The parent agency for Fannie Mae and Freddie Mac is considering a proposal for mortgage pay down through Chapter 13, Reuters reports. The White House denies interest in the plan.
The Principal Pay Down Plan, conceived by Norma Hammes, a San Jose bankruptcy lawyer, and promoted by NACBA, would allow homeowners in Chapter 13 bankruptcy with an underwater mortgage to direct up to five years of their payments on the mortgage to the reduction of the principal outstanding. The plan would not otherwise change the mortgage terms.
As proposed, the plan would only apply to home loans owned or controlled by Fannie and Freddie, which make up about 90% of U.S. mortgages.
By devoting five years of payments to principal, homeowners, who now have few economic reasons to keep paying on debt tied to houses with shrunken value, could build up equity and a financial stake in otherwise overencumbered homes.
It’s our opinion here at NorCalMortgageMods that a recovery of the California economy is tied, top and tail, to the housing market. Congress failed to pass the judicial mortgage modification bill for bankruptcy relief to homeowners two years ago. The Administration’s encouragement of mortgage modification has been insipid and ineffectual.
If this plan doesn’t suit the White House, what is their proposal?
