Monthly Archive for February, 2009

Obama’s Homeowner Affordability and Stability Plan: A Breakdown Part III

Published
by
Beth Schenz
on February 28, 2009
in Bankruptcy Act 2009 and Homeowner Affordability & Stability Plan
. 0 Comments

Fannie Mae and Freddie Mac Loan Modifications

1. Government will support low mortgage rates for Fannie Mae and Freddie Mac loans so homeowners will gain new access to refinancing and more importantly lower monthly payments.

2. Certain Fannie and Freddie loans either in their portfolios or in mortgage backed securities will be refinanced.  The Administration will provide guidelines by March 4, 2009. These certain loans will include loans where the first mortgage does not exceed 105% of the current market value.  Refinanced loans will be a 15- or 30-year loan with a fixed market rate of interest.

3. Government will continue to purchase Fannie and Freddie backed loans.

Obama’s Homeowner Affordability and Stability Plan: A Breakdown Part II

Published
by
Beth Schenz
on February 27, 2009
in Bankruptcy Act 2009 and Homeowner Affordability & Stability Plan
. 0 Comments

Bankruptcy Modifications

The Administration will continue to influence change in the bankruptcy rules to allow individuals to pay the fair market value under Court order.  Currently, the Administration is in talks with Congress and predicts a swift enactment of the reformed bankruptcy law.  Such reformation includes the following:

  • Debtors’ mortgage loans will be crammed down to the current value of the property (with the remaining balance being treated as unsecured)
  • Bankruptcy Judges will have the power to, “develop an affordable plan for the homeowners to continue making payments”
  • Debtors who have existing mortgages under Fannie Mae and Freddie Mac conforming loan limits must ask their servicers/lenders for a modification first before seeking a modification in bankruptcy.  Also, the debtor requesting the modification must certify that he or she, “complied with reasonable requests from the servicer to provide essential information.”  (The reason behind this requirement is to not allow millionaire homes in bankruptcy.  However the program as worded would require an extra step for non-millionaire homes but not for millionaire homes.)
  • FHA and VA will provide partial claims in the event of bankruptcy or voluntary modification, “so holders of loans guaranteed by the FHA and VA are not disadvantaged”

Obama’s Homeowner Affordability and Stability Plan: A Breakdown Part I

Published
by
Beth Schenz
on February 26, 2009
in Bankruptcy Act 2009 and Homeowner Affordability & Stability Plan
. 0 Comments

Obama’s Homeowner Affordability and Stability Plan attempts to offer assistance to as many a 7 to 9 million homeowners under the three (3) programs.  For the next three days, WWR will provide a breakdown of each of the programs.  The three (3) programs will affect the following:

Part I:  Treasury Partnered Loans
Part II:  Loans in Bankruptcy
Part III:  Holders of Fannie Mae/Freddie Mac Loans

Even if you do not have a loan as described above, it is important to understand the administration’s initiative.  The administration is attempting to regulate the industry by using certain guidelines.  They are working with regulators and federal/state agencies to implement the March 4, 2009 proposed guidelines, “across the entire mortgage market.”

Treasury Partnered Loan Modifications (Did you accept the government’s money)

1.  Who is an eligible debtor under the Treasury Partnered Program?

  • Debtors with a “high combined mortgage debt compared to income;”
  • Debtors who have property “underwater;”
  • Debtors who are current with their mortgage but are at risk of “imminent default;”
  • Debtors who occupy the home; or
  • Debtors that have mortgage up to the “Freddie/Fannie conforming limits”

Further, any debtors that are eligible must agree to enter into a consumer debt counseling (HUD-certified) if their total debt is equal to 55% or more of their income.

2.  What will the Lenders have to do?

  • The lender will reduce the interest rates to a “specified affordability level” (mortgage payment is no greater than 38% of debtors’ income)
  • The initiative will match (dollar-for-dollar) further reduction in interest payments (down to 31% DTI).
  • Lender will keep the modified payments in place for five years
  • Lender can bring down the monthly payments to the target level by reducing the mortgage principal

3.  What are the incentives for Lenders and/or Servicers?

  • Servicers will receive $1,000 for each modified loan and as much as $1,000 for three years if the borrower remains current
  • Mortgage lenders will also be given incentives for modifying loans for “at risk” borrowers. Sevicers will receive $500 while loan holders will receive $1,500 to modify loans
  • To prevent foreclosures, mortgage holders modified under the program would be provided with “additional insurance payment on each modified loan, linked to declines in the home price index”

4.  What is the incentive for the Debtor?

  • Lower monthly payments
  • Homeowners will be able to receive up to $5,000 remaining current on their loans for five years

5.  What other requirements are for servicers?

  • Any servicer participating in the program will be required, “to report standardized loan-level data on modifications, borrower and property characteristics, and outcomes”

6.  What are the alternatives to modification?

  • Lenders will receive incentives for avoiding foreclosure, i.e. short sales, and Deed-in-Lieu of foreclosure if modifications do not work

Cincinnati Trustee Announces Procedures for Increased Number of Valuation Hearings

Published
by
David Yunghans
on February 23, 2009
in Bankruptcy Act 2009, Chapter 13 and Real Estate
. 0 Comments

If Congress passes the statute permitting “cram down” of residential mortgages, courts will likely see an increase in hearings where the bankruptcy court will need to determine the value of the debtor’s residence.  In a typical valuation hearing, the debtor and the lender both present expert witnesses who have appraised the property and testify as to the value of the residence.  Currently, such hearings are infrequent.  Chapter 13 trustees and the courts are developing new procedures to handle the increased number of valuation hearings.

Marge Burks, the Chapter 13 Trustee for the Southern District of Ohio in Cincinnati, announced several procedures to deal with the increased valuation hearings.  First, they will NOT adjourn any confirmation hearings in order to accommodate parties that have not yet completed an appraisal by the date of the hearing.  According to the local bankruptcy rule, if no agreement is reached as to value at the conclusion of the meeting of creditors, an “appraisal shall be conducted within six (6) days of the meeting of creditors.”  Second, if there is an objection filed by the mortgage holder as to valuation of the real property, all parties will meet at the trustee’s office at least seven (7) to fourteen (14) days prior to the confirmation hearing and attempt to resolve the differences in value.  If no agreement is reached, the Court will hear the objection at the scheduled confirmation hearing. Appraisers for both the mortgage holder and the debtors must be present at the confirmation hearing and prepared to go forward at that time with their evidence. Third, when conducting the valuation hearing the court will allow twenty (20) minutes for each side to present their case.

The trustee is holding the lender’s feet to the fire with these rules. It essentially requires lenders to attend all first meetings of creditors and to have an appraisal performed only a few days later.  Following the proposed procedures will be a significant challenge and increase the costs of contesting value.

Eligibility For Relief in Chapter 13: Debt Limits — Proposed Legislation

Published
by
Monette Cope
on February 21, 2009
in Chapter 13 and Real Estate
. 1 Comment

Section 109 of title 11, United States Code, is amended–

(1) by adding at the end of subsection (e) the following: `For purposes of this subsection, the computation of debts shall not include the secured or unsecured portions of–
`(1) debts secured by the debtor’s principal residence if the current value of that residence is less than the secured debt limit; or
`(2) debts secured or formerly secured by real property that was the debtor’s principal residence that was sold in foreclosure or that the debtor surrendered to the creditor if the current value of such real property is less than the secured debt limit.’; and
(2) by adding at the end of subsection (h) the following:

This means that many more individuals will be eligible for Chapter 13 relief.  Currently, individuals with more than $336,900 in unsecured debt and more than $1,010,650 in secured debt are not permitted to proceed under Chapter 13.

The secured and unsecured portions of a principal residence will not used to calculate Chapter 13 debt limits if the debtor’s home:

  • Is undersecured;
  • Was sold at a foreclosure sale; or
  • Was surrendered

Example
Joe Wannaberich owns and lives in a $2.2 million dollar home and has 3 mortgages totaling $3.1 million on that home.  Currently, Joe’s debt exceeds the Chapter 13 debt limits, and Joe may not file for Chapter 13 relief. However, under the proposed legislation, that debt is not counted, and if his other unsecured debts are less than $336,900, and his other secured debts are less than $1,010,65, he can file a Chapter 13 case.

Issues
What if the debtor claims her residence is undersecured, when it arguably is not? And what if she is over the debt limits if the secured and unsecured portions of her residence are included? The creditor may bring a motion to dismiss for ineligibility for Chapter 13, and a valuation hearing may be held in conjunction with the motion.

What is the “current” value of a residence and when is it calculated? At the time of filing? Confirmation?  Other? This is sure to be litigated unless Congress defines the valuation period.