National Expert Predicts Rising Bankruptcy in 2011 and 2012

With the signing of the Financial Services Regulation Overhaul legislation, the Obama Administration will be turning its attention to its feeble job creation performance. Dr. Robert D. Manning, the nation’s leading scholar on consumer debt trends and founder of the nonprofit personal finance education company “DebtorWise Foundation,”, has been one of the nation’s most accurate forecasters of the housing market bubble and consumer-led recession, beginning with his Feb 2001 testimony against the bankruptcy reform legislation and May 2001 op-ed against the Federal Reserve’s easy credit policy. His recent research on the US housing market and recommended policy proposals, including a hybridized “Shared Equity Appreciation Plan,” are attracting increasing attention by national banks but not the Obama Administration.

According to Dr. Manning, “Wall Street has persuaded the President and his economic policy staff that mortgage write-downs are not feasible policy options. The current ineffectual interest rate reduction programs are simply creating a ‘soft floor’ for housing prices and postponing inevitable downward market corrections–especially since banks are so reluctant to make loans today. The result is at least 5 million and as many as 7.5 million homes will be in foreclosure over the next 3-4 years.”

The inflexible and counterproductive policy of banks not to restructure mortgages closer to their market values is further eroding consumer confidence and providing financial incentives for homeowners to remain in their homes–rent free–until they are evicted. The consequences are significant to banks and bankruptcy service providers. First, consumers are catching up on secured and unsecured loans such as auto loans and credit cards since they are not paying the mortgage. This is providing a false sense of security to banks and policy-makers that the worst of the recession is over. Second, if millions of jobs are not created over the next three years, then millions of families will have no other choice but to file for bankruptcy after they are evicted from their homes and have to start paying for their housing. Hence, the relative stability of bankruptcy filings in 2010 may be the lull before the bankruptcy filing storm hits in mid-2011.

As Dr. Manning explains, “Housing is the key to the pace of the economic recovery and whether it will be widespread. By examining different categories of household expenditures such as auto and credit card payments, this fallacious approach provides an optimistic view of the health of the American family that defies the reality of the current recession. Unless banks begin more reasonable lending practices and the Obama Administration begins creating more jobs, 2011-12 could be a record period for consumer and commercial bankruptcies in the United States.”

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