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”