Bah Humbug: Refinancing, Debt & Bankruptcy

I cannot remember a worse week in my mortgage business. For all the bad news I will reference below, I hope you can find a valuable lesson. These clients have forced themselves into difficult financial situations—overwhelming and multiple debts, including tax arrears, collections, and more.   When we are employed, paid well, and live accordingly, there should be no serious financial problems.  However, what if a job ends unexpectedly, or some other unforeseen issue occurs?  In all cases, the key is to continue to “live accordingly,” which may include adjusting your lifestyle.

Generally, when in trouble, people look to the equity in their current home for a financial solution.  It sounds easy: consolidate debt, lower payments, and suddenly, you can afford to pay off your debts, and maybe even live a little. 

The gap in the above scenario is our weak economy; by association, the drop in real estate values.   A refinance is only possible when there is enough value in the property to pay off a large sum of your debts plus other incurring fees.  This week, I have had four clients declined a mortgage because their debts have so severely outweighed the property value; therefore, the only advice I can give is to either try and sell, ask for help from family members, or go bankrupt.  The latter is an especially dark and dismal option that I hate to offer up, but unfortunately, may be the only way to escape from a world consumed by debt.

Lender Industry Mood

Many times you can plan your lives and actions based on the economy. When there is a strong economy, that usually means jobs are plentiful and we can feel secure in buying commodities like homes, etc. Of course, the opposite is true and you should be careful during a poor and insecure economy.

We have an interesting time now in our country when considering the above. Canada’s economy is strong and the envy of the world, yet overall the global economy is in trouble. The U.S, Ireland, Greece, Italy, Spain, etc. all are experiencing huge debt and economic challenges. How does this affect us? Well, since we depend on exports to the rest of the world, it might be wise to tread carefully if you choose to buy a home. Lenders will demand more income proof. Their mood is also cautious and that means you’ll be asked to provide whatever they want and if you don’t, you will find out how cranky they can be. Income proof such as employment letters, paystubs, T-4’s, and Notices of Assessment are important and generally asked for.

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