Federal cramdown legislation that would allow bankruptcy judges to modify mortgages has its supporters and detractors. In other modification news, bankruptcy specialists will debate modifications this spring, while Fannie Mae has reached an agreement with a consumer advocacy group to restructure unaffordable mortgages.
A spokeswoman for Fannie told MortgageDaily.com in a statement that the Washington, D.C.-based company is working closely with the Neighborhood Assistance Corporation of America to establish a pilot program for distressed borrowers. The program involves restructuring mortgages to achieve an affordable payment.
“Following review by our regulator, we hope to finalize the program shortly,” the statement said.
Neighborhood Assistance says it is a non-profit, community advocacy and homeownership organization.
Around 478,000 Wachovia Corp. borrowers, including those with pick-a-pay loans, will be eligible for a streamlined modification launched by Wells Fargo Home Mortgage this week. Eligible borrowers primarily include those who are delinquent or are likely to become delinquent. The possible modifications include extended terms, interest-rate reductions and temporary interest abatements.
Fifth Third Bancorp, which reported a $2.1 billion fourth-quarter loss, said in its earnings report that it modified $218 million in loans during the period. Restructured loans stood at $574 million on Dec. 31.
Fitch Ratings recently released a report indicating proposed bankruptcy cramdown legislation would probably not trigger immediate downgrades to residential mortgage-backed securities if it were passed. But Fitch noted the devil is in the details and it will issue a more conclusive statement once the final terms are hashed out.
Nearly one-third of Fitch-rated prime and Alt-A RMBS — where bankruptcy losses are not allocated as typical credit losses and cramdown risks are amplified — are more likely to face senior bond downgrades. Those deals, which have balances totaling $223 billion, are subject to carve-out provisions. Risk is more limited on over two-thirds of prime and Alt-A securitizations.
“Many market participants believe that some form of bankruptcy cramdown law will be passed in 2009,” the New York-based ratings agency stated.
Several mortgage-related trade groups — including the American Bankers Association, the Consumer Mortgage Coalition and the Mortgage Bankers Association — sent a joint letter Tuesday to U.S. House Representatives John Conyers and Lamar Smith in opposition of bankruptcy cramdown legislation. They cited H.R. 200 and H.R. 225, which would benefit mortgage fraud participants.
“The housing market is already contracting and enactment of cramdown legislation would make things even worse by injecting more risk into the mortgage market, making it harder and more costly for people to buy and sell homes,” the letter said. “Permitting cram down in bankruptcy would encourage many people to file for bankruptcy first and would undermine other efforts to work-out or modify troubled loans.
“Bankruptcy is an ad hoc process that will overload the courts with millions of new cases that the system could not handle quickly or effectively, and the increased costs will be borne by taxpayers.”
National Loan Resolution Services Inc., which assists lenders with loan modifications, issued a statement last week indicating is has assembled a “top caliber management team.” Its expert services help lenders avoid hiring new loss-mitigation employees.
Mortgage Recovery issued a press release yesterday predicting that a comprehensive loan-modification strategy will prevent more than half of U.S. foreclosures. The announcement was critical of reports of high re-default rates — such as the recent data from the Comptroller of the Currency that 58 percent of modified mortgages become at least 30 days delinquent within eight months of modifying.
Failed modifications were blamed on terms that increased payments, rolled delinquency into the principal balance and negative equity, according to Mortgage Recovery. Borrowers were advised to use an attorney to improve responses from servicers.
Among issues to be discussed by attendees of the American Bankruptcy Institute’s Annual Spring Meeting in Washington, D.C., in April are mortgage modifications and bankruptcy reform. One related session features Mark Zandi of Moody’s Economy.com as one of its panelists.
MFI-Mod Squad has been launched to expose illegal loan-modification firms and their operators, a statement last week said. Delinquent borrowers can find comments about scam companies on MFI’s Web site, while they can also obtain help investigating unscrupulous loan modification companies.
An alliance was announced this week between MFI parent MFI-Miami and the modification firm Loan Solutions. MFI-Miami will perform forensic loan audits to exploit mistakes by mortgage lenders so Loan Solutions can leverage the compliance errors to obtain better modification terms on behalf of borrowers.
ForeclosureDeals.com issued a press release last week calling for President Barack Obama to follow through with campaign promises, including amendments to current bankruptcy laws that enable courts and judges to modify mortgages.
A merger was announced this month between Mortgage Modification Loans and Liberty Unsecured. The company seeks to help distressed borrowers complete modifications.
MainStreet Mortgage Modification was launched to aid delinquent borrowers with modifications, a news release Tuesday said.
Tim Carroll has authored The Do-It-Yourself Guide to Loan Modification – A Step-by-Step Guide to Lowering Your House Payment & Saving Your Home, an announcement Monday said. The $20 book indicates that modifications are appropriate for adjustable-rate borrowers facing hardships such as income loss, divorce or medical hardships; loans with unfavorable terms; and borrowers with no disposable net income. Borrowers should be delinquent, have an option-ARM and hold a negative equity position.
