January, 2009:

Who’s eligible to modify mortgage in 13 under new law

Jan 31st, 2009
by Cathy Moran.
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While we wait, watch, and write Congress about amendments to bankruptcy law to enable judicial modification of home mortgages,  I take comfort that those with  Chapter 13 cases pending when the change becomes effective will be covered by the new provisions.

Often, a change in the law applies only to cases filed after the law becomes effective.  Wisely, the bills under consideration will apply to all cases then open.

There are lots of unanswered questions about how it will work:

  • is the value of the property the value at filing or at the filing of the procedure to modify?
  • will the bill require some sort of threat of foreclosure to qualify
  • how will the clawback formula apply when the case is already several years old at modification?

I will be delighted to deal with these unknowns if we get a bill that will keep people in their homes.

So, there is no need to wait for Congressional action to file bankruptcy if there are other issues that make filing necessary beforehand.

Is The “Clawback” Amendment To HR 200 Fair?

Jan 30th, 2009
by Doug Jacobs.
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HR 200, the house version of the “Helping Families Save Homes in Bankruptcy Act of 2009” was amended in committee to include a “clawback” amendment.  This allows the mortgage companies, whose loans are modified by a bankruptcy judge, to share in the appreciation of a house that is later sold by the home owner.  The benefit to the lender will go from 80% of any appreciation in the house’s value during the first year after modification to 20% in the 4th year.  Thus the lender, whose loan exceeded the value of the property when modified by the bankruptcy court, will get a wind-fall if the house appreciates and the home-owner sells it.  Is this fair?

Without the modification by a bankruptcy judge, the lender would end up with the house in foreclosure.  Generally that means that the lender, on average, will end up with about 50% of their loan.  With the modification, they rate to get 75% of the loan amount; so is it fair that they end up with 75% and a chunk of the appreciation?

Certainly, giving the lender a large chunk of a home’s appreciation is a disincentive to the homeowner to improve the house.  Would you spend $15,000 on a new roof to enhance the value of your property knowing that the mortgage company is going to get 80% (or even 20%) of that additional value?

Like all dramatic changes to existing law, the devil is in the details.  Just how this is going to work is not an easy problem.  One thing is certain: homeowners need this legislation to save their homes, but it has to be a workable, reasonable solution.

House Bill 200, With Amendments, Approved By Committee And Sent To House Floor

Jan 29th, 2009
by Doug Jacobs.
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The , “Helping Families Save Homes in Bankruptcy Act of 2009” was approved by the House Judiciary Committee, voting strictly on party lines, and sent to the House Floor late on January 28, 2009.

The committee added several amendments to the bill. Several of these are discussed in the post, “Changes to HR 200 as Reported from Committee.”

But, an additional change was added as well, making the act inapplicable to anyone who obtained their home loan by “…misrepresentation, false premises, or actual fraud.” This amendment was presented simply to insure that the bill, intended to help normal, hard working; families can’t be used for the benefit of crooks trying to take advantage of the system.

Now is the time to contact your Congressperson. The vote will be soon (hopefully).

Holder, holder, who’s the holder?

Jan 29th, 2009
by Cathy Moran.
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The current version of  H.R. 200 requires that a borrower attempt to negotiate a modification with “the holder of the claim” before they are eligible to propose a modification through Chapter 13.  Chip Parker points out that who holds the claim is a big unknown.

Presently in bankruptcy court, servicers who bring motions for relief from stay  often can’t tell you who owns the note.  They  haven’t a clue who has physical possession of the instrument, and even more often can’t tell you correctly  whether the debtor has made a payment or what they did with the money.

If you interpret this provision as requiring the borrower to contact the servicer in search of loan modification, the law will be easily satisfied.  The debtor can certainly testify what they’ve done, and the credibility of any servicer who disputes such assertions is likely to be suspect.

If “holder” is intended to invoke its technical meaning in the Uniform Commerical Code, then the courtrooms will be awash with questions on this score.

Crack in the bank wall

Jan 28th, 2009
by Cathy Moran.
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JP Morgan Securities analysts have admitted that mortgage modification in bankruptcy may be a ” necessary evil” to stabilize  home values.

It ought to become harder for the banking industry to maintain that passage of a bankruptcy cram down bill will increase mortgage rates going forward, as the bill voted out of committee yesterday will apply only to loans in existence when the bill becomes effective.

Credit Suisse estimates that adding mortgage modification to the arsenal of bankruptcy judges might reduce the number of foreclosures by 20%.

Have you contacted your Congressman yet on this issue?  Find your represenatives in Washington and speak out in favor of mortgage modification.

Changes to HR 200 as reported from committee

Jan 27th, 2009
by Cathy Moran.
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The House Judiciary Committee today reported the bill to enable mortgage modification in bankruptcy to the full House after addition of a “claw back” provision.  The added provision provides for a declining percentage of net sales proceeds to be paid to the crammed down lender if the house is sold during the pendency of the bankruptcy for more than the modified loan amount.

The added provision for sharing of post bankruptcy appreciation gives the afffected lender 80% of the appreciation from a sale in the first year from the effective date of the plan; 60% in the 2nd year; 40% in the 3rd year; and 20% in the 4th year.

Also added to the bill was a provision that the debtor must seek a mortgage modification directly from the lender at least 15 days before proposing a plan that modifies a mortgage.  The lender presumably has an opportunity to negotiate a modification on its own terms before the bankruptcy court can impose a modification.

The last word from the banking industry was adamant opposition to judicial mortgage modification.  Industry lobbyists did not, as far as I could tell, propose an alternative that might actually stop the foreclosure tsunami.

The Banking and Lending Industry is Fighting Hard against the Mortgage Modification Bill

Jan 27th, 2009
by admin.
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Opposition to the “Helping Families Save Their Homes in Bankruptcy act of 2009” is coming from the banking and lending industry.  They are literally pouring millions of dollars into lobbying against this legislation, as reported by KUTV, news 2.

They argue that allowing judges to reduce mortgage payments will end up costing home owners more in the long run, because mortgage lenders will have to charge higher interest rates and require more of a down payment to offset the risk that the loan amount could be reduced by a bankruptcy judge.   

This industry has spent millions on lobbying efforts in the past year.  The U.S. Chamber of Commerce, alone, spent $57.9 million on lobbying in 2008, and is one of the ten organizations that is actively opposing this legislation in Congress.  

It’s time to get this bill passed.  It is the one thing that could save your home.  Write, fax or e-mail your Congressperson.  

House Judiciary to Meet and Vote Today

Jan 27th, 2009
by Doug Jacobs.
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The National Association of Consumer Bankruptcy Attorneys reports that:

The House Judiciary Committee will meet at 1 p.m. ET today to mark up (consider) HR 200, the “Helping Families Save Their Homes in Bankruptcy Act.”  At the time of the mark up there will be a manager’s amendment offered by Chairman Conyers that will embody the language changes agreed to in the Citigroup discussions and I expect there will be a few other changes as well.
You may watch a webcast of the mark up by going to:
http://judiciary.house.gov/hearings/caltoday.html.
The bill is expected to pass by a narrow margin; we don’t expect there will be any Republican votes in favor and we expect there may be a Democrat or two who opposes.
If you live in districts represented by any of the following Members, please call them THIS MORNING in support of H.R. 200 (phone numbers may be found at www.house.gov)
•    Daniel B. “Dan” Maffei (D-NY)
•    Robert Wexler (D-FL)
•    Brad Sherman (D-CA)
•    Adam B. Schiff (D-CA)
•    Charles A. Gonzalez (D-TX)
•    Pedro Pierluisi (D-PR)
Other Members of the Committee include:
•    John Conyers (D-MI) Chairman
•    Howard L. Berman (D-CA)
•    Rick Boucher (D-VA)
•    Jerrold Nadler (D-NY)
•    Robert C. “Bobby” Scott (D-VA)
•    Melvin L. Watt (D-NC)
•    Zoe Lofgren (D-CA)
•    Sheila Jackson-Lee (D-TX)
•    Maxine Waters (D-CA)
•    William D. Delahunt (D-MA)
•    Steve Cohen (D-TN)
•    Henry C. “Hank” Johnson (D-GA)
•    Luis V. Gutierrez (D-IL)
•    Tammy Baldwin (D-WI)
•    Anthony D. Weiner (D-NY)
•    Linda T. Sánchez (D-CA)
•    Debbie Wasserman Schultz (D-FL)

Bankruptcy Judges Support Mortgage Modification

Jan 26th, 2009
by admin.
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The National Conference of Bankruptcy Judges has come out in favor of the “Helping Families Save Their Homes in Bankruptcy act of 2009.”  This isn’t really very surprising – the bill will give the judges the discretion to modify a house payment and save countless homes from foreclosure.  At the same time, it will allow more people to succeed in a Chapter 13 bankruptcy.  

What is newsworthy, however, is that the Judges wrote a letter to Senator Durbin and Congressman Connors, authors of the bills pending in their respective branches of Congress.  The letter asks that the language of the act be clarified in several areas before it becomes law.

The judges want to try and avoid a long series of lawsuits interpreting the new act should it pass. By fixing the language before it leaves Congress, confusion and ambiguity can be avoided.  

No doubt, the judges want to avoid the confusion of interpretation surrounding BAPCA, the new Bankruptcy act that went into effect in October 2005.  That piece of legislation is inundated with ambiguous, contradictory and confusing language.  Wouldn’t it be nice to avoid that kind of thing by allowing the judges who will need to implement this new law help in structuring it?

Bankruptcy changes out of stimulus package

Jan 25th, 2009
by admin.
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Word from Capitol Hill is that bills enabling mortgage modification will not be included in the stimulus package on the fast track for passage by mid February.

Supporters are looking to either bring the bill to the floor as a free standing bill or to attach it to other legislation.

Personally, this is a huge disappointment as each day sees homes lost to foreclosure that might otherwise be saved.

Make yourself heard on the importance of prompt passage of this legislation by finding contact info for your representatives at SaveHomesWithBankruptcy.com. There’s a sample letter to get you started.

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