Recent Entries

“Cram-Down” Provision May Be Dropped from House-Passed Banking Bill

Published on April 6, 2009 in Bankruptcy Act 2009, Chapter 13 and Real Estate. 0 Comments

Congressional Leaders may drop the “Cram-Down” provision if it threatens the passage of the overall banking bill.  Recently, at a Christian Science Monitor Breakfast, Senate Majority Leader Harry Reid stated, “If we can’t get the votes for that, and I am hopeful we can – I am semiconfident we can – then what I’ll do is take that off [the bill] and do the other banking provisions”.  Currently the legislation is facing stiff opposition in the Senate from Republicans and moderate Democrats who are pushing for a watered down version of the cram-down provision.  Senate Republicans and moderate Democrats led by Senator Evan Bayh and Senator Arlen Specter are pushing a version of the cram-down provision that applies only to homeowners with subprime loans.  There reasoning is that the subprime problem has done enough damage to the banking industry.

The cram-down provision in Obama’s plan is designed to encourage lenders to modify at-risk mortgages so that they are more affordable to struggling homeowers.  The plan gives lenders who voluntarily modify loans a cash bonus of $1,000 for each loan modified.  For now lenders will have to hold their breath a little longer as the Senate futher debates the specifics of the cram-down provision.

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

Published 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