NACBA has proffered a principal pay down plan which it hopes can be implemented without legislation.  The plan would utilize bankruptcy’s  Chapter 13 and would be a consensual provision of the Chapter 13 plan.  In exchange for crediting every mortgage payment during the plan to principal, the lender would get a new promissory note and a  release of  claims for past lender transgressions.

Stay tuned.

Have the banks not staffed their modification programs with enough people?  Are they simply using the Obama Administration’s plan as some kind of collection tactic to squeeze homeowners afraid of foreclosure?

While no one knows for sure what is causing the long wait times, experts in the area have come up with logical explanations and the American Bar Association released a free web seminar earlier this month discussing these issues and how the real estate crisis developed.

The 60 minute pod cast features Jamie Lathrop, Marc S. Stern and O. Max Gardner, III who all agree that without a motivating factor banks will continue to drag their feet.  O. Max Gardner, III calls modification in a Chapter 13 bankruptcy the hammer that is missing from the Obama Plan.  Having failed to pass the Senate earlier this year, Max predicts that a bankruptcy modification bill will be before Congress again by September.

The threat of foreclosing and having to write down their balance sheet should motivate banks, but as pointed out in the seminar, servicers have an incentive to allow a troubled property to sit on their balance sheet as it collects penalties and fees.  After all, when the property is foreclosed on, the servicer or a related third party will be paid for liquidating the troubled asset while the investor and the homeowner take the hit.

O. Max Gardner, III compared the securitization of mortgage loans to an expanded mortgage flipping scheme, pointing out that those borrowers with ARM loans are forced, by a scheduled increase in their interest rate, to refinance and again pay fees associated with doing so.

The experts also discussed limitations placed on servicers by the pooling and service agreements they have with investors.  Some of these agreements do not allow for any modifications and others only allow for a handful.

While it may not be entirely clear what is taking so long, it is clear that things are unlikely to change until a new kind of motivation presents itself.