January, 2009:

The Judiciary Committee of the House of Representatives will hold hearings this week on the bill to permit mortgage modification in bankruptcy.  Here’s a link to the committee’s webpage on hearings on H.R. 200.

The hearings will be streamed at http://judiciary.house.gov/ hearings/calendar.html.

The hearings start at 2 p.m. EST Thursday January 22.

Obama’s speach was a stirrng call for change.  Now, change bankruptcy law to permit mortgage modification for the family home.

Authorizing mortgage modification supervised by a bankruptcy judge costs the taxpayers nothing.  It has a direct, tangible, and lasting effect on each family who without change, will lose their home.  It eliminates a special legislative protection for home lenders.

Check out our sister site’s analysis of the changes proposed by S. 61, then speak out to your representatives.

The new Mortgage Modification Bill will allow Bankruptcy judges to modify house payments in a Chapter 13 bankruptcy. Will that be enough to save a significant portion of the millions of Americans facing foreclosure?

A recent article from Chip Parker on the Bankruptcy Law Network suggests that it won’t be.  He points out that many people can’t afford a Chapter 13 Bankruptcy which calls for monthly payments and requires an on-going income.  Further, a chapter 13 plan is cumbersome, hard to maintain and to get permanent mortgage relief a homeowner must stay in the plan for five years and make all of the required payments.  That’s not an easy thing to do, and the vast majority of people who file chapter 13s never make it through.  

The answer he suggests is to extend the relief to Chapter 7 bankruptcies.  That would reach more people, and be a more permanent solution to the problem.  

There is no doubt that the current legislation is a step in the right direction. It will save some homes, and create a mechanism for avoiding foreclosure. But, maybe it is, as Chip suggests, only a baby step.  

That’s the title of AARP’s story explaining why changes to bankruptcy law are necessary before bankruptcy can help a broader group of homeowners keep their homes.  Presently,  bankruptcy law expressly forbids Chapter 13 plans from changing the terms of a loan secured by a borrower’s principal residence.

That means that Chapter 13 can provide protection from foreclosure while the debtor makes payments to cure any default.  But the Chapter  13 plan can’t eliminate an adjustable rate provision,  lower the principal to match the reduced value of the property, or extend the term of the loan.   Often, without those kinds of changes, even elimination of all other debt isn’t enough to save the house.

The biggest change that present law can make is to strip off junior liens if the liens senior to that lien equal or exceed the value of the house.

AARP is one of a growing list of supporters of  enabling mortgage modification.  The American Bankers Association contines to oppose change.  I have to ask, why would the opinion of the very people  who brought us the mortgage mess carry any weight at this point?

Current legislation, both Federal and Californian, encourages mortgage companies to modify or refinance home loans and avoid foreclosures.  But these programs are voluntary on the part of the loan companies, and they aren’t working.  Hence the abundance of foreclosures.

One of the nation’s largest home loan lenders, Countrywide Home Loans, has been testifying for months in front of Congress about how they are actively trying to work with home owners to restructure their loans and avoid foreclosure.  But, when pressed in a court of law, they admit that such simply isn’t true. Calling their testimony to Congress, “mere commercial puffery,” Countrywide representatives testified in New Hampshire recently that home owners simply shouldn’t rely on those promises to refinance.

The litigants in the lawsuit, a family of four, lost their home when the adjustable mortgage rate went up dramatically and Countrywide, in spite of months of promising to negotiate and modify the loan, simply wouldn’t do anything other than accept larger payments to “catch up.”

The new mortgage modification bill will end this kind of “negotiation” by allowing an independent bankruptcy judge to force a re-structure of this kind of loan.

President elect Obama is soliciting  input on issues important to the public for a Citizens Briefing Book. Here’s a direct way to urge active support by the White House for a change to bankruptcy laws to save homes.

Obama campaigned on support for judicially supervised home loan modification.  He appears to be waivering about including it in the first wave of bills to address our economic crisis.

If mortgage modification in bankruptcy would save your home, or that of your neighbor, follow the link above and tell the President elect.

Mortgage modifications are desperately needed if we are to stop the cascade of home foreclosures.  Exotic loans, adjusting interest rates, and dropping home values put millions of  American  homes at risk.  Bankruptcy courts have their hands tied.

We’ve tried the voluntary programs, touted by the current administration;  they have helped too few people and the modifications have been too timid.

Congress is considering a bill to change bankruptcy law to permit judges to approve  modifications of loans on the borrower’s principal residence.  Current law allows modification in bankruptcy of loans on everything but homes:  If there ever was a reason for this exception, it is not relevant in today’s economic world.

This blog is a joint effort of two Northern California bankruptcy lawyers who see loan modification as the key to keeping families in their homes.  My colleague and friend Doug Jacobs practices in the Eastern District of California and I practice in the San Francisco Bay Area.

We will follow the progress of the bill thorough Congress, comment on issues and unknowns, and lobby for approaches that we believe will help with the current financial crisis.

We hope to report on how the enacted bill works in bankruptcy courts in Northern California.  We have more about the bills in Congress, just what they provide and links for our readers to contact their lawmakers and support this vitally necessary change to the law on our companion website at www.savehomewithbankruptcy.com.

Cathy Moran