The “Helping Families Save Their Homes in Bankruptcy Act of 2009″

The Bankruptcy Lawyers and Foreclosure attorneys at Yesner & Boss, P.L. posted a Real Estate law blog entitled “Foreclosure Prevention Programs Fail.” The article highlighted the National Association of Consumer Bankruptcy Attorney’s (NACBA) view that a court ordered process of loan modifying is necessary in order to solve the current mortgage crisis as opposed to the current voluntary loan modification process which is available. Several proposals have been made in this effort but the latest, a United States Senate Bill, seems to be gaining the most momentum and has been also endorsed by both the United States President-Elect Barack Obama and Vice-President Elect Joe Biden.

Currently, the Bankruptcy Code prohibits the modification of mortgage loans on primary residence. The proposed Senate Bill (S.61) seeks to amend certain provisions of the Bankruptcy Code in order to allow a Homeowner to be able to modify their mortgage loan in a bankruptcy proceeding through a judicial rather than voluntary process. The bill was introduced on January 6th, 2009 by Illinois Senator Dick Durbin. Senator Durbin’s view appears to be that the provisions of the Bankruptcy Code of which this bill seeks to amend are outdated, especially in today’s mortgage crisis. The goal of this Bill is to give Bankruptcy Judges the power to modify mortgage loans secured by principal residences during a bankruptcy proceeding possibly to reduce the balance to the current fair market value (cramdown), extend the payment period, modify the interest rate, convert an adjustable rate mortgage into a fixed rate mortgage, or any other modification the court may choose.

Proponents of this bill believe that it is the first viable step in a foreclosure prevention plan of some sort and that if passed this bill will help millions of homeowners stay in their homes and also help towards stimulating growth in the economy. We will be sure to keep our clients informed on the progress of this bill and other options or programs that are available to our clients so please check back routinely for any updates and contact us with any questions or for any further information regarding your particular situation to find out how we may be of assistance. Contact the Bankruptcy Attorneys at Yesner & Boss, P.L. for further information.

Loan Modifications and The “Making Homes Affordable Act”

The Obama administration’s recent bailout of the financial services industry now includes aid to homeowners facing foreclosure in their primary residential home. One important aspect of the bailout plan is the establishment of incentives for banks to modify loans through the “Making Homes Affordable” Act (MHA). Many commentators have pointed out that while banks have a method of disposing of REO properties, there are a lack of incentives for banks to complete short sale transactions and loan modifications. MHA seeks to make these transactions more advantageous for both banks and homeowners: mortgage servicers can receive $1,000 for successful completion of a short sale or deed-in-lieu of foreclosure , and $1,500 to borrowers for transferring title back to the bank.

MHA also provides $9.0 million worth of financial incentives to mortgage servicers to modify loans. It requires that the homeowner sign a financial hardship affidavit, and in exchange, the Servicer will decrease the interest rate and lengthen payment periods. The goal of the incentives are to reduce payments to 31% of homeowners’ pretax monthly income for residential, single family homes, and in which the principal balance is below $729K. It does not apply to individuals who bought properties for investment purposes. A second component of the plan is to allow for borrowers from Freddie Mac and Fannie Mae to refinance if they owe more than their home is worth, up to 105% of the deficiency between the value of the home and the amount owed. Between these two components, the Obama administration estimates that 1 out of 9 homeowners facing foreclosure will receive aid under the plan.

Since the enactment of MHA in February, mortgage industry analysts have pointed to the successes of loan modifications that reduce the principal amount of the mortgage. According to LPS Applied Analytics, modifications that reduce principal have a 25% lower re-default rate within 6 months than other types of loan modification. Further, Fitch Ratings has found in a recent report that homeowners who receive principal reductions are 20-30% less likely to re-default. Our Short Sale Lawyers & Debt Negotiation Attorneys at Yesner & Boss, P.L., will work with you and your lender in reaching a favorable modifications of the terms of your loan.

Foreclosure Prevention Programs Fail

In the last year in response to the rapidly growing foreclosure crisis in the United States many foreclosure prevention programs have been instituted which aim to prevent situations that would otherwise result in home foreclosure. Some of these programs include the Hope for Homeowners Act, Hope Now, and a recent effort by the FDIC and IndyMac. Recently the National Association of Consumer Bankruptcy Attorneys (NACBA) released a report based on findings primarily of Credit Suisse which projected that over 8 million foreclosures are expected in the U.S. in the next four years. This forecast exemplifies the need for the these types of programs. The only problem is that these programs have failed to yield the needed results and this failure has the NACBA pressing Congress and the new presidential administration to move for court administered loan modifications which promise to be more effective in remedying the current foreclosure crisis as opposed to these voluntary modification programs.

The main problem with all of the programs that have been instituted so far is that they are voluntary; the lenders must voluntarily agree to modify the existing mortgage loan when the lender usually has no financial incentive to do so. Secondly, the fact that most loans are securitized by bonds held by investors increases the difficulty of reaching a successful modification since several parties, which can be difficult to reach, must all agree to the modification. Additionally the mortgage servicer owes a duty to those investors to maximize their investment so modifying a loan often opens the mortgage servicer up to liability from the investors whereas simply foreclosing would be a safer option for the loan servicer. Additional roadblocks exist when a second or third mortgage is involved. All of these road blocks often lead to a gridlock in the voluntary loan modification programs prohibiting a successful foreclosure remedy.

The report issued by NACBA in December of 2008 states that less than ten percent of loan modifications through these programs actually result in a reduced principal balance of the loan and only about thirty five percent of the modifications actually reduce the monthly payment when in fact forty five percent of modifications have actually increased the homeowner's monthly payment. As NACBA urges, hopefully the upcoming Congress and presidential administration will to help institute a court administered modification process which will be effective in reaching the goals of remedying the foreclosure crisis.

Yesner & Boss, P.L. has been a member of NACBA since 2007. We have also helped many homeowners through the maze of loan modifications, short sales, deeds in lieu of foreclosure, bankruptcy, and other loss mitigation options. Contact us today for your free consultation.