2 August 2011
Should This Mortgage Be Saved?
With residential loans defaulting at a record pace, Congress proposed or passed various bills to staunch this consequence of the economic dive-bomb. The Home Affordable Modification Program (“HAMP”) was enacted to prevent foreclosures through loan modifications. The general consensus is that this program has not produced the number of loan modifications as hoped. The process has proven burdensome for both creditors and debtors. Other bills proposed in an attempt to prevent foreclosures would have changed the Bankruptcy Code and permit Chapter 13 debtors to “cramdown” and bifurcate underwater residential mortgages. For good reasons, including the probable disastrous effect this would have on our already damaged economy, these bills were defeated.
Some experts are predicting we are on the cusp of yet another foreclosure wave. While this looms in the background, Congress may not extend HAMP when it is set to expire on December 31, 2012, and there will no longer be a federal loss mitigation program. There is a bill pending on the Senate calendar (which means it is awaiting action in the Senate) that would give each bankruptcy court the power to set up its own loss mitigation program. Senate Bill 222 was born on its Sponsors’ premise that mortgage servicers are bad guys because they profit from foreclosure losses, while the investors are good gals because they want to mitigate losses to protect the value of their portfolios, and so will engage in negotiations.
The bill would permit each court to establish its own program for consensual loss mitigation on loans secured by debtors’ homes. The bill, in its current form, would not require creditors to engage in loss mitigation. However, this might not deter some courts from establishing programs or creating complicated requirements that would delay hearings on motions for relief for loss mitigation. This would be especially harmful when the debtor has no realistic chance of a successful modification.
Additionally, because each court could establish its own program, there could be a complex patchwork of programs throughout the country. While loss mitigation is a worthy goal when both parties can agree, a decree from Congress to require it in bankruptcy could only delay the inevitable relief from stay in the majority of cases while further harming a creditor’s position.
Some experts are predicting we are on the cusp of yet another foreclosure wave. While this looms in the background, Congress may not extend HAMP when it is set to expire on December 31, 2012, and there will no longer be a federal loss mitigation program. There is a bill pending on the Senate calendar (which means it is awaiting action in the Senate) that would give each bankruptcy court the power to set up its own loss mitigation program. Senate Bill 222 was born on its Sponsors’ premise that mortgage servicers are bad guys because they profit from foreclosure losses, while the investors are good gals because they want to mitigate losses to protect the value of their portfolios, and so will engage in negotiations.
The bill would permit each court to establish its own program for consensual loss mitigation on loans secured by debtors’ homes. The bill, in its current form, would not require creditors to engage in loss mitigation. However, this might not deter some courts from establishing programs or creating complicated requirements that would delay hearings on motions for relief for loss mitigation. This would be especially harmful when the debtor has no realistic chance of a successful modification.
Additionally, because each court could establish its own program, there could be a complex patchwork of programs throughout the country. While loss mitigation is a worthy goal when both parties can agree, a decree from Congress to require it in bankruptcy could only delay the inevitable relief from stay in the majority of cases while further harming a creditor’s position.