26 Jul Mortgage Modifications in Bankruptcy Court Help Homeowners
It is common knowledge that Home Affordable Mortgage Program (HAMP) is a failure, but do you know why? Simply put, mortgage servicers do not want to modify mortgages, and there is no policing mechanism in HAMP that forces them to act in good faith when determining whether a homeowner qualifies for HAMP.
Letâ€™s keep one thing in mind right from the start â€“ The American Taxpayer bailed out the Mortgage Servicing Industry to the tune of hundreds of billions of dollars plus seven trillion dollars of zero percent interest loans. In exchange for saving the hide of the banking industry, the banksters agreed to analyze every homeowner for a home mortgage modification.
President Barack Obama had the political leverage to exact real relief to the American homeowner, but rather than seize the opportunity, Obama and the Democrats embraced Wall Street along with their Republican counterparts. HAMP became a poster child for what is wrong with leadership in this country. Like a toothless guard dog for the middle class, HAMP has failed to stem the tide of residential foreclosures and has guaranteed the anemic recovery of our housing industry and, by extension, the rest of the economy.
If President Obama loses re-election in the Fall, he will have to look no further than HAMP for a reason why. BUT, this is not a story of HAMPâ€™s failure. This is a story of how McGyver-like resourcefulness can make HAMP the success it always should have been.
A couple years ago, Orlando Bankruptcy Judge Karen Jennemann, with the assistance of Orlandoâ€™s Chapter 13 Trustee, Laurie Weatherford, took the extraordinary step of implementing the innovative Bankruptcy Mortgage Modification Mediation Program first started by Judge Robert Drain in the Southern District of New York. Now that Judge Jennemann has become the Chief Judge of the Middle District of Florida, the Orlandoâ€™s program has spread throughout the district, including Jacksonville, Tampa and Fort Pierce.
The key to the programâ€™s success (some lawyers boast a 90% modification rate) is that the Bankruptcy Court provides the missing element to HAMP â€“ a third party policing authority â€“ the judge. Under the program, a bankruptcy judge orders the parties to go to mediation and requires the mortgage company to act in good faith when analyzing the debtor for a modification.
Leading up to the mediation, the debtor must provide specific financial disclosure, and the mortgage company must inform the debtor what documentation is lacking. Because the mortgage companyâ€™s receipt of all financial data is monitored and well documented, there is no excuse for to claim that anything is missing from the applicantâ€™s package.
Moreover, good faith also requires the mortgage company to explain why a debtor does not qualify for a modification and must give the debtor ample opportunity to correct any deficiency in the application.
By way of example, here are two actual mediations results recently achieved by our firm:
The McKinney Mediation was continued for 30 days, but the client received modification before the second mediation date. McKinney received a HAMP modification that extended the term of the loan to 30 years at 2.0%. The monthly payments are $42.31 less than we estimated when the bankruptcy case was filed.
The Giraldo family could actually afford their original payment, but they owed much more than their homeâ€™s value. Rather than seeking a HAMP modification, which would have INCREASED their payment, we sought an â€œIn-Houseâ€ modification offered by the mortgage company. The Giraldos received the following:
- Principal reduction of $103,000.00
- New Loan Amount of $205,000.00 at start rate of 2.0% for years 1-5 and year 6 will jump to 3.56% fixed for the remaining 24 years. The loan term (length) did not change
- The new monthly mortgage payment is actually $280 less than we estimated when the bankruptcy case was filed.
So the real question is why hasnâ€™t every single bankruptcy court in America instituted the Mortgage Modification Mediation Program? All along, bankruptcy judges have held the power to stop the foreclosure crisis by forcing the mortgage servicing industry to do what it agreed to do when it took a taxpayer funded bailout. Given the ineptitude demonstrated by out politicians, Itâ€™s high time these judges took center stage.
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