Bankruptcy

More Mortgage Relief in Proposed Changes to Obama Plan

By Meaghan Olson

FOX Business recently reported that it obtained a document leaked from the federal Treasury Department that outlines proposed changes to the Making Home Affordable program - also known as the Home Affordable Modification Program, or HAMP. The plan is part of the Obama Administration?s attempt to provide some home foreclosure help.

Some experts suggest the rules are unlikely to pass because they would mean more work, and potentially less income, for many mortgage lenders and loan servicers. This issue, according to some, highlights the core problems with that industry.

The Proposed Mortgage Rule Changes

Here?s a look at what alterations have allegedly been suggested and what they reveal about the way HAMP and the mortgage lending system in general is currently working, and how it could better work to help people avoid bankruptcy and stay in their homes:

1. Introduction of a 30-day ?borrower response period.? This period would begin after a borrower was denied a mortgage modification; during the 30 days, mortgage lenders would be prohibited from foreclosing on properties. The aim is to provide a window in which borrowers can determine whether their denial resulted from mistakes in their application.

Those in the know suggest that this proposed change is necessary because a number of borrowers are being denied modifications because of mistakes in their application ? not because they don?t actually qualify.

2. Prohibition of foreclosures for borrowers who have not been proven ineligible for modifications. In other words, banks would be required to offer borrowers an alternative to foreclosure (namely, modification) and would not be permitted to foreclose on a home if a borrower proved eligible for that modification.

According to sources, this type of language already exists in some form in HAMP ? in fact, that?s part of the whole purpose of the program. The inclusion of this as a proposed modification suggests that mortgage lenders are not taking adequate steps to avoid foreclosing on properties.

3. Suspension of all foreclosure action once a borrower has been approved for a 90-day trial modification. HAMP requires a trial period. In this 90-day window, approved borrowers make payments under a modified mortgage plan. If they adhere to the terms, they should qualify for a permanent modification.

The fact that a new rule expressly prohibiting foreclosure action during the trial period has been proposed suggests that lenders are disregarding modification agreements and proceeding to foreclose regardless of a borrower?s status.

4. Written verification (from a trustee or lawyer) that a borrower does not qualify for HAMP before foreclosure can proceed. In other words, this rule would require banks to have proof that they can go ahead and foreclose.

This suggests that mortgage lenders have not been following this rule on their own, and have perhaps been foreclosing on properties even when a borrower qualified for a modification.

Bottom Line For Anyone Needing Mortgage Relief

If you are at risk of losing your home to foreclosure, you may want to contact a bankruptcy attorney. These proposed rules suggest the cards may be stacked against you.

Full post as published by The Bankruptcy Blog on February 25, 2010 (boomark / email).