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The report on the Senate version of the stimulus bill is that it includes incentives and credits for new home buyers, but nothing that directly helps prevent foreclosures of existing homeowners.

Until we stop the slide of home prices, greased by foreclosures, new buyers will be hesitant to jump into the housing market.  Buy now without price stability in the market, and you too can own a house worth less than you owe.

Until we have the right to modify mortgages down to the present value of the property, I have a hard time advising clients with homes underwater to continue to pay on mortgages well over the value of the house.

Even with mortgage modification, the borrower is still looking at a home loan that equals the value of the house.  Depending on the monthly payment, this may not be wise for everyone.

But, unfortunately, I don’t have to do that analysis yet, because Congress is sitting on the Helping Families Save Their Homes in Bankruptcy Act.

Not only are 14% of homes in Santa Clara County worth less than the debt on the property, 27% of houses purchased in the last five years are underwater according to the San Jose Mercury.

In my practice I’m seeing a substantial number of long time homeowners who have refinanced loans that are either now larger than the property value or whose loans will soon reset to payment levels that will be fatal to continued home ownership.

This problem is huge and requires immediate attention.  Without a solution, the mortgage morass will drag down all the homeowners around the  currently underwater homes.

We have incorporated the provisions of HR 200 into the text of the affected sections of the Bankruptcy Code on our sister site, www.savehomewithbankruptcy.com.

You can see exactly how each section will read if the bill is enacted as it was reported from Committee.

The unanswered question is how long do we have to wait for enactment?

The New York Times editorial cried “Shame” on the administration for taking the bankruptcy mortgage amendment out of the stimulus package now in the Senate.

It is unfair to ask taxpayers to pay for foreclosure relief without enacting a bankruptcy fix, which costs them nothing.

Amen.

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.

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.