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The Federal Housing Finance Agency has now expanded the program by allowing homeowners to refinance regardless of how much their house has fallen in value. Originally, the program was limited to borrowers whose mortgages were no greater than 125 percent of the value of their homes. Under the program, borrowers must still be making on-time payments. The program also only applies to loans owned or guaranteed by Fannie Mae or Freddie Mac.
HAMP has received significant criticism as the number of homeowners participating in the program permanently that modified their mortgage is significantly lower than expected. The most recent statistics released by the Treasury Department in October indicated that the program helped 691,000 homeowners. The projected goal of the program was to help over 4 million homeowners. With the expansion of the program, the number of homeowners able to modify their mortgage may increase.
On May 18, 2011, The Treasury Department issued Supplemental Directive 11-04 under the Home Affordable Modification Program (HAMP). The purpose of this Directive is to require servicers of non-GSE mortgages to have a single point of contact for dealing with customers who are currently in or may be eligible for HAMP programs on first mortgages. Second Mortgages are not covered under this Directive.
The single point of contact (SPC) must be in a position to communicate with the borrower about a resolution for their delinquency. The SPC must be in place for the entire delinquency or the imminent default resolution process including any home retention or non-foreclosure liquidation options, and if the loan is subsequently referred to foreclosure, the relationship manager must be available to respond to the borrower’s inquiries regarding the status of the foreclosure. In addition to HAMP, this will be required with the Home Affordable Unemployment Program (UP) and the Home Affordable Foreclosure Alternatives (HAFA) program. The effective date of this Supplemental Directive is September 1, 2011.
Please be advised that for those borrowers who are in the process of being evaluated for HAMP, UP or HAFA, who are in a trial period plan or a UP forbearance plan, or who have executed a short sale or deed in lieu agreement by the effective date, the Supplemental Directive must be signed by the relationship manager by no later than November 1, 2011. In addition, borrowers who were originally ineligible for any of the aforementioned programs prior to September 1, 2011 and re-request an evaluation after that time, must be assigned a relationship manager if the servicer determines there has been a significant change in the borrower’s circumstances that merits the re-evaluation.
Under this Supplemental Directive, the relationship manager must provide the borrower, in writing within five (5) business days of being assigned to the borrower, a notice which includes a toll free number and at lease one other means of contact for the relationship manager. The notice must also provide the preferred means for the transmission of any required documentation from the borrower to the servicer. Please note, that if circumstances arise where the relationship manager should change, written notice of said change and contact information must be communicated to the borrowers.
Additional information in regard to Supplemental Directive 11-04 may be obtained through the US Treasury’s website at treasury.gov.
Weltman, Weinberg & Reis Co., LPA will keep you advised on issues pertaining to HAMP and other bankruptcy matters.
If you have any questions, please contact Alan C. Hochheiser, Esq. Alan is the Managing Partner of the Bankruptcy Practice Group of Weltman, Weinberg & Reis Co., LPA located in the Brooklyn Heights, Ohio office. He can be reached at 216.739.5649 or .
November 2010 saw a change sweeping through Washington and the country. Republicans regained the majority in the House and made some major gains in the Senate. With new faces in both chambers, new leaders in the House and a steady number of Bankruptcies being filed in the United States, what effect will these changes have on Bankruptcy?
Through the end of September 2010, there were approximately 1.1 million bankruptcy filings in the United States and its Territories according to the United States Bankruptcy Court. A look back at the 12-month period from September 2009 to 2010 shows that approximately 1.6 million cases were filed. Compared to the 12-month period from September 2008 to 2009, that was an increase of nearly 200,000 filings. Projections indicate that the number of filings for 2011 may decrease by a small margin. Will the reshaped Congress have any effect on the number of filings? Time will tell, but the chances of seeing the oft talking about change in the Bankruptcy law as to the cram down of mortgages is not likely.
Home Affordable Modification Program (HAMP) was another hot topic in 2010. However, the number of homeowners who were able to qualify for the program to receive permanent modifications and stay current on the modified payments remains low. Although this is a Treasury Department initiative, will we see any changes to the program in 2011? Will there be a Congressional Directive? Will the investigations that the State Attorney Generals are spearheading lead to rules in individual states that then will carry over into Bankruptcy? These are questions that we hope to find answers for in early 2011.
Change is typically a good thing. However, how the waves of change affect creditor’s accounts in Bankruptcy is like the outcome of a good mystery novel: “To Be Determined.”
Weltman, Weinberg & Reis will continue to keep you updated on what is occurring in Washington and its effect on Bankruptcy.
If you have any questions on this matter, please contact Alan C. Hochheiser, Esq. Alan is the Managing Partner of the Bankruptcy Practice Group of Weltman, Weinberg & Reis Co., LPA located in the Brooklyn Heights, Ohio office. He can be reached directly at 216.739.5649 or .
A recent post advised lenders and servicers of a strategy proposed by a prominent Chapter 13 Trustee to file bankruptcy and apply for a HAMP modification at the same time. To recap, theoretically, the servicer will lower the mortgage payments and a modification would be in executed within 60 days of filing the bankruptcy, and the plan would be ready for confirmation. However, this not only overlooks likely delays in the process, but also the three month trial period during which the debtor must make full and timely modified payments before the modification is permanent. During the process, the servicer can be bound by automatic stay for months while awaiting completion of the modification, and so confirmation.
Now the U.S. Treasury is promoting the idea through its just-issued Supplemental Directive 10-02. It includes guidelines for HAMP modifications in bankruptcy, which will become effective June 1, 2010. These guidelines may in some cases help ease the expected delays in Chapter 13 confirmations.
The Treasury acknowledges that the HAMP process may cause delays in Chapter 13 cases, and further permits (but does not require) servicers to extend the trial payment period from three to five months to accommodate any legal proceedings needed to approve the modification or to receive trial payments from the Chapter 13 trustee. This would obviously create more delay, but gives the servicer control over such an extension.
Even better, servicers can waive the three month trial period when:
Post-petition payments on the loan are current prior to entering into a HAMP agreement; and
The payments are equal to or more than the payment as modified; and
The Bankruptcy Court approves the modification, if necessary; and
The investor agrees to the waiver.
If a debtor qualifies, the Treasury Directive’s waiver provision could prevent months of delay before confirmation, and could allow a plan to be confirmed within 60 days of filing in some cases.
Coordinating HAMP with a Chapter 7 bankruptcy is much less complicated. The only new requirement applies in the event a debtor obtained a discharge, and a reaffirmation agreement was not filed. If a debtor later enters into a modification agreement, the servicer must include specific language that it will not hold the debtor personally liable for any debt arising out of the agreement.
In both Chapter 13 and Chapter 7, the servicer may choose (but is not required) to accept bankruptcy schedules and tax returns provided in the case as evidence of income in lieu of the Affidavit of Hardship and Form 4506T-EZ. The only restriction is that the schedules must be less than 90 days old.
These guidelines, where appropriate, are avenues that can reduce delay where a Chapter 13 case is combined with a HAMP application. However, servicers still need to take quick and aggressive action in this circumstance because all too often, it may lead to unjustified delay.
If you have any questions, please contact Ms. Monette W. Cope, Esq. Monette is a junior partner in the bankruptcy department of Weltman, Weinberg & Reis Co., L.P.A. located in the Chicago office. She can be reached directly at 312-253-9614 or via email at .
The bills in both the House and Senate which would have allowed bankruptcy judges to modify the terms of certain mortgages died long ago. However, one prominent Chapter 13 bankruptcy trustee is promoting his own version of reform by promoting the use of HAMP (Homeowners Affordable Modification Program) in concert with a Chapter 13 bankruptcy. Lenders and Servicers need to be aware of this and the issues it presents.
The idea is to submit an application for a HAMP modification at the same time a Chapter 13 bankruptcy is filed. Because both require proof of income, a budget, and the debtor’s most recent tax return, it should be “easy” for the debtor’s attorney to submit them to HAMP along with the Request for Modification and Affidavit of Hardship. Because lenders and servicers are required to respond to applicants within 30 days with a yea or nay, it would in theory dovetail perfectly with the timing of most districts’ confirmation hearings, and result in reduced mortgage payments and so affordable plan payments.
The assumptions behind this idea show its inherent problem – delay. Among the assumptions are the following: the debtor is a viable candidate for a HAMP modification; the documents the attorney sends are complete and sufficient the first time; the lender or servicer will be able to respond within the 30 days; the debtor can afford the proposed modification; the modification is accepted immediately; the plan will work with the modification; and the modification documents are signed soon after the 30 day response period has passed. It is more likely that there will be snags in the process and it will not move as smoothly as the trustee assumes. Debtor’s counsel will certainly use any delay in the HAMP process to delay the Chapter 13 proceedings.
Even if the modification process goes smoothly, a huge delay is overlooked. Confirmation hearings are usually set within 60-90 days after a case is filed, and plans can be confirmed in 60 days in some jurisdictions. Under HAMP, a signed modification will not be permanent until and unless the debtor pays according to the modification for three consecutive months. Assuming that a plan cannot be confirmed until the modification is finalized, it will be at least 4 ½ months until the plan can be confirmed. Meanwhile, the creditor is bound by the automatic stay.
Moreover, if the debtor cannot afford the existing mortgage payments, how will it be paid after the bankruptcy is filed? If a post-petition default accumulates, creditors have grounds for relief from stay. Will courts put off granting relief while a HAMP application or trial period is pending? More delay.
How could a debtor propose a budget and a plan if he or she cannot afford the current mortgage payments? If not, the debtor must file a budget and plan that are unfeasible or based on a future unknown payment. With either option, creditors have grounds for denial of confirmation, dismissal of the case or relief from stay. Will courts delay or deny creditors this relief while a debtor is waiting for a loan modification? Again, more delay.
Or would debtor’s counsel seek and obtain an extension of time to file a plan and budget while waiting for a HAMP decision? In cases where a loan modification gets approved, confirmation will be extended to at least 5 ½ months after filing. In cases where modification is not successful, the case will either have to be dismissed or converted to a Chapter 7. Again, the creditor is delayed from exercising its state court rights because the automatic stay has been in effect during the Chapter 13 case.
While a HAMP modification plan could be a win-win for both creditor and debtor in certain cases even with the delay it would cause, chances are that the creditor will be frustrated with the process. Creditors must move aggressively and quickly if a Chapter 13 case is filed that is dependant upon a HAMP modification.
If you have any questions concerning this matter, please contact Ms. Monette W. Cope, Esq. Monette is a Junior Partner in the Bankruptcy department located in the Chicago office. She can be reached directly at (312) 253-9614 or via email at .
