Tag Archive for 'HAMP'

Treasury Department Issues Guidelines for Use of HAMP in Bankruptcy

Published
by
Monette Cope
on March 30, 2010
in Bankruptcy Filings, Homeowners Affordable Modification Program and Real Estate
. 0 Comments

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:

  1. Post-petition payments on the loan are current prior to entering into a HAMP agreement; and
  2. The payments are equal to or more than the payment as modified; and
  3. The Bankruptcy Court approves the modification, if necessary; and
  4. 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 mcope@weltman.com.

New HAMP Guidelines Announced Affecting Foreclosures

Published
by
Jack Day
on March 29, 2010
in Bankruptcy Filings, Homeowners Affordable Modification Program and Real Estate
. 0 Comments

On March 24, 2010, the Treasury Department announced new guidelines for handling pending or threatened foreclosure actions for lenders participating in the Home Affordable Modification Program (HAMP) effective June 1, 2010. Lenders participating in HAMP include Fannie Mae (FNMA) and Freddie Mac (FHLMC) loans, lenders accepting TARP funds, and other lenders who voluntarily agree to participate.

Under the new guidelines, a participating servicer or lender may not refer any loan to foreclosure or conduct a scheduled foreclosure sale unless and until at least one of the following circumstances exists:

  1. The borrower is evaluated for HAMP and is determined to be ineligible for the program; or
  2. The borrower is offered a trial period plan, but fails to make a trial period payment by the last day of the month in which such payment is due; or
  3. The servicer has established right party contact, has sent at least two written requests asking the borrower to supply required information in accordance with HAMP guidelines and has otherwise satisfied the Reasonable Effort solicitation standard, and the borrower failed to respond by the dates indicated in those requests; or
  4. The servicer has satisfied the Reasonable Effort solicitation standard without establishing right party contact; or
  5. The borrower or co-borrower states he or she is not interested in pursuing a HAMP modification and such statement is reflected by the servicer in their servicing system

Existing foreclosure sales must be immediately halted when a borrower submits a request for HAMP consideration, so long as the request is received at least 7 full days prior to the sale date. The only exception is where the sale cannot be stopped because the local official fails or refuses to halt some or all of the activities. For example, in some jurisdictions, a sale may not be stopped without the approval of the judge assigned to that case. The local judge may not be available or may otherwise not approve stopping the sale.

When a borrower is in foreclosure and is simultaneously either being evaluated for HAMP or is in a trial period plan, the servicer/lender must provide the borrower with a written notification that explains, in clear language, the concurrent modification and foreclosure processes and which states that even though certain foreclosure activities may continue, the home will not be sold at a foreclosure sale while the borrower is being considered for HAMP or while the borrower is making payments under a trial period plan.

Lenders need to review these new requirements carefully to make sure they are in compliance by June 1, 2010.

If you have any questions, please contact Mr. Jack Day, Esq. Jack is a Partner in the Bankruptcy department of the Cincinnati office of Weltman, Weinberg & Reis Co., LPA. He can be reached at 513-723-2206 or via e-mail at jday@weltman.com.

Beware of Chapter 13 Plans That Depend on HAMP Modification

Published
by
Monette Cope
on March 25, 2010
in Chapter 13, Homeowners Affordable Modification Program and Real Estate
. 0 Comments

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 mcope@weltman.com.

Still Looming: Bankruptcy Reform and Cramdown

Published
by
Beth Schenz
on July 24, 2009
in Bankruptcy Act 2009 and Real Estate
. 0 Comments

On July 23, 2009, the Senate Committee on the Judiciary, Subcommittee on Administrative Oversight and the Courts scheduled a hearing on “The Worsening Foreclosure Crisis: Is It Time to Reconsider Bankruptcy Reform?” Due to the rise in foreclosures and continuing high level of unemployment, Democratic senators are attempting to revisit the bankruptcy reform that would allow debtors to “cramdown” their mortgage debt to the value of the real property.

Those who presented testimony before the Committed were as follows:

Proponents for the Cramdown

Alys Cohen, staff attorney for the National Consumer Law Center, indicated that, “[u]nless HAMP both increases its reach and mandates principal reductions, Congress should pass legislation to allow bankruptcy judges to modify home loans in bankruptcy and also should consider further reforms to the servicing industry.”

Adam J. Levitin, Associate Professor of Law at Georgetown University Law Center opined that bankruptcy cramdowns are the only tool left to stabilize the foreclosure crisis. Mr. Levitin stated, “[b]ankruptcy courts are capable of immediately handling a large volume of filings, and the bankruptcy automatic stay would function like a foreclosure moratorium until cases could be sorted through.”

Proponent Against the Cramdown

Mark A. Calabria, Ph.D., Director of Financial Regulation Studies at the Cato Institute, stated that, “[i]t is not exploding ARMs or predatory lending that drives the current wave of foreclosures, but negative equity driven by house prices declines coupled with adverse income shocks that are the main driver of defaults on primary residences. Defaults on speculative properties continue to represent a large share of foreclosures. Accordingly for any plan to be successful it must address both negative equity and reductions in earnings. Cramdown fails on both accounts.”

General Comments

Richard Genirberg, J.D., M.B.A., M.A., who represents consumers and creditors in Chapter 7 and Chapter 13 bankruptcy cases offered that cramming down residential real estate loans would benefit his debtor clients. Also, Mr. Genirberg stated that, “[l]egislating cramdown of residential real estate would create a veritable ‘license to steal’ from mortgagees. Mr. Genirberg suggested Congress needed to decide what would be beneficial for the American economy.

The Ranking Member of the Committee, Senator Jeff Sessions (R-Alabama) opposes such cramdown provision. However, Senator Richard J. Durbin (D-Illinois) continues to press for mortgage cramdowns in bankruptcy. Congress is expected to break for recess in the second week in August, 2009.