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National bankruptcy association calls for 'disaster prevention' rather than 'disaster relief'

Fannie Mae, Freddie Mac: roles not made clear in HAMP mandate


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[Part 2: Continued from "Facing bankruptcy? Want to save your house, keep your home? Sadly, ‘home’ may be already gone."

NACBA responds to proposal to sell Mae, Mac, FHA homes for rental properties


In an Aug. 12 press release posted by The Sacramento Bee, "National Association of Consumer Bankruptcy Attorneys (NACBA) President William Brewer today issued the following statement in response to the announcement on Wednesday by the Obama Administration that it is looking at developing a plan to sell vacant and abandoned properties owned by Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) as rental properties:

Why not avoid 'preventable foreclosures'?


While there is value in cleaning up the abandoned and vacant foreclosed homes that are a blight on communities across the country, I question why the Administration isn't more concerned about avoiding preventable foreclosures in the first place.  Otherwise, you are looking at a situation here of closing the barn door after you've let the cows escape.  When provided the opportunity to embrace a plan for judicial mortgage modification in the early years of the foreclosure crisis, the Administration instead relied on voluntary efforts of the servicers to modify mortgages.  Their solution – HAMP – is a proven failure with serious nationwide consequences.  More than 2.5 million homes were foreclosed on through 2009 and another 8 million are projected to be foreclosed on by the time the crisis abates.  So, now we have only a plan to clean up the wreckage inflicted by a bad policy decision that went against U.S. consumers exactly as many forecasted it would.

Use the power of Chapter 13


NACBA urges the Administration to take on the bigger challenge of finding ways of avoiding preventable foreclosures in the first place, rather than just cleaning up the mess after the fact.  Toward that end, we have presented the Administration with one possible option, the so-called "Principal Paydown Plan," under which an undersecured mortgage would be restructured in a Chapter 13 bankruptcy so that the homeowner would immediately start paying down the loan principal and reduce negative equity by reducing the interest rate to zero percent for five years.  At the end of this five-year period, the remaining principal balance would be amortized over 25 years at the Freddie Mac survey rate. Leading housing economists have consistently cited the problem of negative home equity as a key factor pushing up the foreclosure numbers.

Brewer goes on to recognize that not every homeowner should get a pass, that is, he recognizes that foreclosure is the proper response in some cases, "but there is an urgent need to stem the crisis by closing the growing chasm between prevention and losses." He accurately cites the threat not only to affected families but also to neighborhoods near areas of high foreclosures and, indeed, the housing market as a whole and, by extension, the lethargic, struggling recovery for the economy. Finally, Brewer implores the administration to focus on disaster prevention rather than disaster relief.

Congress missed chance in 2009 to let bankruptcy judges help


That was also the reference intended by having passed up the chance for "judicial mortgage modification": a couple of years ago the House had passed a bill allowing bankruptcy judges to modify terms of a loan for a primary residence--just as they can do for vacation homes, snowmobiles, yachts, etc. But a similar measure failed in the Senate, under stiff opposition from Wall Street firms and banks.

FHFA recommends re-working deal between Mae, Mac & Treasury


An August 12 piece in Bloomberg cites a "government watchdog" that questions the relationship between the administration and Fanni Mae/Freddie Mac: "Fannie Mae and Freddie Mac should revisit their agreements to manage President Barack Obama’s anti-foreclosure efforts, a government watchdog said.

"The two U.S.-controlled mortgage companies should renegotiate with the U.S. Treasury Department to hold down expenses and establish a way to resolve disputes, according to a report released today by the Federal Housing Finance Agency’s inspector general. The report said the existing contracts didn’t define the scope of the work or how much the companies would be paid.

"The report highlights tension between the FHFA, the regulator charged with protecting the companies’ financial interests, and the Treasury, which owns most of the mortgage companies after bailing them out during the 2008 financial crisis. Fannie Mae and Freddie Mac have since drawn more than $170 billion in Treasury aid, making them currently the biggest recipients of federal aid."

Largest recipients of federal aid in charge of HAMP


The preceding serves as good background, but the following raises the most questions:
The report highlights tension between the FHFA, the regulator charged with protecting the companies’ financial interests, and the Treasury, which owns most of the mortgage companies after bailing them out during the 2008 financial crisis. Fannie Mae and Freddie Mac have since drawn more than $170 billion in Treasury aid, making them currently the biggest recipients of federal aid.

At the same time, they manage and enforce Obama’s Home Loan Modification Program, or HAMP, under contracts with Treasury. The February 2009 HAMP agreements set forth basic responsibilities without detailing what the companies would get paid or the scope of their work.

[Next time: "Is Fannie Mae pitting taxpayers against distressed homeowners?"]

Consumer bankruptcy for yourself


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