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Double Bottom
Sounds kind of dirty, right? Actually, it's because of a clean visual that technical analysts use this term. Technical analysts like charts (hence their nickname of "chartists"), and they like to give certain patterns they see neat little names.
Such is the case with the double bottom, which looks on a chart like, well, a double bottom. Think of three mountains (on a chart reflecting a rise in values) separated by two valleys (representing dips in value). The troughs of the valleys, and the size of the first two peaks, are generally the same, so the chart looks like the letter 'W.' The appearance of those two valleys represents a double bottom.
So what? Well, if you're one of those folks who believes in the power of the charts, seeing a double bottom suggests a long-term trend is about to reverse. So, if a stock chart shows shares falling for several months, then seeing a double bottom, chances are good (according to the chartists) that the shares will rise. And vice versa.
But, beware: charts can be a great tool, but they're more art than science. Use any charts with caution.
Home / Personal Finance / Financial Planning / Real Estate & Mortgage
Friday, March 21, 2008
Bankruptcy Mortgage Relief
Marcie Geffner
Bankrate.com
Federal bankruptcy courts currently offer only scant relief to homeowners who can't afford to pay their mortgages. That could
change, if supporters of legislation that would allow bankruptcy judges to modify mortgages can muster enough votes in Congress
to override a threatened presidential veto. Giving bankruptcy courts the authority to modify home loans would be a palatable
way to accommodate both borrowers and lenders, says Jack Williams, a bankruptcy professor at Georgia State University College
of Law. Borrowers would "get to keep a major asset with significant upside potential" and avoid the emotional wound of losing
their homes, while lenders would be placed in "a position based on the fair market value of the property," which would be
better than a foreclosure, Williams says.
Currently, bankruptcy affords "very limited protection to a (homeowner) who has a financial problem with a home mortgage company," Williams says. Filing Chapter 13 bankruptcy, which is characterized by a debt repayment plan, can spread out prior delinquent payments over a number of months or years in the future; however, no bankruptcy proceeding can modify the terms of an existing home loan on a principal residence.
That prohibition is an "anomaly," Williams says, because bankruptcy courts can modify the terms of virtually all other types of debts, including home loans secured by second/vacation homes or investment properties. Only the principal residence is excluded from bankruptcy judges' authority.
Subprime mortgage crisis triggers new look at bankruptcy
The exception for residential mortgages dates back to 1978, when the bankruptcy code was written, says Williams, who is also a scholar-in-residence at the American Bankruptcy Institute, or ABI, a nonpartisan organization that researches issues related to insolvency. That exception makes home loan lenders a favored class of creditors and originally was intended to encourage mortgage lending.
Thirty years later, after rapid and radical innovation in home loans and mortgage lending, that purpose may no longer make sense as good public policy, says Susanne M. Robicsek, a bankruptcy attorney in Charlotte, N.C.
"Historically, the argument was that they didn't want to discourage banks from making loans to consumers. The types of loans have changed immensely, and we now find ourselves in a new lending environment that has led to a crisis that can't be solved," she says.
That crisis has consisted of a spike in delinquent payments and defaults on home loans and a rise in bank foreclosures on residential properties, especially in such states as California and Florida. The crisis has led to finger-pointing at several causes and culprits.
Mortgage crisis culprits:
Judicial power would be limited
The bankruptcy bills that have been introduced in Congress would place limits on who would be eligible for home loan modifications, according to a briefing paper published by the Center for Responsible Lending, a nonprofit research organization in Durham, N.C. As written, the legislation would contain several restrictions.
Restrictions in legislation
Relief would be limited to homeowners who:
Bankruptcy judges would be required to:
The time frame for relief would be restricted to:
Would mortgage modifications encourage more bankruptcy filings?
Critics have suggested that more flexible bankruptcy laws would encourage disgruntled homeowners to file bankruptcy solely to escape mortgage payments that were affordable, but that they believed to be onerous. And indeed, consumer bankruptcy filings already are on the rise. A total of 76,120 bankruptcies were filed in February 2008, a 15% increase compared with the 66,050 consumer filings counted in January, according to the ABI.
The argument that mortgage modification would spur even more bankruptcies was raised and refuted by Rich Leonard, a bankruptcy judge in North Carolina. Leonard noted, in testimony before a congressional committee, that the precedents of existing bankruptcy cases already "sharply curtailed" judges' discretion with respect to modifications of other types of debt.
"The idea that we would (or could) somehow willy-nilly give everyone a 40-year mortgage at 2% interest is ludicrous," he told the committee.
Would 'cram-downs' cause more foreclosures?
The Mortgage Bankers Association, or MBA, also has insisted that allowing bankruptcy judges to modify -- or, to use the group's verbiage, "cram down" -- the interest rate or principal on owner-occupant residential mortgages would unleash a number of woes. A handout posted on the association's Web site states that the House of Representatives' version of the bill, would do four things.
MBA says proposed bill would:
The MBA also has claimed that mortgage modifications would create more uncertainty about home values, which would result in more risk for lenders and, thus, higher closing costs and interest rates for homebuyers.
Similar concerns were voiced by Alphonso Jackson, secretary of the U.S. Department of Housing and Urban Development.
"Rewriting bankruptcy laws seems an odd, time-consuming, distant way to help homeowners," Jackson said during a recent foreclosure prevention conference in Los Angeles. "It will only increase interest rates. And the litigation with such a move will negate any benefit, except maybe to lawyers and their firms."
Williams scoffs at such concerns.
"The argument that interest rates would go up doesn't make any sense, and (the MBA has) never offered any proof to support it," he says.
A recent academic working paper, "The Effect of Bankruptcy Strip-Down on Mortgage Markets," also refuted the MBA's position. The authors, Adam J. Levitin and Joshua Goodman of Georgetown University Law Center, analyzed current and historical mortgage data to measure the effects of bankruptcy "strip-down" (another word for cram-down) or modification of residential mortgages. They conclude that permitting unlimited strip-downs would have insignificant or no impact on mortgage interest rates or mortgage markets.
Outlook for action this year is uncertain
The House Judiciary Committee passed a version of the bankruptcy bill in December. The companion bill has been stalled for procedural reasons in the Senate, but U.S. Senator Dick Durbin, D-Ill., the bill's chief supporter, has vowed not to drop the effort.
Such determination may not be enough to carry the day since President Bush has declared his opposition to allowing bankruptcy judges to modify the terms of owner-occupant home loans. The administration issued a policy statement that says changing the bankruptcy code in this way would "undermine existing contracts, leading to contraction in mortgage credit availability and affordability" and "likely prolong the time it will take the market to recover from the current downturn."
If Congress and the president can't come to an agreement, the national elections in November may determine whether bankruptcy courts will be empowered to grant mortgage relief for homeowners.
More from Bankrate.com:
Mortgage Rates Hit an Air Pocket
Best Moves After Fed's Rate Cut
Snack Packs Save a Bundle
Currently, bankruptcy affords "very limited protection to a (homeowner) who has a financial problem with a home mortgage company," Williams says. Filing Chapter 13 bankruptcy, which is characterized by a debt repayment plan, can spread out prior delinquent payments over a number of months or years in the future; however, no bankruptcy proceeding can modify the terms of an existing home loan on a principal residence.
That prohibition is an "anomaly," Williams says, because bankruptcy courts can modify the terms of virtually all other types of debts, including home loans secured by second/vacation homes or investment properties. Only the principal residence is excluded from bankruptcy judges' authority.
Subprime mortgage crisis triggers new look at bankruptcy
The exception for residential mortgages dates back to 1978, when the bankruptcy code was written, says Williams, who is also a scholar-in-residence at the American Bankruptcy Institute, or ABI, a nonpartisan organization that researches issues related to insolvency. That exception makes home loan lenders a favored class of creditors and originally was intended to encourage mortgage lending.
Thirty years later, after rapid and radical innovation in home loans and mortgage lending, that purpose may no longer make sense as good public policy, says Susanne M. Robicsek, a bankruptcy attorney in Charlotte, N.C.
"Historically, the argument was that they didn't want to discourage banks from making loans to consumers. The types of loans have changed immensely, and we now find ourselves in a new lending environment that has led to a crisis that can't be solved," she says.
That crisis has consisted of a spike in delinquent payments and defaults on home loans and a rise in bank foreclosures on residential properties, especially in such states as California and Florida. The crisis has led to finger-pointing at several causes and culprits.
Mortgage crisis culprits:
- Greedy, foolish and unsophisticated borrowers.
- Inflated home valuations and appraisals.
- Aggressive and unethical mortgage brokers.
- Misguided and fraudulent lending practices.
- Faulty home loan products.
- Lax, inadequate or absent regulatory oversight.
Judicial power would be limited
The bankruptcy bills that have been introduced in Congress would place limits on who would be eligible for home loan modifications, according to a briefing paper published by the Center for Responsible Lending, a nonprofit research organization in Durham, N.C. As written, the legislation would contain several restrictions.
Restrictions in legislation
Relief would be limited to homeowners who:
- Didn't earn enough income to afford their mortgage payments.
- Had a subprime or nontraditional loan such as an interest-only or payment-option adjustable-rate mortgage.
- Faced imminent foreclosure.
Bankruptcy judges would be required to:
- Set commercially reasonable interest rates on modified mortgages.
- Not reduce loan balances to less than the market value of the property.
The time frame for relief would be restricted to:
- Loans that were originated on or after Jan. 1, 2000.
- A seven-year period, after which the law would sunset, unless it was extended.
Would mortgage modifications encourage more bankruptcy filings?
Critics have suggested that more flexible bankruptcy laws would encourage disgruntled homeowners to file bankruptcy solely to escape mortgage payments that were affordable, but that they believed to be onerous. And indeed, consumer bankruptcy filings already are on the rise. A total of 76,120 bankruptcies were filed in February 2008, a 15% increase compared with the 66,050 consumer filings counted in January, according to the ABI.
The argument that mortgage modification would spur even more bankruptcies was raised and refuted by Rich Leonard, a bankruptcy judge in North Carolina. Leonard noted, in testimony before a congressional committee, that the precedents of existing bankruptcy cases already "sharply curtailed" judges' discretion with respect to modifications of other types of debt.
"The idea that we would (or could) somehow willy-nilly give everyone a 40-year mortgage at 2% interest is ludicrous," he told the committee.
Would 'cram-downs' cause more foreclosures?
The Mortgage Bankers Association, or MBA, also has insisted that allowing bankruptcy judges to modify -- or, to use the group's verbiage, "cram down" -- the interest rate or principal on owner-occupant residential mortgages would unleash a number of woes. A handout posted on the association's Web site states that the House of Representatives' version of the bill, would do four things.
MBA says proposed bill would:
- Increase the cost of all mortgages.
- Increase foreclosures.
- Hinder refinancing of existing loans.
- Harm federal loan programs.
The MBA also has claimed that mortgage modifications would create more uncertainty about home values, which would result in more risk for lenders and, thus, higher closing costs and interest rates for homebuyers.
Similar concerns were voiced by Alphonso Jackson, secretary of the U.S. Department of Housing and Urban Development.
"Rewriting bankruptcy laws seems an odd, time-consuming, distant way to help homeowners," Jackson said during a recent foreclosure prevention conference in Los Angeles. "It will only increase interest rates. And the litigation with such a move will negate any benefit, except maybe to lawyers and their firms."
Williams scoffs at such concerns.
"The argument that interest rates would go up doesn't make any sense, and (the MBA has) never offered any proof to support it," he says.
A recent academic working paper, "The Effect of Bankruptcy Strip-Down on Mortgage Markets," also refuted the MBA's position. The authors, Adam J. Levitin and Joshua Goodman of Georgetown University Law Center, analyzed current and historical mortgage data to measure the effects of bankruptcy "strip-down" (another word for cram-down) or modification of residential mortgages. They conclude that permitting unlimited strip-downs would have insignificant or no impact on mortgage interest rates or mortgage markets.
Outlook for action this year is uncertain
The House Judiciary Committee passed a version of the bankruptcy bill in December. The companion bill has been stalled for procedural reasons in the Senate, but U.S. Senator Dick Durbin, D-Ill., the bill's chief supporter, has vowed not to drop the effort.
Such determination may not be enough to carry the day since President Bush has declared his opposition to allowing bankruptcy judges to modify the terms of owner-occupant home loans. The administration issued a policy statement that says changing the bankruptcy code in this way would "undermine existing contracts, leading to contraction in mortgage credit availability and affordability" and "likely prolong the time it will take the market to recover from the current downturn."
If Congress and the president can't come to an agreement, the national elections in November may determine whether bankruptcy courts will be empowered to grant mortgage relief for homeowners.
More from Bankrate.com:
Mortgage Rates Hit an Air Pocket
Best Moves After Fed's Rate Cut
Snack Packs Save a Bundle
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