I have been breaking down the Homeowner Affordability and Stability Plan and providing a review of the plan’s various components. We are awaiting more details to be provided by the Administration, due to be released March 4th. The source of this review comes from the White House.
The component I am reviewing today is one for which I have great trepidation. I’m interested in hearing what you think.
Allowing Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options
This provision will allow bankruptcy judges to modify mortgages. (OH MY!)
- The portion of mortgage loan balances in excess of mortgage balances will be treated as unsecured debt
- The judge will then develop an affordable plan for homeowners to continue making payments
- Homeowners must have first requested loan modifications from their lender and substantiate they have complied with request to furnish essential information
- Legislation will be forthcoming to incorporate loans guaranteed FHA and VA loans
- Last, but certainly not least and I quote “This provision will apply only to existing mortgages under Fannie Mae and Freddie Mac conforming loan limits, so that millionaire homes don’t clog the bankruptcy courts”
I don’t know about you, but the idea of granting the power to modify loans to judges scares me to death. 
I don’t have tremendous faith in our judges. I often hear of goof-ball decisions being handed down.
I can just see the bankruptcy lawyers celebrating over this. Will this have the unintended consequence of encouraging homeowners to file bankruptcy? Judges can reduce the balance and establish a repayment plan for the remaining balance? Isn’t this where a number of people will actually want to end up?
If you are going to have this provision, what’s up with limiting this option to those at or below the conforming loan limit? Does this administration just hate people of greater means? What about those states where property values, several years ago, had climbed to the point that a large number of mortgages were above the conforming limit? Is there going to be no assistance in some the hardest hit areas?
Can someone out there calm my fears? Or do you anticipate something else that will make me pull my hair out? I’m looking forward to hearing from you!
Gird up your loins!
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Looking for acorns
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Stability
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Jay Williams
www.myhomeloanwithjay.com
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Jay - "I don't have tremendous faith in our judges".
Me neither, not since "Bush vs. Gore" went to the supreme court in 2000 and the Supreme Court picked our President, by just one vote. :^)
Other than that, however, I believe this option is a good one. Bankruptcy judges are quite adept at deriving value and settling claims, fairly protecting the interests of all parties. I think the Obama administration has made a good choice with this proposal, leading to a fair settlement for all parties.
I truly believe we're heading for the greatest period of positive economic expansion, for the middle class, that this country has ever seen! We've been moving much too rapidly toward becoming a third world country and the Obama administration is going to stop the erosion of the middle class dead in its tracks.
Provisions like this are exactly why he won the election and exactly why he's going to be the best President since Abraham Lincoln. Barack 'n' Roll!