cuts to Social Security, Food Stamps, Unemployment and other so-called Entitlement Programs would take effect and there would be an equal cut to defense and related spending. And there would be those tax increases. The technical term for this is Sequestration.

No wonder that for the sake of easy reference someone called the failure to reach an agreement a “Fiscal Cliff” because we would “fall” into a financial crisis that no one wanted nor about which anyone could predict the outcome. So the term FISCAL CLIFF was just shorthand for a very complex set of spending cuts and tax hikes that would go into effect at the stroke of midnight as the Times Square Ball dropped on 1/31/2012.

THE DETAILS (most of them anyway)

Enough background and theory: What does the agreement that was reached at 3 A.M. on Jan 1st and signed by the President, really mean to us – the rich, the poor, and the few in the middle?

1. Tax cuts, that had been passed in George Bush’s term will stay in effect except for persons earning more than $400,000 (couples $450,000) who will have those income tax cuts disappear. The top tax rate will jump from 35% to 39.6%. This is supposed to bring in $600 billion over 10 years **

2. The spending cuts to all of the entitlement programs and the defense industry won’t happen

3. Capital gains taxes, the tax paid on profits from the sale of stocks or any other investment will go up 33% from 15% to 20% if income is above the $400,000/$450,000 “safe” level. (I have yet to see the tax effects on business capital gains)

4. The Child Tax Credit, which would have expired will continue another 5 years

5. The Alternative Minimum Tax (a tax that’s calculated to be sure you don’t have too many tax breaks) will be adjusted so middle-middle class and below incomes won’t be affected**

6. UNEMPLOYMENT BENEFITS will be extended for the long-term unemployed for 1 year

7. The amount doctors are paid under Medicare WILL NOT be cut THIS YEAR by the threatened 27%. That would have caused many docs to stop taking Medicare and therefore Medicaid patients

8. The estate tax exemption, the level at which estates start to get taxed, will stay at $5.12 million but it will have an inflation adjustment in the future. Also, the top rate will move from 35% to 40% **

9. Itemized deductions will be limited for taxpayers making $250,000 or more ($300,000 for Joint Filers)

10. Businesses developing wind projects and doing certain research and development programs will receive the same tax credits they have had for an additional two years

11. Businesses, and this affects even small business, will be able to obtain bonus depreciation. Simply put , instead of being able to deduct 1/7th of the cost of a truck (depreciating value) each year for 7 years, the law may allow a two (2) year period which makes short-term investment in equipment more attractive.

** (These items are permanent changes, not needing further action)

THE “BACK-STORY” – Why this really happened

In the first paragraph there was a reference to a “moral disconnect” in Congress. The comment was not a slur but rather the key to most of the fighting. There are those who truly believe that as a Country we should always run with a balanced budget, like a business or a family would do. There are others who are as firm in the philosophy that it’s okay to incur debt that will take a long time to repay. That is the basis for one of the most basic on-going debates in economics.

In a deep recession, one caused by a collapse of a major segment of the economy (housing this time), you may not be able to reach a balanced budget. Even though it might be the best resolution, austerity, not spending, will dry out any ability for employment to get better, for purchases of goods to increase etc. Imagine asking everyone in your family to have a balanced budget within a year. That means that everyone would have to balance at essentially the same time. Well, so much for getting a short-term loan from Mom or Auntie or your favorite Uncle! Now imagine having every family and business in the Country to accomplish a balanced budget in a year – the same year.

There are others who believe that in financially dire times (now), to keep things from getting worse, the Government is equipped to borrow huge sums by selling bonds and spending money on projects to create jobs, to make lending/borrowing easier (thus the low interest rates) and a host of other measures. It’s like a “Texas Steel-Cage Death Match” between the two extremes. That is the real genesis of the dilemma. Well, and the politics of trying to win the presidency.


It doesn’t really matter in the short run which side you are on – spend our way out and pay the bills later or cut spending to the bare bones and enter a true austerity program to pay everything faster. There is no ANSWER, there is no TRUTH in a social science which is what Economics really is. There are many views but we have to settle on a path to recovery, to solvency. If there is no agreement in two months, we get to go to another Fiscal Cliff or sorts but with an unimaginable drop-off: The DEBT CEILING. Will we pay our national debt and keep things running here at the same time, or will we default and become a deadbeat Country?

Author's Copyright by Richard I. Isacoff, Esq January, 2013

Tuesday, November 20, 2012

Fiscal Cliff - Who Is Cliff Anyway?

The much discussed fiscal cliff about which will fall over (or not based on Congress) is probably misunderstood more than any other jargonistic word in politics today. What is it? Please read further.

About a year ago, or so it seems, Congress and the President couldn't agree on the issue of the national debt - should it be allowed to increase again. Actually, not even the House of Representatives and the Senate could agree (Thank you Tea Party!). A deal was made that allowed the Debt Ceiling to increase by $1-2Trillion. Had it not increased, so goes the theory, we would have defaulted on international and domestic debt. (I guess Bain Capital would have bought the Country for 5 cents on the dollar).

The agreement was simple: "Everyone" agreed to reduce the debt by $1Trillion by a mix of spending cuts and increased revenues (called Taxes). Whether any of the parties would have actually done what they promised is still unknown. IN EXCHANGE for the "put the decision off until after the election" scenario, each "side" accepted the concept that if nothing is done, then Sequestration would come into play - putting everything on hold but with HUGE penalties.

This basically means that budget cuts and revenues generation (taxes) would be forced into being. No turning back. Congress passed the law and the President signed it. $500Billion would come out of spending (defense and social services programs including medicaid etc) and $500Billion would be recovered by eliminating tax breaks in place since G.W. Bush was President, and one or two dealing with payroll taxes that this administration got passed. NO ONE THOUGHT IT WOULD HAPPEN. It was to scare a solution into concurrence by all sides. The cuts would be so drastic and the effect on taxpayers so big in increased payments that a deal would be worked out well before the election or right after. Probably one Political Party thought is would win control of both Houses and maybe the Presidency as well.

We have 16 working days before the end of the year when we fall over the cliff (Congressional calendar of course - I count about 47 which allows for Christmas and Thanksgiving but...). What does it really mean? RECESSION. The cut in federal spending and the increase in taxes which will cut personal and business spending will kick us back to 2009. Unemployment over 9% again - maybe as high as 11%, businesses closing due to no one being able to buy much at all.

The irony - the utter insanity - we would start stimulus packages all over again. It might take a year but that's it and then we'd be back in the same boat. Problem: If we defaulted, our cost of borrowing from other countries (China) would skyrocket. When we "borrow" we SELL TREASURY BONDS. Right now the interest rate we pay on bonds is under 2% for the most common time period - 10 years. We might have to pay 5%-7%. That would keep us in the hole for the rest of the boomer generation's lifetime.

Why do we do this to ourselves? Some would say that "We have THE answer": Cut Spending on the "welfare state" stuff. Well, there is no ONE ANSWER. That idea is just ideology/belief that has nothing more holding it up than does the other main group who say "Don't Cut" but tax the wealthy and eliminate duplication and waste in government.

Author's Copyright by Richard I Isacoff, Esq. November 2012

Monday, September 10, 2012

Home Loans - Too Risky? Don't Ask, Don't Tell!

Should Banks be making mortgage loans? We take the answer for granted. Yet, I have been involved in an on-line discussion that started about gold’s value and price, that became about the wisdom of banks making loans for homes. And, if so, the circumstances under which loans are made. Financial and economic modeling does not take into account all of the variables, nor can any model accomplish that feat. My position is that, the contributors to the conversation should have the actual experience to deal with the issues, and even then they will end up with as many opinions as there are participants

The Philosophical debate of home ownership is one that has so many moving parts, IBM's “Jeopardy!” winning super-computer, WATSON, would have difficulty arriving at "an answer".Oh, and that assumes that we can identify all of those factors which should/must be considered. Part of the problem here is that lending for home purchase is tied to our (U.S.) culture and societal expectations. Further, politically, we have tied ourselves to a tax and income structure that counts on home ownership.

How to make successful loans? Easy - (1.) Take only Borrowers with perfect credit and lifetime employment with Life and Disability insurance naming the lender (2.) Variable rate (3.) changing DAILY (4.) at a rate fixed to the Fed Funds rate (5.) Plus whatever margin the institution needs to satisfy stockholders. (Oops! Nothing will satisfy stockholders so let's just call it a reasonable “ROI”-Return on Investment)

The issue is simply Home Ownership for the “99%” or Not! The mutual financial institutions, including credit uions, have an advantage, that they have squandered, as they have no stockholders and pay lower/no taxes. Mutual holding companies allow community banking to survive the onslaught of mega-banks. But as mutuality disappears, we will be left with the Savings & Loan “S&L” model. That worked real well. I ran several failed S&Ls for the State of MD with the FSLIC (now part of FDIC) right next to me. Commercial banks? How about Bank of New England - $32B "failure" in 1990 (translate that to 2012 dollars!). I know it well, because I "worked-out" a small part of the organization, me having moved from MD, where I was President of a new Federal Savings Bank, in January 1989 to run the Berkshire, MA region of BNE.

Lending is RISK. That is what banks are supposed to do: Take Risk! However, it is supposed to be managed. Shareholders, by demanding higher dividends and share prices, force unwarranted risk-taking. The two demands are somewhat diametrically opposed, yet sophisticated models will demonstrate that they follow one another, and lower the risk taking as the Board over-sees the "lending activities". GOOD LUCK!

Spend 10 or 20 years in banks and mortgage companies. thrifts and commercial banks. Then spend 10 years looking at changing regulations, but not just "real" banking, but so-called shadow-banking (Morgan Stanley, Goldman Sachs et al) as well. See what the SEC (Securities & Exchange Commission) has planned, versus what was on the books in 2006. Then look at enforcement or the lack thereof.

My long and drawn out point is that without field experience one cannot "model" the issue of "to lend or not to lend" and how much to charge if the decision is "YES". Then again, we are at the juncture of epistemology, philosophy, and economics. Answering the question of whether there is A God, many Gods, an Intelligent Designer" (ha ha - think about it), or just Chance, would be easier.

The price and value of gold - I guess that debate is over. It's worth something because we say so and because my grandson liked shiny stuff when he was little.

Author's Copyright by Richard I. Isacoff, Esq, September, 2012

Monday, July 23, 2012

Student Loans: Legal Loan Sharking

Student Loans: Legal Loan Sharking

Student Loan Sharking. Harsh? NO! Outstanding student loans in this country have exceeded $1,000,000,000.00 (One Trillion Dollars). At least 15% of those loans are "private" loans, meaning not made by a government agency or sponsored lender. So what is the difference.

Remember all of the discussion (still heard throughout the country) about "Sub-Prime" and "Predatory" Lending? It's live and well on campuses all over. And why not? The Bankruptcy law change in 2005 created a form of indentured servitude. Have a PRIVATE student loan that is at a level 5 times the entire annual salary that can be earned, accumulating interest at 6%-20% (based on payment history - a default of a payment and the rate jumps to the maximum in most cases - how can anyone pay it?

"Too many student loan borrowers are struggling to pay off private student loans that they did not understand and cannot afford,...We must do our best to leave the next generation in a better place than we are today, rather than buried under a mountain of debt." - Richard Cordray, Director of the COnsumer Finance Protection Bureau ("CFPB"). Both the CFPB and the Federal Reserve are gravely concerned about the problem. 25% of the outstanding loans are in some state of default.

I deal with the problem on a daily basis. I have clients who have no possibility of ever paying their student loans, whether they be PRIVATE or FEDERAL. The issues include federal loans as well as private loans. It is true that Federal loans are able to be modified through the lender, and payments made based on a current income/ability to pay. They can also be consolidated through "DIRECT LOANS" which is THE WILLIAM FORD FOUNDATION". However the loans will hinder the student's ever purchasing a house or a car or anything else where credit is needed. The loans stay on credit reports until paid.

The 2005 Bankruptcy law change made it next to impossible to prove EXTREME AND SUBSTANTIAL HARDSHIP in repayment, the requirement for discharge.

The Bankruptcy Courts are able to modify all loans except First Mortgages on primary residences and STUDENT LOANS. The commonalities - the PREDATORY nature of the lending tactics and the LOBBYING by the respective trade groups. And, Private Student Loan Lenders DO NOT have to allow a consolidation, nor forebearance in payments.

Here is a link to the 131 page report which details the entire issue. The report was published by the CFPB and the Secretary of Education. (It's a .pdf so it's easily browsed)

Advice: Don't borrow more than is needed for SCHOOL costs and borrow from a Federal Agency. And READ EVERYTHING & ASK QUESTIONS. TRUST NO ONE!

Author's Copyright by Richard I. Isacoff, Esq. July, 2012

Tuesday, July 10, 2012

Debit Cards and Colleges; An Unholy Alliance

Colleges are courting the Devil - the Debit Card Devil. Debt counseling and money management are urgently needed on Campus! Hard pressed for funds, Colleges are resorting to "quiet" side deals to the detriment of its students. By this time most students are aware of some of the traps in credit cards, especially the killer default interest rates. The implication or at least the inference drawn by most people is that Debit Cards Are Safe:. THEY'RE NOT!

During the summer break, students and their parents, guardians, sponsors etc. should pay attention to the increasing use of, and demand for, Debit Cards on College Campuses by the Colleges themselves. The furor over credit card interest and fees has quieted (for now) but a more insidious replacement has arisen; Debit Cards.

A PIRG study, demonstrates that debit card using students have traded a headache for an upset stomach (I realize that shows my age but...). I was a banker for 18 years and ran failed banks and S&Ls for FSLIC and then FDIC. That part of me wants to delve into the extent the colleges have accepted payoffs for signing contracts with Debit Card Issuers that expose their students to legitimized financial crimes; transaction fees, overdraft fees, annual fees, a fee for being late paying a fee...

The Consumer Finance Protection Board ("CFPB") should jump into this mess but it has its hands full, especially with a Congress beholding to the Banking industry. In the meantime States' AGs could take up the fight. It will be easier than the Student Loan problem which is not getting any better in the near and maybe distant future. Here there are no issues with Federal agencies being the card issuers.

Every college, with an agreement with a debit card issuer, should be forced as part of disclosure regulations to explain, in plain English, with documentation provided, how much the college is receiving and what "arrangements" were made with the administration, development office, and financial aid office for starters.

Oh, and maybe, as a mandatory Freshman year course, all colleges should have a 1 credit course in financial management covering topics like budgeting, all forms of plastic, the full cost of attending school, and the probable length of time it will take to pay back student loans. In fact, maybe the college should have to credit each debit card user with student loans, at least one-half of the fees the college received to the Student's student loans

Author's Copyright by Richard Isacoff, Esq, July 2012

Sunday, July 8, 2012

"Too Big To Fail?"; JPMorgan's $9B Loss

The "Too Big To Fail" banks are at the center of the current U.S economic problem. Below is a copy of a comment to an Op/Ed piece that appeared in the American Banker on June 18th. While it deals with issues that do not affect most of us directly, it does affect the entire structure of our Banking system. Unless you have avoided (perhaps wisely) the news, JPMorganChase ("JPM") lost $2,000,000,000 ($2 billion) in trading. Well, that was the initial reported loss. As of this morning (6/28/12) it is up to $9 BILLION. One might say that a comapny lost money - So what? - it only affects the shareholders. NOT IN THIS CASE.
The controversy is that the funds that were lost could test the banking system itself. The money lost wasn't on bad loans it was from GAMBLING. JPM will state that the losses were from "trading securities" used to "hedge" (or insure) against loan losses by buying securities as an offset to the potential losses. The practice is called "Hedging", and no one would argue against a bank's right to take steps to protect the shareholders and the DEPOSITORS from loan losses.

Here however, it is clear (to me in any case) that the loss stems from JPM buying securities/options/contracts or the RIGHTS to these instruments for its PROFIT ONLY. Well, the market went the other way and instead of protecting against losses from loans (hedge) the trading,done just for PROFIT, created a sink hole SO DEEP...

JPM takes in money from depositors. The FDIC backs those deposits up to $250,000 per depositor (lots of rules). What JPM did was to GAMBLE on the financial markets and LOST. Why is that important - the money that was lost, if the loss is big enough, could impinge on the Bank's stability and force another bail-out, but one the Government CANNOT afford.

JPM engaged in "Proprietary Trading". They used depositors money to GAMBLE on the stock market. JPM has enough reserves and capital (saved earnings) that it could absorb the loss without going to FDIC. But, what if it didn't. The loss was $2 Billion, now disclosed to be $9 Billion. What will next week show?

The Op/Ed piece discussed JPM's CEO testifying before Congess. He wasn't asked to explain. Rather Congress asked his advice on the economy. HUH? The following is my reply to the American Banker. PLEASE E-MAIL ME IF YOU HAVE QUESTIONS OR IF THIS WHOLE POST HAS BEEN, WELL BORING AND CONFUSING
To Mr. Rob Blackwell at American Banker

"I must take issue with the other commentor. $JPM's loss is important, very important. Not because I believe there is a TBTF issue, but it might point out exactly where the Reg[ulatory] system is most vulnerable. For a short time I dealt with a small number of member of Congress for the Mutual Savings Bank industry. Obviously I was of no real stature (only 5'10" - sorry but I couldn't resist), but the Senators with whom I dealt on the Banking Committee were totally committed to insuring that the legislation would serve the stated purpose.

Here we have Senators pandering to a very large Bank's President. Yes, he is important, but it was under his watch the trading losses occurred and no one outside, and probably inside JPM knows the real extent of the loss. Depending on the puts, call, options and other hedges, the loss may not be known for a while - dates of uncertain duration. But, $5B-$7.5B would not be a surprising amount. Dismaying yes but no surprise.

We need some way to stop the gambling from continuing. Even the Football "books" have better controls than JPM does apparently. My view is that we need a Volker,Dodd-Frank combination bill coupled with an SEC and OCC that will enforce those laws (if passed) and the laws already on the books."

Author's Copyright by Richard I. Isacoff, Esq, July 2012

Wednesday, April 4, 2012

Problem: Principal Write-Down or Principle Write-Down?

In late March, there was an analysis and recommendations in the American Banker which comprised the most succinct commentary on the current mortgage/foreclosure Bank-Owned real-estate problem and how to begin to solve it. I went through the Maryland S&L crisis running failed institutions. The last thing I wanted in any of them was more real estate. It's just a messy way to waste resources.

Perhaps the most important portion of the author’s comments is "if mortgage lenders and servicers undertake the challenge of developing teams of highly trained loss-mitigating experts, each able to professionally and sensitively work through an increasingly complex range of loan modification, restructuring, or short sale options with troubled borrowers, then real progress can be made." To this point, not one mortgage company with whom I have dealt, Bank of America, JPMorgan Chase, Wells Fargo, Ally Bank, HSBC/HFC/Beneficial, and the OCWENs, GreenTrees etc has such a unit in place. The Call Centers read from a script and require the patience of a saint to negotiate. There is no Unit of specialists! Mention workout and you get transferred for 30 minutes+

One of the major program additions, as proposed by the most recent housing stimulus is the concept of allowing principal reductions. The issue is not new, nor are the arguments against it. 1 ½ years ago I began researching and discussing the Home Equity Fractional Interest ("HEFI") program as a way to get houses back above water without sacrificing the possibility of recovering what the market won't support today. Kevin Hardin, and his company Equi Debt Solutions ( had produced a slide show ( describing how the program works. Basically, the Mortgage Company agrees to a reduction of the principal balance, but in exchange gets a second mortgage. This allows the mortgage company and the homeowner to share in any appreciation of the property. Once the write down is recovered, due to a sale or maybe (in the distant future) a refinance, the homeowner and the Mortgage Company split the excess 50/50 or by whatever other agreement they reach at the time the transaction originally takes place. Although the program was accepted at the federal level, it withered on the vine and not one of the above-cited entities has ever discussed it with me or anyone else I know.

Banks can maintain their moral high-ground and insist borrowers pay; either with cash or their house. Their bottom line - don’t worry - "we already have a reserve for the loss". Let us agree that we had the perfect storm scenario and no one is to blame. Let's fix the problem not nip at its heels like a Yorkie puppy.

Author's Copyright by Richard I Iaacoff, Esq, April 2012

Tuesday, March 20, 2012

Mortgage Settlement - Banks Get "Free Pass"

As the details of the Mortgage Settlement Agreement, the deal between 49 of 50 states and the U.S. on one side, and BanK of America, Wells Fargo, CitiBank, Ally Financial, and JP Morgan/Chase on the other, become analyzed, it a HUGE win for the Banks. The not only received a "Get Out Of Jail Free" card but are now assured that there will no jail and the cost will not hurt profits.

Quoting from the March 13, 2012 American Banker's article about the agreement

"The settlement includes releases from certain federal claims, including errors related to servicing conduct; origination; and errors specifically related to servicing loans for borrowers in bankruptcy

The claim "fully and finally" releases the company and any affiliated entities, from any civil or administrative claims and any civil or administrative penalties -- including punitive or exemplary damages--for:

Servicing claims under the: Financial Institutions Reform, Recovery, and Enforcement Act; False Claims Act; the Racketeer Influenced and Corrupt Organizations Act; the Real Estate Settlement Procedures Act; Fair Credit Reporting Act; Fair Debt Collection Practices Act; Truth in Lending Act; Interstate Land Sales Full Disclosure Act and certain sections of the Gramm-Leach-Bliley Act. Origination claims under RESPA, TILA, Fair Credit Reporting Act; and Interstate Land Sales Full Disclosure Act, and certain claims made under FIRREA.

The Consumer Financial Protection Bureau agreed to release servicers from any claims related to servicing or origination conduct that took place prior to July 21, 2011, when the bureau became an independent agency. But the agency reserved the right to obtain information related to conduct" (emphasis by this writer)

Perhaps the biggest issue for DEBTORS in the long term will be that Servicers and Lenders etc are released from any liability from servicing errors during a Bankruptcy. This is a huge WIN for the mortgage industry. Most servicers cannot keep track of payments for money owed before a bankruptcy and payments made AFTER the bankruptcy was filed. Pre and Post-petition debt transaction history is generally a nightmare. Even Gordion would not have a sword capable of solving his problem.

As with all such programs we will have to wait for the regulations. The settlement is one thing - the details of administration is another.

Author's Copyright by Richard I. Isacoff, Esq., March 2012

Friday, March 9, 2012

Force-Placed Insurance $$ - The Consumer Fiance Protection Board I Missing The Mark

The Consumer Finance Protection Board ("CFPB") is trying to rein-in a common practice of mortgage companies country-wide. Very often, if a mortgage company or mortgage servicer believes that a homeowners policy has lapsed or been cancelled, the Servicer/Lender will put it's own insurance on the property. This HIGH PRICED coverage is called force-placed insurance, now euphemistically known as "Collateral Protection Insurance" or "CPI".

Presently, Lenders have the right to protect their collateral, and if the borrower doesn't insure against loss, the lender can. That makes sense. However, CPI is wildly more expensive than standard Homeowners and has been the cause of at least 25% of my foreclosure cases. The SCENARIO: A Homeowner misses paying for insurance, the lender is notified and puts CPI on, adds the cost to the escrow account payment, then the homeowner makes regular payment, but lender deems it "short", and puts money in suspense until there is enough to "make" a full payment. Within 6 months borrower is in default of mortgage payments by 3 months and foreclosure starts.

Yes, it is the borrower's responsibility to pay for the insurance as part of the agreement. But, when most get a notice stating that the lender is now paying, most borrowers believe it's their homeowners policy, at the rate they were paying, and that amount will be added to escrow charges. Not so! Because CPI is placed without any underwriting and home values (replacement) are guessed, the premiums are 2 to 5 to 20 times higher than Homeowners. CPI shows on a mortgage bill as "HAZARD" insurance, which is even more confusing.

An extreme, but real case I had (nothing is hyped): Borrowers fell behind due to a job layoff and a disability . Mortgagee refused to modify loan or grant forbearance. Borrowers filed Bankruptcy in an attempt to keep the house but the arrears were too high. Suit over predatory lending issues died due to time passing, thus the Statute of Limitations passing as well. BUT, while the Bankruptcy was still open, and before an eviction action took place, the lender send my clients a premium notice for $18,800 for CPI. The loan was just about $100K but the insurance was for $630K. That was claimed to be the amount that it would have cost to replace the house - sure. I could have purchased the entire street for $630,000!

That took all of the fight left out of my clients. They could not pay the regular payment, the arrears (even over 60 months) AND $1,566 per month for CPI (that was twice the mortgage payment). They packed up and moved. When I tried to get recompense from the lender for violating the automatic stay in Bankruptcy and for unfair and deceptive practices, the law firm for the lender sent me a nice letter saying, in essence, too bad.

At auction the house sold but the sale died. The resultant sale to a real 3rd party purchaser was for less than $20,000. The lender lost but got what it deserved, but my clients and wife's parents had to move. The lender lost twice as my clients would still be there paying a regular payment at 4% with regular homeowners, just fine.

The CFPB discussed rule would not have helped here. The lender had the right to insure but why not JUST PAY THE HOMEOWNER'S PREMIUM, and where did they get $630K. What else would you expect from a bank that told me "We don't have to do modifications. We didn't take any federal (TARP) money!"

Author's Copyright by Richard I Isacoff, Esq, March, 2012

Monday, February 13, 2012

Mortgage Settlement - Not For Everyone

Hooray! We have a Mortgage Settlement - $26B worth but who gets help and where does the rest of the money go? NO ONE KNOWS yet, and no one know who is covered and will get assistance of any kind!

What we do know is that the 5 major servicers, Bank of America, JPMorgan Chase, Ally Financial (the old GMAC), CitiBank/CitiMortgage etc, and Wells Fargo are funding the settlement (there may be others later).

We DO KNOW that if you live in Oklahoma you opted out of the settlement, and if your loan is owned by FannieMae (FNMA) or FreddieMac (FHMC) YOU ARE NOT INCLUDED. Below is a link to the website for the Settlement where you can check to see if your loan is owned by either of these GSEs (Gov't Sponsored Enterprises).

We also know that 1. if your case falls into the included category and you lost your house in what would be deemed an improper foreclosure you may be entitled to $2,000+/-. 2. If your mortgage payments are current but your house is worth less than you owe, you may be eligible for a refinance to a low rate. 3. If you need a modification, you might get a Principal Reduction so you owe less and therefore your payment may be lowered. (No items 2 and 3 ARE NOT reversed - seems like they should be however).

Nothing will be ready for 6-9 months, and most of the programs will be administered through the States' Attorneys General's Offices - the program will be implemented over the next 3 years.

Some perspective on the Settlement amount: 2011 - Bk of Amer earned $17B after loan loss reserves ("net" income $1.4B); JPMorgan "Net" Income $19B; Citi "Net" Income $11B; Wells Fargo $16B. Just these 4 banks had a "Net" Income of $47B for 2011 and that is without stripping reserves for the Settlement that have already been put aside and reduced income.

Last - the official word is "Wait, you will be contacted" or, if you are in the foreclosed category being handled by your State's Attorney General, contact that office through the link provided on the National Mortgage Settlement site.

Author's Copyright by Richard I. Isacoff, Esq., February 2012

Friday, February 10, 2012

Mortgage Settlement:Sky Clearing or Storm Coming?

Whether CA and NY join is anticlimactic. The quibbling over the amount of the settlement was foolish. $17B or $25B has never been the issue. Of bigger concern is the ultimate trickle-down (how Reaganesque) to the affected homeowners.

The Banks have wanted a "free" pass as to future suits and an indemnification from suits by borrowers who are now out of house and home. I know that there will be the hue and cry of "they only got what they deserved; after all they didn't make their payments - so the paperwork was faulty - they didn't pay!" (I worked at a bank where a fellow SVP called it the "Human Cry" - never knew if it was a clever pun or...). Here, there is a human cry and it's from the families who fell behind for legitimate reasons (loss of job due to federal program cutbacks), tried to get a modification but before they could react their house was gone.

I have worked with nearly 100 variations of that scenario in the past 3 years! And I have handled 50+/- of the situation where the house got to be too expensive and the homeowner stopped paying because the mtge co refused payments after 90 or 120 days delinquent.

For that first group, where there were no assignments, where MERS (Mortgage Electronic Registration System) initially foreclosed, where HAMP was ignored or where a major Lender/Servicer stated to me "We don't have to do modifications because we did not take any Federal ("TARP") money", is the group that should be compensated. With the per household figure being $1,500, that's not even 1st, last and security for an apartment, and in many places barely 1st month's rent.

The Securitization of mortgages into RMBS (Residential Mortgage Backed Securities - where thousands of mortgages were pooled together - See Posting Dated ) made this fiasco possible. In a sense, the banks have had to deal with the losing cards they got in the draw. The suit should have included the rating agencies, the Investment Banks, and all who facilitated a swindle that makes Madoff look like a low level Ponzi scheme.

I cannot point a finger at any one individual, organization, regulator, administration etc and say "You caused this world recession!!" That being the case, the Banks that allowed forged or failed documents to be used, corrupted the Civil side of the legal system by swamping Plaintiffs' lawyers with Wall Street law firms to a point where, even though all procedures were followed the hired guns won.

I ran failed S&Ls in MD and part of the Bank of New England mess in MA - I have chased and caught the thieves and cut the business/person who just got a raw deal some slack. Here we have Corporate Persons, some of which took "assets" at the request or arm twisting of the Fed, Treasury, OCC, or FDIC, being asked to pay a quarter's earnings to make up for a systemic failure. That's the price for being in the game but here everyone has lost. Stockholders, displaced CEOs and other officers, Homeowners, Administration officials etc.

The $25B is just hush money - hush to the whole bloody mess.

Author's Copyright by Richard I Isacoff, Esq, February, 2012


Monday, January 23, 2012

"I Disclose... Nothing"

There was an Opinion piece in the New York Times Sunday, Jan. 22,2012 by Elisabeth Rosenthal regarding the matter of Disclosures. Her position is that there isn't any, especially in the Consumer area. The link to the article is shown at the end of this posting. It's worth reading, every word of it!



I am a lawyer. Please do not pillage me for thinking, many years ago, that lawyers HELPED people, and had a high degree of integrity. Even worse, at one foolish time I actually considered getting into politics, again thinking that our elected officials actually care about their constituents.

I come face to face every day, handling foreclosure prevention work, with federally mandated and corporate sought after disclosures like the "[NO] Truth In Lending" disclosure required at all real estate transactions. Unlike many of my brethren and sisteren I actually understand the documents. Having spent 18 years in Banking, at times working for regulatory bodies, and being an attorney, I learned the hidden meanings of the documents. Dan Brown would just be disappointed as would the Incas.

Instead of calling the volumes of paper presented to borrowers of any type disclosures, how about some honesty - call them DISCLAIMERS "NO MATTER WHAT WE DO TO YOU, WE HAVE NO RESPONSIBILITY FOR ANYTHING. IF YOU SHOULD ATTEMPT TO ENFORCE ANY LAWS WE WILL BRING THE FURIES OF HELL UPON YOU".

Unfortunately the last statement is only a mild exaggeration. The law firms representing the lenders and other large corporations can inundate a consumer or her/his lawyer with paper and deadlines.- EXPERIENCE.

No matter what a disclosure states, if there is no regulatory oversight in a meaningful way to protect consumers, the disclosures are worthless. The Tea Party et al who want less government better have an army of lawyers ready.

Most recently a Bankruptcy case involving a foreclosure was decided when the judge rules that all of the required disclosures were given to the borrower - the fact that the lender didn't follow federal guidelines was excused - guideline don't count. DISCLOSURES=OBFUSCATION.

Just remember "Less is More" in many cases

Richard I Isacoff, Esq.

Author's Copyright by Richard I. Isacoff, Esq, January 2012

Tuesday, November 29, 2011

Bankruptcy: After Christmas?

It's the time of the year where many people start buying gifts for others for the holidays. That, of course, is in addition to buying food, heat, electricity, telephone(s), gasoline, auto insurance, cigarettes (bad for health - bad for pocketbook), cable, clothes (don't forget shoes, socks, and underwear), and paying rent or mortgage and the car payment. Oh, and remember to buy the medications the Doctor prescribed.

Quite a list! How To Pay For It? Many people use CREDIT CARDS. Then comes February 1st and the bills flood the mailbox overwhelming the Letter Carrier's ability to carry all of the Visa, Mastercard, Discover, JC Penny, Sears, BestBuy, Fingerhut, QVC, Amex, Capital One, Orchard Bank, Bank of America et al BILLS.

When asked how they expect to pay, many will say "Well, I HAD to get those presents. I mean, it was Christmas (or Chanukah or whatever other holiday "requires" gift giving)". Says the lawyer at the first consultation about debt relief, "Okay, but how did you expect to pay the bills?" - the classic answer "I didn't think about that. I figured I be able to pay a little on each card, I guess." This response is typical from clients with sufficient income to pay the bill with minimum payments over the next 20 years, and from those who HAVE TO GO WITHOUT FOOD AND HEAT TO MAKE ONE PAYMENT!!

There are several problems here, actually many more than several. The biggest, in a sense, is that with debt that has accumulated over the past 3, 5, or 10 years there is no way ANY PAYMENTS are affordable. Then comes "Can I file bankruptcy?" The real question is "Can I file bankruptcy and still get rid of my bills (a discharge) even though I was foolish...?" There is no easy answer.

In order to eliminate/discharge debt, the Bankruptcy has to be filed in good faith. You cannot intentionally incur debt that you know you cannot pay. At a minimum, that debt cannot be discharged (made to go away). But wait...There's more! When the gifts were being bought and the plastic nearly melting from over-use, did the purchaser intend to repay the credit card company? The easy answer is "Yes, I always pay my bills!" But, is that the honest answer.

Many people just do not think about or know how to think about budgeting. People of all ages get caught up in the "I have to buy a gift for..." mode. So, what can be done for the honest but horrid money manager/giver?

Rule 1. Know how much you take home every month and how much must be spent on essentials, like the list above

Rule 2. If there is any extra, before deducting current credit card payments, be certain that it is truly disposable income immediately. Do not count the money you will save when you stop smoking.

Rule 3. Add up all of your credit card and other unsecured debt (debt not attached to collateral, like a car loan)

Rule 4. Multiply the amount of debt by 3% or 0.03

Rule 5. If the result after following Rule 4 is more than your "extra" (your disposable income) you should not incur more debt.

Rule 6. To figure how much unsecured debt you can support reasonably, DIVIDE your extra/disposable income by .03. So, if you have $200/month truly extra, the Most unsecured debt you can have is $6,000. And, remember that "extra" is what's left after paying all of the expenses listed in the beginning of this posting and any other NECESSARY expenses you have.

Even at the level shown, paying will be a bit of a struggle - things happen that cost money and are unexpected. Missing one month of the payment on any unsecured debt will make everything fall apart and you might never catch up.

If you have done those calculations, and after being careful you find that 6 months (I just picked a number) into the new year that you cannot pay because "Life comes at you fast!", then yes, you can file a bankruptcy with a clear conscience and peace of mind.

Author's Copyright by Richard I. Isacoff, Esq, November, 2011

Monday, November 14, 2011

Pay Bills or Eat?

There is a perception among those of us who are of retirement age, or past it, that we have to pay every bill we have even if it means going without prescribed medications or proper food. To say that this is a wrong or bad idea is not appropriate. Those of us who try our best to honor our commitments should be commended, not condemned.

HOWEVER, the LAW , that’s the Federal law, specifically Title 11 of the United States Code, provides for DEBT RELIEF. So, why don’t more people take advantage of this legal RIGHT? There are many reasons but most are rooted in a belief system that not paying obligations is immoral, unethical, something only shysters or "those kind of people" would do. Many of these same people, those of us who feel there is no way but to pay, have had no qualms, no hesitations, about utilizing many different sections of Title 26 of the US Code which provides TAX RELIEF.

We all take deductions when we file taxes, rather than paying the maximum tax that we could pay based on income. We use the standard deduction or we itemize - and we itemize everything possible: real estate taxes, mortgage interest, medical expenses including part of the cost of medical insurance, tax return preparation fees, costs of caring for a dependent - and on & on. Somewhere there is a disconnect in the two position/attitudes.

The Debt Relief is Bankruptcy Protection - Protection from Creditors. IT IS A RIGHT, NOT A PRIVILEGE. Unless you have committed fraud, or some other unsavory act you are cannot be denied the Right to Obtain a Fresh Start. That is what the law discusses: a "FRESH START". And that refers to a FRESH START from DEBT.

There is no shame in admitting that the $10,000 of credit card debt that has been being paid for years, never denting the balance owed, is too much to repay. Keep in mind, that while it’s counter-intuitive, the credit card companies will not make deals to accept less than 100% of what’s owed. The fact that gas is now $4.00/gallon, and that fresh fruit and vegetables are more expensive than the best steaks, and that medical costs go up almost daily it seems....

The shame of the current economic environment is that some of the lifelines that many people have relied upon have been eliminated or cut-back. Programs like food stamps, fuel assistance, community health care programs, and subsidized housing are all under-funded because of the recession here and the on-going financial crisis world-wide.

I can only suggest that if you are having your own personal economic meltdown you seek advice from a competent Bankruptcy attorney. Any attorney worth her/her "salt" (or pepper) will give you enough information that you will know what options are available to you. If you cannot find someone in your area, feel free to call my office or send me an e-mail and I can get you connected to the proper referral folks.

Author's Copyright by Richard I. Isacoff, Esq, November 2011

Monday, October 31, 2011

Mortgage Mods - Where Did The Money Go?

My mortgage modification clients often ask about the class actions or Attorney Generals actions against mortgage companies, lenders, and servicers, when the newspapers/Internet proclaims "XYZ Bank settles with Massachusetts for $XXX Million". The biggest single question is "Where did the money go?" Unfortunately, the answer I give is "I don't know except that there was no fund set up for modifications". Then I get the BLANK STARES from my clients.

"How can that be?" they query, to which I reply, "I do not know - probably to offset the cost of the suit and to establish a new unit to investigate mortgage fraud AND to help balance the budget." To this date I have never received notification that the Commonwealth of MA is setting up a fund to help borrowers avoid foreclosures, or even to set up an agency to help homeowners apply for a loan modification.

At this juncture, homeowners are being cast adrift. The 50 States +/- CA & MA (depends on the day) have been arguing with the biggest lenders/servicers over a settlement for all of these institutions evil-doings; and they were indeed evil! The proposals are at $26Billion or $26,000,000,000 but no one is offering to pay. Instead the Banks et al want to promise they won't do it again and that they will make it easier for homeowners to get a modification. Making it more difficult would be to say "NO, WE WON'T DO MODS ANYMORE". No money will go to individual homeowners. No funds will be set up to help a borrower get caught up. As the title of the movie proclaimed "GONE IN 60 SECONDS" (so where is Nicholas Cage when we need him?).

Even if there is money made available, the selection/application process will be as difficult as getting the modification as evidenced by the recent Federal "EHLP" (Emergency Home Loan Program) program that only gave out 1/2 of the $1Billion allocated for it.

In fairness, because of the structure of the mortgages, now part of giant pools of loans called "Mortgage-Backed Securities" or "MBS" for short, no Bank owns the loan(s). They are collateral for a Bond, typically a fixed income security, pieces of which are bought and sold as part of mutual funds, retirement funds, and corporate investments. It's like GE borrowing money by issuing a bond - this means that GE is stating to the world that if it receives up to $XXXMillion from investors, GE will pay them interest at "X"% for "Y" years, and GE puts up its assets as collateral. With MBS, the underlying assets of the fund, home mortgages, are the collateral.

The refrain often heard when one is trying to get a modification is "The Investors do not allow modifications" or "This requested modification is outside investor guidelines". When the investor is the Federal Nation Mortgage Association (FannieMae) or the Federal Home Mortgage Corporation (FreddieMac) or the Federal Housing Administration (FHA) the formula used to determine "Yes" or "No" is at least obtainable. And, because these are either Government Agencies or quasi-government agencies, they do participate in the HAMP program. But, you deal not with Fannie or Freddie or the FHA but with the loan SERVICER. This is the company picked to run the pool of loans - to collect payments and send out bills, and to start foreclosures and to actually WORK ON MODIFICATIONS.

There is no rhyme or reason to the process. Each servicer has slightly different requirements, all allowed by the Making Home Affordable program which created HAMP. Paperwork must be submitted and often resubmitted again and again. This is the period that most borrowers give up or taking time from work to put documents together again and again, in the hope of getting an affordable payment now that there is no more overtime or even one less job for the borrower(s) to count-on for the money to meet the payments.

I often sit at my desk working on one project, while on hold different times with a servicer for an hour or sometimes two. I can keep working on my computer and have at least one other phone in use while I work with a servicer. So far, my results are good but my client has no money to pay for all of that time, even when I only count the time I am actually doing calculations and filling out forms or talking to a servicer's representative. Because, in addition, there are the hours spent with the client who has no money to pay for the time and the results.

The most frustrating part of this process is when I ask my client, "Okay, you are now 4 months behind because the payment went up. How much have you saved? Certainly if the payment was $700 per month and now it's $850, you have the $700 put aside for each of the four months the Bank returned your money!", and the client answers "Nothing - I paid other bills". At which point I ask "Well, how are you going to pay if you get a modification if you can't even save the money you had been paying?". Occasionally the client will say "I don't know". Most often I hear "Well, when I have the modification, I will be able to make the payments somehow". With trepidation I ask "How, if you can't make the payments now?".

This conversation takes place in my office or on my telephone at least twice every week and sometimes twice a day.


1. Call the Servicer and ask for modification or HAMP documents or go on their website and print them

2. Put all required documents together - fill them out completely and DATE THEM ALL and send them to the address stated on the website or the forms. Often they MUST be faxed.

3. Remember, if you are working with an attorney or any other third-party, that person/entity is going to have to have written permission from you to deal with the servicer/lender

4. Documents expire in 60 days. That means if you send in only some of the documents required, and then send in more, and then send in more because the servicer wants them, the first docs you submitted may be "stale dated" - just like bread - and need to be updated and resubmitted. This is where the process breaks down for most Homeowners.

5. Put aside the mortgage payment you were making or that you hope to be making. If you cannot save the money, you cannot save your home. Put simply, If a borrower is not disciplined enough to save the money to pay the mortgage, then there is no ability to pay the modified payment - so what is the point of going through all of the aggravation. Sometimes Life Is Not Fair.

6. If you get a package sent to you from the lender/servicer open it immediately. If documents are due on Wednesday of next week Make sure they get there by then. A day late and you are disqualified. Fair? Probably not but read the last sentence of Item 5 above.

The people with whom you will speak are not bad people. They are doing a job, trying to avoid losing their house and are jsut asking the questions they must to avoid being fired. Don't rant at them - that assures NO COOPERATION. Remember that the folks at the top of the MBS pyramid are the folks "calling the shots" and they can't lose.

Author's Copyright by Richard I Isacoff, Esq October 2011

Monday, October 3, 2011

No Money To File Bankruptcy!

Bankruptcy is rising but filings are falling! Why? Simple answer: People do not have money to file for protection under the Bankruptcy Code. That may sound/read like an "Of course they cannot afford bankruptcy, they don't have any money!" Unfortunately, this is a new phenomenon.

Until recently, people would call regularly to ask for a free consultation to discuss financial problems which could result in a Bankruptcy case. Generally, we are able to work out payment arrangements with almost anyone. ALMOST is the operative word. If the person has no money and no job, and no way to pay us, even on a $25 per week basis, there is little that we can do as an office.

Understand that every lawyer does a certain amount of INTENTIONAL pro-bono work, and I do not know of an attorney who would turn away a truly troubled indigent person who just lost the house, car, wife/husband etc. That stated, none of us in Private Practice can do everything for nothing - work for free all of the time!
Because of the downturn and especially the lack of employment people aren't even calling because they feel that they cannot afford the cost of getting "peace of mind". My view of the problem is slightly different. We have accepted payments every week for a year from clients, all the while giving them as much protection as we could from creditors. Most lawyers will do that for people really in need.

Some ground rules apply:

1. Don't come in with your partner and state that you cannot afford our fees because you can't cut back on smoking 2 packs a day each. At $9/pk, that's $36/day or more than $1,000 per month.

2. While I encourage people to come in, I do not expect them to ask me to help them with a bankruptcy THEY are going to file.

3. Some folks will have to file Bankruptcy but do not want to give up they "toys" - the snowmobile, PWC, 4-wheeler, or cut back on the $200 per month cable or satellite bill because of all of the special sports channels and events, or drop the $200/mo cell service and on and on...

Filing for Bankruptcy is to give someone(s) in debt a "FRESH START". It is written that way in the Code and is discussed in cases and in Court. No one expects someone looking for that second chance to sell their soul, but to cut back on smoking, or drop a few cable channels, or give up the "bike" would seem a fair trade. The reality is that in a bankruptcy, where no unsecured creditor is getting paid back anything, you are not allowed to keep the snowmobile and the bike and the...

If you have a house, we can help you find the funds to pay your mortgage by eliminating unsecured debt. You can keep almost all of your personal property, except for things like the PWC for which you are paying $300/month for the next 36 months etc. But clothing, regular furniture, tools, in most cases automobiles (not 4 or 5), RETIREMENT plans including IRAs, and if you are renting or have no equity in your house a reasonable amount of cash/money in the bank. Depending on the situation, maybe even $10,000.

If you have the $10,000 but your debt is $70,000 you cannot pay everyone back if you have $35,000 in income and a child. But, you can either pay a small portion back, and you can pay the legal fees to file the Bankruptcy. It could be a Chapter 7 (no payback) or a Chapter 13 (payback of what you have left as disposable income each month). Or, if you wish, you can give the Trustee the $10,000, less attorneys fees, and have the Trustee distribute what is left to creditors on a pro-rata basis. It is not required, but if you feel that you should pay back what you can afford, the Trustee will certainly oblige. Just be aware that it isn't necessary in most cases.

ADVICE: If you are in debt to a point where you know you cannot make any meaningful payments, call a Bankruptcy attorney. Payment plans can be worked-out, and the initial consultation to find out about YOUR RIGHTS is always "NO COST" here.

Author's Copyright by Richard I. Isacoff, Esq., October, 2011

Tuesday, September 13, 2011

Bankruptcy; Not a Four-Letter Word

Bankruptcy has had a bad reputation over the decades for some good and some bad reasons. The good reasons for a bad reputation all boil down to the issue of fraud: people who have assets and are hiding them from creditors, or people who went into business and ran up debt they could not afford, or consumers who bought "stuff" with credit (cards) with no ability to repay. In the later case, it's rather hard to repossess a vacation cruise, and in the former, if the money from profits is spent, it's gone for good. Unless intent to commit fraud can be shown, normally a Bankruptcy will wipe out debt.

Let's take a step back and discuss what a Bankruptcy does. Quite simply when a bankruptcy is filed, it protects the debtors from creditors. The are two main types of PERSONAL BANKRUPTCY - Chapter 7, where you eliminate debt without any repayment but surrender personal property and real estate that is not protected by law for the benefit of the creditors. A Chapter 13, requires that you have money left over every month AFTER paying REGULAR LIVING EXPENSES, and from the money remaining each month pay creditors on a pro rata basis.

The primary reasons for filing a bankruptcy are not voluntary at all: 1. Medical bills and illnesses 2. Loss of a job or substantial reduction in hours 3. A birth or death in the family 4. A two income household becoming a one income family 5. Bad money management. A DISTANT 6 is fraud - maybe 5%, although some experts will claim 10%.

For whatever reason, people have a negative opinion of bankruptcy - yet people would be surprised to find out about friends and neighbors have filed for protection.

Going to a different reason to have a more moderate opinion of bankruptcy filings is that THE OLD AND NEW TESTAMENTS, AND THE QUR'AN all encourage a forgiveness of debt to those truly troubled by debt. That is for the CREDITOR to FORGIVE the DEBTOR.

It makes no sense for a retired person on a fixed income to have to make a decision between food or medicine; or for a family to have to deny a child the presence of a parent so that parent can work 3 jobs to just pay basic bills. Please do not misunderstand: it is not suggested that filing a bankruptcy is the first course of action to think about, but it should not be the last, after losing everything.

Simple tips, some repeated some not:

1. Don't solicit credit cards or get as many as you can. Determine how much credit you need and only borrower that much.

2. If you find yourself using credit for living expenses, seek a credit counseling service such as Consumer Credit Counseling or Money Management International - just be certain that it is a true not for profit agency, not a scam. If you have to pay a big up front fee - stay away.

3. If you have a bank where you are known and are comfortable at a branch, ask if the bank has someone to help you budget your money.

4. As soon as you find yourself ready to get a second card/loan to make payments on the first, consult an attorney who handles bankruptcy as she/he will also deal with basic debt counseling.

5. Don' let pride get in the way of keeping your peace of mind or all you have left is a piece of mind.

For more in-depth information visit my website or other resources like the National Association of Consumer Bankruptcy Attorneys, or the American Bankruptcy Institute.

Author's Copyright by Richard I. Isacoff, Esq, September,2011

Monday, September 5, 2011

It's The Economy - Your Economy

Now that the economy is no longer an issue, we have to turn to a new topic- "The Economy", but a different sense of the economy - YOUR economic condition. This may mirror the government's or, perhaps, you may actually understand the state of your finances, as you read this.

Are/If you are in a position where "deficit spending" is necessary for you to pay your bills (not unlike the issue of the Federal debt-ceiling - we had to get Congress to let us borrow more so we could pay the interest on the bill we already have incurred) which is like getting a new credit card with an extra few thousand dollars of credit available so you can pay the interest due on the other cards, and buy food, or pay the mortgage, or put gas in the car or... well you get the idea, you need to reconsider your position immediately.

Unlike the United States of America, you cannot keep getting more debt without near term (tomorrow or the day after) consequences. Consequences like bill collectors calling; Court appearances being required; car payments missed; a mortgage payment missed or paid more than a month late; a foreclosure; or just ANXIETY and WORRY about what you are going to do when the credit limit is exhausted.

Here is a short check-list to review:

1. Is the reason for the excessive debt, spending, reduced income, or both?

2. If it's reduced income, is the situation temporary with an end in sight or long-term?

3. If the debt is due to spending but not because of a loss of income, what caused the spending? Necessities, like food and shelter, or costs that could have been deferred, like extra clothes, a "new" car, a vacation? If the run-up of credit card or other debt is because of buying or spending for necessities, you cannot fix the problem alone. If the debt is for any other reason than necessary living expenses, then STOP SPENDING NOW.

4. In either case, figure how much you owe to each creditor. Then determine how much is due each month; for credit cards use the minimum payment PLUS 10% of that payment; for long term debt like a mortgage or car loan, use the actual payments due each month. When dealing with medical bills, remember that most often a call to the doctor or hospital with a discussion about a monthly payment plan will bring results that you may be able to afford - and may be with no interest.

5. Compare the monthly payments to creditors, ALL OF THEM, to your take home income. Remember that if you get paid weekly, you should multiply your take home pay times 52 weeks and then divide the result by 12. If your pay is every other week multiply your take home by 26 and then divide the result by 12. That way you have accounted for the 4 "extra" weeks each year.

6. Make the same comparison of monthly payments to creditors to your GROSS INCOME -No Deductions for taxes, insurance etc taken.

7. If you divide your payments to creditors by the amount of your income (net income first, then gross income) you will see quickly whether you can afford the payments (based on general averages). For example: Gross income = $4000 per month - monthly payments to creditors (called debt service) = $ 2,000 per month (that is a Debt to Income, called "DTI", Ratio of 50%), you are probably running out of groceries or gasoline or RUNNING UP CREDIT CARD BALANCES, because there is not enough money to go around. The ratio should be no more than 40%! Even that is a stretch against GROSS INCOME

8. Once you reach that point, unless you take immediate action, like earning more money, cutting back living expenses and LOWERING THE MONTH DEBT SERVICE, you will end up losing a car, losing a house, AND LOSING YOUR PEACE OF MIND.

9. If the Debt Service cannot be lowered, if you cannot cut back on payments to creditors without a foreclosure or a repossession, and if your income is maxed-out, YOU SHOULD CONSULT AN ATTORNEY ABOUT BANKRUPTCY.


Look for the next post which will explain about the "okayness" of filing for Protection From Creditors by a Bankruptcy Filing. (Coming to a theater near you (actually just this blog) on 9/9/11)

Author's Copyright by Richard I. Isacoff, Esq, September, 2011

Monday, August 8, 2011

"Danger Will Rogers...Danger" *

Steven Pearlstein, a columnist for the Washington Post wrote about the "Global Economy Comes To The End Of Its String" and went on to explain, quite "readably" why it's happening. The column, in the 8/6/11 online edition, discusses the fact that we are cycling back to 2008 levels (maybe), because we never fixed the underlying problems with ours and the global economies. The only issue I would have with the characterization is that we are finding it increasingly difficult to separate our economy from the global economy.

As was written in the prior post here, the U.S. has been spending more than it's been making. We have relied on foreign countries, like China, to continue to buy our Treasury Bonds, which is just lending us money. That's what the whole "Debt-Ceiling" debate was all about. It took Congress 3 months to decide if we would be allowed by law to borrow more so we could keep operating our Country without a DEEP cutback in services, like Defense, Medicaid, Parks, EPA protections, Federal Aviation Admin., and on & on & on.

Brian Wolfman posted a short piece of the article on the Consumer Law & Policy Blog and asks at the end "So, what's the chance that will happen given what we've just seen in Congress?" Here is my response:

"You ask, somewhat rhetorically, about the chances for Congress to adopt policies like those Mr. Pearlstein outlined and accept his analysis of the "how we got here". If you know how to bring back from the un-living (on earth anyway) Sam Rayburn, Tip O'Neill, Dwight Eisenhower, Louis Brandeis, Earl Warren, Hugo Black, Ronald Reagan, and Gerald Ford, we might have a chance. As partisan as some of those folks were, they put the Country first when the chips were down (don't really know what that expression means but...).

The current Congress is so ideologically focused and unyielding in their world view, that they belong back to a time when the "world was flat". Common sense tells them that if you go to a beach and look out to the horizon, you can see that the world is flat. That was the prevailing common sense. Oh, and, of course, from Wasilla, AK you can see Russia (I tried with military issue binoculars, from the highest point in Wasilla, in March of 2010, on a clear day, and could NOT see the "Hammer and Sickle").

We are truly at a turning point for the Country and the world. The EU (European Union) is as divided as our Congress, so they will be no help. At least here, the big issue for BOTH Congressmen and Senators is GETTING RE-ELECTED in the same country. The pandering to lobbyists and ideologues must stop. The hard core Tea Partyists are at least true to their beliefs, but remember the flat world.

The future looks grim. Voters cast out the evil-doers in the mid-terms. The world economic crisis was only in part our fault. We allowed the most selfish politicians and "bankers" to run us into the ground. No regulation, no brakes, no-mind to the constitutional interpretations of the past, and a skilled manipulation of the concepts of a "free-market economy" ruled for 8 years. But, this coincided with Europe deciding to try getting along. No one hired a Cat Herder.

Maybe if we remember Peter Pan's plea that we all believe in Tinker Bell (metaphorically only) our economic system will survive. If it doesn't and we don't begin to rebound quickly, we are facing a future that we have fought 2 world wars, our own revolution, a civil war, and the "baby-boomer wars" for nothing.

*from the CBS Show -"Lost in Space" - fitting!

Author's Copyright by Richard I. Isacoff, Esq., August, 2011

We Have Been Sent To The Minors

I work in the private practice of law dealing daily with the economic realities of average people who have average problems and with those who have extraordinary financial problems. Having had the responsibility for the investment of as much as $145M, I continue to pay attention to the financial markets on a daily basis. This posting is to try to explain what has happened in the lowering of the credit rating of the Country's "sovereign" debt (meaning money the Country itself has borrowed - think Treasury Bonds) from AAA to AA+. Just like in baseball, we have been sent down to the minors.

By now, the entire world, knows that the United States has lost some of its credit-worthiness. Standard and Poors, known better by "S&P", in its role as a debt rating agency (a company that determines what debt is safe for investment and what is risky and how risky). The fact that the other two major raters have not taken any action "against" the U.S.'s risk seems to be of no importance.

In the world of investments PERCEPTION IS REALITY. That's true in many areas of life but especially in this one

The downgrade was apparently caused not by economic factors but rather the dithering of the Congress in deciding to do anything about the debt-ceiling and deficit reduction. With the complete polarization of the 2 ½ parties currently "in charge", little was done to address the systemic problem of our growing debt and its root causes.

It's easy to state that the Obama administration did or didn't do this or that, or that Bush allowed deregulation to go too far (think SEC and securitization). But, in reality should that have affected the credit worthiness "rating" of the sovereign debt of the U.S.? Probably NOT.

The Congress, through a myriad of laws and regulations wanted/tried to rein-in the Rating Agencies and hold them accountable for the financial meltdown. Remember it was these same agencies that rated Mortgage Backed Securities as AAA paper. That they were/are paid by the "investment banks" who did the securities to sell bonds to make $$billions has escaped the review of the markets now in panic over our AA+ rating. Rather than this being an assault on the problem with our deficits and trade imbalance, it seems more like S&P trying to exert enough pressure to get Congress here, and Parliaments in the EU to back off assigning liability to Credit Rating Agencies.

S&P was the only agency to downgrade. S&P was the agency most involved in giving the "seal of approval" to the MBS and CMBS bonds. S&P stands to be the biggest target if liability is established for the incorrect/negligent/disregard for underwriting standards rating of those bonds. It's worth repeating that the securities firms securitizing the loans and selling them for huge profits paid the rating agencies large fees to rate the bonds.

Michael Shemi wrote an excellent column in the August 4, 2011 edition of American Banker's blog "BANK THINK" ( ) where he discusses the moves to lessen the restraints and assignment of liability to and on the credit rating agencies. As he put it "Lastly, the continuing crises surrounding sovereign debts and national deficits from Greece to Portugal to the United States are affording rating agencies another opportunity to boost their own importance. By threatening the imminent downgrade of the ratings for these countries, the rating agencies keep their names in the news and constantly rattle the chains of issuers, regulators, and investors."

Of note is the matter of the probable divestiture of S&P by McGraw-Hill which owns it - "spin-off" because of S&P's enormous profitability. It needs publicity. It needs a crisis to show its importance and absolute need.

The U.S. economy has problems but also the capacity to overcome those issues if Congress can stop the "Texas steel cage death fight" over ideology". It's almost as if each political party and each faction thereof wants credit for causing the next recession. The rating agencies need to be held accountable - but so does Congress; and so do WE the people. We desparately need a coherent plan to reduce the deficit over the next decade by $4trillion and then another $10trillion in the decade following. Budget cuts? Social Security cuts? NO!! Tax reform - so rich folks pay a share commensurate with their annual income. Raise the age for Social Security benefits starting in "X" years - maybe from 62 (early)and 65/6 (regular-full) to 63 and 67/8 respectively.

If the WORLD saw us with a plan to eliminate the deficit totally in 20 years with a big push in the first 10, all would be well again.

Author's Copyright by Richard Isacoff, Esq, August 2011