About Me
“ Craig D. Robins, Esq., has been a practicing Long Island bankruptcy attorney for over twenty-four years ”
Written by Craig D. Robins, Esq.
President Barack Obama this week reiterated his support for bankruptcy reform during an appearance in Arizona, where he unveiled his $75 billion mortgage foreclosure prevention plan.
In several blog posts during the past two months I discussed how President Obama would likely reshape bankruptcy law during the early part of his administration (Will 2009 Bring Major Bankruptcy Law Changes? and Bankruptcy Change Under President-Elect Obama)
On February 18, 2009, he issued his bankruptcy proposal that would enable homeowners to change the terms of their mortgage in a Chapter 13 bankruptcy proceeding.
However, details of what President Obama would like in the Chapter 13 bankruptcy proposal are somewhat sketchy. He indicates that Chapter 13 cram-downs should be a final option; debtors must first ask their mortgage company for a loan modification and certify they have made reasonable efforts to cooperate with the lenders; and the cram-down would only apply to existing mortgages which have balances that are under Fannie Mae and Freddie Mac loan limits.
The bold plan removes restrictions that prevent Fannie Mae and Freddie Macfrom guaranteeing loans for mortgages valued at more than 80 percent of a home’s value. That rule prevents families from refinancing at historically low interest rates if they owed more than their homes are worth. Obama also says he will announce uniform rules for the mortgage industry to help homeowners restructure subprime loans. Lenders who want federal assistance will have to agree to the rules. Lenders will agree to lower interest rates and the feds will make up part of the gap between the old and new payments. However, the finer points of the proposal need to be worked out.
This legislation would prove a godsend for thousands of homeowners on Long Island who face possible foreclosure.
Currently, bankruptcy judges on Long Island can effectively strip away a debtor’s second mortgage in cases where the value of the home is less than what is owed on the first mortgage. But judges remain powerless to alter the terms of a primary mortgage on one’s principal residence. Obama’s proposal seeks to change that.
Three weeks ago, the House Judiciary Committee reported to the full House H.R. 200, which would give Chapter 13 bankruptcy judges the authority sought by the president. A nearly identical bill — S. 61, sponsored by Senator Richard Durbin, D-Ill. — is pending in a Senate committee.
