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The National Association of Consumer Bankruptcy Attorneys (NACBA) is currently proposing a new plan for the pay down of principal on upside down homes in jeopardy of being foreclosed. The federal government and all the entities involved in such mortgage arrangements should pay close attention to the plan offering because it might have a profound effect on the current housing crisis.
The lawyer group is suggesting their plan can be utilized in the absence of any legislation because it would be administered by the existing US Bankruptcy Courts within Chapter 13 plans. The NACBA suggest that if investors, insurers, and government agencies adopt such a plan, it will not require legislation.
Wow! Simple! Unheard of! Our bankruptcy lawyers across the nation are suggesting a plan whereby the investors and bankruptcy courts can work out a simple solution to a most difficult current problem, all without the help of Congress. Big Brother is going to be left out of the circle while common citizens solve a problem inside an already existing system. Ouch! That was me pricking myself with a pin to see if I am dreaming or something.
Excuse me for being a little facetious, but where has common sense been all this time? Does that mean I am endorsing the plan? Well, I personally dont see anything wrong with the suggestions. They seem very doable to me, and I think although it might not solve the whole housing crisis mess, the plan could be a beginning on getting the mortgage banks and lenders to the negotiating tables where HAMP legislation has failed.
The plan restructures certain under secured and underwater mortgages in Chapter 13 bankruptcy cases so the homeowner can pay down the loan principal and reduce negative equity while acquiring equity faster than the current existing loan. This is accomplished by reducing the interest rate to 0% for five years, letting the borrower’s entire monthly loan payment go directly to the principal. Five years has been obviously chosen because that is the maximum number of years allowed for a Chapter 13 bankruptcy plan.
During the five-year period of the bankruptcy plan, the borrower’s minimum monthly housing payment is calculated at 31% of the borrowers gross income, similar to a HAMP modification payment. Most standard mortgage loans base their payments on a similar formula. At the end of the initial five-year period, the remaining principal balance will be amortized over 25 years at the Freddie Mac survey rate.
Why would this five year plan succeed when other plans like HAMP are failing? The answer is simple. The plan is placed in the hands of a third party, and no one is likely to argue with a bankruptcy judge. Along with the assistance of a Chapter 13 trustee, the judge will review the debtors budget to confirm the eligibility of the borrower and the feasibility of being able to make the payments. Since that is what bankruptcy courts do in a Chapter 13 to begin with, there is no reason to believe they cannot fairly administer the plan.
How does everyone win in such a plan? The plan does not include a cram down where principal is given up. Mortgage investors may lose some interest during the five year period, but they shouldnt lose principal in the long run. As part of the agreement, the borrow agrees to a general settlement of all claims against the lender and service provider, so future title and loan litigation will be avoided.
The borrower wins because he would get to keep his home, and he stands an excellent chance of paying down the principal so the house is no longer underwater in value.
Another big winner in implementing the plan is the federal government and US taxpayers. Most of the homes financed in America are guaranteed by Fannie Mae or Freddy Mac insured loans. A pay down on the principal will reduce the governments liability significantly.
Basically, everyone wins under the plan. Even the borrowers local community and local government will benefit because the plan will help stabilize home ownership within the neighborhoods. Instead of foreclosures flooding the neighborhoods driving the prices of housing down, the housing market could be more stable.
If you determine you are underwater on your home, in need of relief from the stress associated with debt, and you live in or around the metropolitan area of New Orleans, Louisiana, contact us here today at .We will help you find a bankruptcy attorney in your area that will help you with any questions you may have on bankruptcy law.
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