Recent Entries

Possible Compromise This Week on Bankruptcy Cramdown Legislation

Published on April 21, 2009 in Chapter 13 and Real Estate. 0 Comments

While the House passed a bill permitting mortgage cramdowns, the Senate has yet to do so.  However, it hopes to have a compromise in place this week.  Senate Majority Whip Dick Durbin (D-Ill) met with banks, credit unions, and consumer groups to negotiate terms for the Senate bill.

Details are sketchy, but it appears that the terms would further limit the pool of borrowers who may be permitted to reduce the principal balance on mortgages in bankruptcy.  If a lender offers a refinance that reduces the interest rate through the current Obama plan, a borrower may not be permitted to reduce the principal balance in a Chapter 13 plan.  This is obviously an incentive for lenders to offer refinancing to certain borrowers in an attempt to avoid a reduction of the principal balance by a bankruptcy judge.

“At-risk low income borrowers” and those who spend less than 31% of their income on home mortgage payments would be ineligible as well for principal write-downs.  The program would apply only to loans originated before 2009, and would end in 2014, thus limiting bankruptcy cram downs to approximately five years from enactment of any bill.

WWR will continue to keep you informed as this Senate bill takes form.

Stretching Out the Loan Term: Will Lenders Be Stuck with New Terms Forever?

Published on March 5, 2009 in Bankruptcy Act 2009, Chapter 13 and Real Estate. 0 Comments

One of the key components of the “Helping Families Save Their Homes in Bankruptcy Act of 2009”, currently pending in Congress, is a provision allowing a borrower to extend the repayment period on their mortgage loan for up to 40 years.  While such a provision appears straightforward at first glance, Congress to date has failed to indicate whether a borrower will need to actually complete their Chapter 13 plan and receive a discharge in order to enjoy the benefits of the modified terms for the remainder of the loan.  In other words, what if a borrower seeks Chapter 13 relief, modifies the loan term and then has his case dismissed 6 months later for failing to stay current on plan payments?  Does this cancel the loan modification?

Another unanswered question centers on how many “bites at the apple” a borrower gets to utilize for this loan extension provision.  What if, hypothetically, a borrower with a 30 year fixed rate loan files for Chapter 13 relief, modifies the loan term out to 39 years and completes his plan in 3 years.  Then, the same borrower files a second Chapter 13 case 3 years later and attempts to recast the loan back out to 34 years? 

The answers to these questions will have dramatic effects upon the mortgage lending industry and how it assesses risk going forward for all potential borrowers.  Congress should take these issues to heart in determining the final version of the Bill, lest it create more problems for the public than it seeks to solve.

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

Published 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.