The big speech came – and went. Another speech offering that which we anticipated but not that which America needs. A proposed $447 Billion program – and the President neglects to mention the price tag in the speech. I suppose that is the prerequisite to avoid addressing in specifics a realistic plan to pay for it. After witnessing Congress’s infantile behavior last month on the deficit cap – it is a certainty that the President’s program will go nowhere – other than causing another slow burn of intransigence by Congress.
Sometimes you need to make a deal that your adversary cannot refuse. You do this carefully – but when you need something done – if it’s important enough – you do it. In this case, the President needs two things – he needs to stimulate jobs and the economy and he needs to garner support for next November. Instead of offering a plan the Republican’s will now have a field day complaining about – he should have taken the podium and laid out a program the Republican’s could not refuse. First – tell us it’s going to cost $447 Billion. Second – that though he doesn’t like it – we’re going to pay for it by shelving Obama Care for 5 years – with the exception only of keeping the no pre-exisiting condition requirement and providing coverage for dependent children to age 26. Third – acknowledge what everyone already knows –without a housing market the economy has no chance. To stimulate housing, tell us that mandated principal reduction on homes underwater will occur and that you will mandate easing the credit restrictions to refinance and purchase a new home. Top this off by telling us that the cost will be charged to the banking industry who caused this fiasco.
Mr. President, if you went in this direction,– the Republican’s could not say no – because the cost would be covered, we all want economic growth and the banking lobby would be handcuffed to protest. If you want four more years – you’re going to need to be a much better deal maker.
Ken Gross is an attorney with THAV GROSS PC (www.thavgross.com) and hosts The Financial Crisis Talk Center (www.fctalkcenter.com), a radio program that airs weekly at 8:30 AM on Saturday mornings on WDFN “The Fan” 1130 AM.
For many entrepreneurs, phoning an attorney summons images of a ticking clock and mounting bills. Now law firms are trying to win new customers by offering deep discounts for start-ups.
Some firms are offering small businesses a flat monthly fee rather than charging them by the hour. Others offer flat rates for certain services, such as handling the paperwork for starting a company.
Many small companies say the discounts are a big help at a time when budgets are tighter than ever. Ray Case, a plumbing contractor in Ann Arbor, Mich., says flat fees from attorney Ken Gross proved precious as he journeyed through bankruptcy court, folding one company and forming another. He paid $10,000 total for at least 100 hours of work, and estimates he saved at least $15,000 over typical hourly rates.
“When you’re basically out of money,” says Mr. Case, “you can’t give an attorney a blank check.”
Born of Necessity
The impetus for these deals is simple: Lawyers need to drum up more business, but many entrepreneurs can’t afford traditional payment plans these days. “The economy has melted down, and a lot of work we’re doing is for people on a tight financial budget who can’t commit to an hourly fee schedule,” says Mr. Gross, managing partner at Thav, Gross, Steinway & Bennett PC in suburban Detroit.
Mr. Gross, whose firm started offering flat rates to small businesses in 2005, says his small-business clientele in the first half of 2010 was quadruple that in the same period of 2005. “You have situations where people got buyouts and had little nest eggs of money,” he explains. “They’re trying to replace income from the jobs they lost.”
Sadly, he says, there’s another reason demand is booming: Many small-business clients, like Mr. Case, need help with debt resolution and bankruptcy-related matters, rather than with starting up.
The deals are springing up across the country. In New York, MasurLaw offers small businesses a flat rate, starting at $500, for services such as help with launching a company. Senior partner Steven Masur says that “when the recession hit, we felt that predictable pricing would take the guesswork out of legal fees,” raising the comfort level of potential clients and fostering continuing relationships with them through their early days.
In Blacksburg, Va., Creekmore Law Firm PC introduced a plan last year that charges small businesses a flat rate of $75 a month, after an initial fee of $750. “Some small-business owners would come in for an initial consultation, find out our hourly fees and wouldn’t come back,” says Keith Finch, an associate at Creekmore. “They’d just disappear.”
Proceed With Caution
To be sure, there are some potential hazards for small businesses in going this route. Joseph DeWoskin, chair of the American Bar Association division that specializes in issues facing small law firms, advises entrepreneurs to check references and get promises in writing. Be careful, he says, of “the bait and switch, where they tell you they can do it for this price and then say they can’t.”
What’s more, you can’t expect attorneys to do everything for a flat rate. Most lawyers who offer these deals set limits for what the discounts cover. For example, Mr. Finch excludes some potentially time-consuming legal work from his small-business price, such as suing or defending against litigation, and giving tax advice.
Further, some law firms insist that their discounted services for entrepreneurs be conducted on the phone, rather than consultations in their offices, to speed up the conversations. Others want much of the work to be done via email. That might make for a distant relationship between lawyers and clients.
Some entrepreneurs, however, say that they don’t mind, since they’ve gotten used to dealing with customers that way to save time. Rafe Steinhauer, president of Benefeast LLC, a White Plains, N.Y., company that raises funds for nonprofit organizations, says long-distance contact works fine once a sound relationship is established.
“You don’t have to keep making special trips to the lawyer’s office,” he says.
Mr. Johnson is a writer in Roanoke County, Va. He can be reached at reports@wsj.com.
Making Home Affordable Program Enhancements” (HAMP Enhancement Program) announced by the Administration yesterday ….(March 26, 2010) has many components. Relief from mortgage payments for 3 to 6 months for those unemployed, Principal Reductions for homes underwater if you meet the criteria, short sale help, foreclosure delay and relocation assistance as well. How they will administer such a massive program is a big, big question. For the details so far go to New HAMP Enhancement Program
To review the program components of the new FHA Refinance Program also announced on March 26, 2010, go to FHA Refinance Fact Sheet.
Bank of America Corp. said it would offer more borrowers reductions in their mortgage-loan balances in the latest twist on efforts to avert foreclosures.
The plan is the mortgage industry’s boldest move yet to address the plight of the millions of U.S. homeowners who are “underwater,” owing more than the current values of their homes. It enhances an agreement Bank of America reached 18 months ago with state attorneys general to settle claims they made over certain high-risk loans made by Countrywide Financial before Bank of America acquired that lender in mid-2008.
Reductions of as much as 30% in loan principal will be offered to struggling borrowers who have subprime or so-called option adjustable-rate mortgages, known as option ARMs. (Option ARMs, no longer available, allow borrowers to start with minimal monthly payments and face steep increases later.) Also included will be certain loans that have a fixed interest rate for the first two years before starting to adjust annually.
The program is limited to Bank of America customers who are at least 60 days overdue on payments, who can demonstrate that a financial hardship prevents them from making payments at the current level, and whose loan balance is at least 120% of the estimated home value. The bank estimated that 45,000 customers will qualify for the relief.
Amid the worst wave of foreclosures since the 1930s, banks generally have been reluctant to reduce principal. Instead, most loan modifications—including those under the government-subsidized Home Affordable Modification Program—involve reducing interest rates to as low as 2%. Some also extend loan terms to 40 years to shrink monthly payments.
But banks are finding that many deeply underwater borrowers aren’t willing to keep making even reduced payments because they believe they have little hope of ever having equity in their homes and would be better off renting and perhaps buying a cheaper home later. The Bank of America program is aimed to give such borrowers more hope by reducing their loan balances to current estimated home values.
Bank of America said the program might eventually be extended to other types of loans. The U.S. Treasury, which runs the HAMP loan-modification program, also has been considering ways to encourage more principal reduction but has indicated that any such steps were likely to be modest.
Under the Bank of America plan, the maximum decrease in principal will be 30%, and borrowers will have to “earn” the lower balances in stages over five years by keeping up on their new, lowered payments.
By cutting principal, Bank of America said, it will reduce the risk that these borrowers will default again later. “We believe this could become an industry model for principal forgiveness,” the bank said.
The program also addresses the woes of option ARM borrowers whose loan balances have increased over the years because they made minimal payments that deferred part of their interest due. Some of these borrowers will qualify for a reduction in their principal to as low as 95% of the home value.
To determine the market value of a home under the program, Bank of America plans to use computer models that estimate those values or, in some cases, opinions from real-estate brokers. Those estimated values will then be adjusted annually using metropolitan-area price indexes, Bank of America officials said.
First American CoreLogic, a real-estate data provider, has estimated that 11.3 million U.S. households, or 24% of those with mortgages, were underwater at the end of 2009.
Help for Homeowners – announced last year, has, unfortunately, evolved into nothing more than government acronyms. HARP (Home Affordable Refinance Program) and HAMP (Home Affordable Modification Program). HARP permits a refinance of a home if the homeowner but the homeowner must be current for the last year and meet normal underwriting criteria. The only benefit to the program is that the lender can refinance up to 125% of the market value of the home. In practice, the government mandated appraisals have been on the low side of market so that few properties can fit within the 125% framework. Worse than that, this program affords no help for people who have sustained financial hardship because if they were 30 days late on a payment in the last year, they are not eligible.
The HAMP program allows modifications to reduce the mortgage payment down to 31% of the Gross Monthly income of the homeowner. This program helps people who have sustained a reduction in their income so that if their present payment exceeds 31% (i.e. Monthly Income is $7,000 per month, Mortgage Payment $4,000; the reduction could go to $2,170 if all other program requirements are met) they are able to obtain a reduced monthly payment. The problem with this program is that the participating lenders have not made the effort to adequately process the modifications applications. Homeowners are told to fax papers in, and then weeks pass and they are informed that the paperwork is missing – so refax. When you call a lender, such as Bank of America, they will not even allow you to speak to a negotiator for the modification. All you can get is a status report. As an attorney, we want to speak with someone to make sure they are properly evaluating the file – but that is impossible because they refuse to come to the phone. End result – of the estimate 4,000,000 people who to be helped, few modifications have been put in place – with only 66,000 permanent modifications in place as of January of this year.
The poor outcomes of HARP and HAMP are not the big story. The biggest problem facing our country – is an economy that is undermined by high unemployment and nonexistent stimulus for the growth of small business. What Washington has missed, is understanding that the dismal real estate market is the underlying problem that must be solved in order to stimulate small business growth.
It does not take a Rhodes scholar to understand the process. Consumer spending drives our economy. Consumers cannot spend if they are unemployed. Even employed consumers will not spend if they have no available credit from the credit card companies and live in fear of losing their jobs. We all recognize to correct this problem, small business must begin to thrive – thereby employing more people, offering more goods and services and driving our GNP. Small business, however, will not and cannot thrive unless banks make credit available to businesses. Banks, however, are not lending. The reason – banks require collateral to underwrite loans. The collateral typically pledged is inventory and accounts receivable and real estate. Real estate is acceptable collateral ONLY if and to the extent there is an “Equity Cushion” in the property.
Here lies the problem. The “Equity Cushion” on residential and commercial real estate has been lost in the Financial Crisis. Because there is no equity in real estate, the banks will not accept it as collateral and therefore ½ of the historical collateral used to support lending is gone with the result that the banks will not lend due the lack of adequate collateral. You can scream and holler all you want about how the banks have improperly conducted themselves in the context of executive bonuses, credit card abuses and everything else. It is not going to matter – unless there is equity in real estate to support lending, you are not going to see lending occur, which means continued virtual no growth for our economy.
So where does the solution lie? The answer is we must return to an economy where there is equity growth in real estate. Right now, ¼ of all homeowners are underwater in their homes. This statistic was revised from 1/3 based on a change in accounting assumptions – but the reality is that there is virtually no Equity Cushing that homeowners have in their residential homes that can support a second mortgage to finance the start up costs of a new business. The commercial sector is even worse off.
The return of an Equity Cushion in real estate will come from only two outcomes. The foreclosure process is one. The other is modification of mortgages that include a reduction in the principal balance of the loans. Equity in real estate will not return if we modify mortgages that only reduce interest rates and extend mortgage terms to 40 years. This is what HAMP allows and what the banks are pushing. The modification process, as it presently is situated, is in reality a method which hampers our return to and Equity Cushion in real estate and therefore delays the goal of returning to a vibrant economy.
Another obstacle to a return to an Equity Cushion that has evolved is the problems that are occurring nationwide in completing short sales on homes facing foreclosure. The short sale, if approved by the lender, accomplishes the task of transferring the property to a new buyer at fair value, thereby giving the new buyer equity in the real estate and future growth. The problem that has occurred, however, is that lenders are refusing to release the selling homeowner from the deficiency on the first mortgage arising from the short sale. The result of this intransigence by the lenders is that the short sale process is far too slow and a selling borrower would be well advised to refuse to a short sale unless the lender gives the release of the short liability as part of the deal.
The clear solution is that our government must intercede to expedite the return to the creation of an Equity Cushion in real estate so that banks will then loan money based upon valued collateral. The foreclosure process take too long and the current effort to modify mortgages without principal reduction only serve to delay the process longer and thereby extend the time it will take for a true recovery. To correct this, we must shift the modification process to mandate principal reduction of the property to within reasonable estimates of fair market values. The “Cramdown” legislation that was voted down by the Senate last April, which allowed a cramdown of the mortgage in a Chapter 13 bankruptcy of a borrower’s primary residence to the fair market value of the home, would have accomplished this goal. Accomplishment of the goal would have occurred not as much through the actual bankruptcy process but by virtue of giving the homeowner’s the leverage of the “threat of bankruptcy” as a means of bringing the lender to the bargaining table to voluntarily reduce principal. This legislation was advocated by the President during his campaign. Unfortunately, with Health Care and the many other items on the agenda in 2009, the banking lobby pervaded on the issue and the Administration did not push for the passage of the bill when it hit the Senate floor last year. This legislation should be reintroduced and pushed forward. Alternatively, the government needs to adopt a mandatory Modification With Principal Reduction Program.
The gist of the opposition to principal reductions to mortgages as enunciated by the banking industry is that there is a “fear” that people who can afford to pay their mortgages on homes underwater would use this process as a means to reduce their mortgage. This argument is the fiction that needs to be resolved. If you accept that the critical goal is that we need to return to an Equity Cushion in real estate, as a critical component of banks lending money and thereby allowing our economy to grow, then there is no need for this alleged “fear” because the better result would be for all underwater mortgages to be modified.
The Banks, of course, fear this result because they will have to absorb greater losses. The Banks, however, are nearsighted. Eventually, the banks will realize that they cannot make money merely by charging usurious interest rates on credit cards, bank overdraft fees and renewal fees – but that they have to loan money to people and businesses. (Isn’t that what banks are supposed to do?) It may be true that in the end the banks do have to take the loss on the real estate that is underwater. It was, however, their lending practices and greed that drove us to where we now sit. So let them take the loss they deserve. Their stock value may decline, but we know it will return. Once this occurs, we will all, including the banks, be in a position to grow.
Ken Gross is a the Managing Shareholder at Thav, Gross, Steinway and Bennett, P.C. The firm is gaining national notoriety for its Financial Crisis Management strategies. Mr. Gross is host of the Financial Crisis Talk Center which airs at 8:30 AM, Saturdays, on Detroit Sports Talk Radio 1130 AM, www.detroitsportstalkradio.com, in the Metro Detroit market.
Bruce Marks, a community activist from Boston, has long denounced investors in mortgage securities as “predators,” accusing them of exploiting poor people lured into unaffordable home loans. Lately, though, some of those investors have become allies in his battle to avert foreclosures.
As the mortgage crisis drags on, some activists and investors have formed a loose coalition to prod banks into sharply cutting the amounts owed by borrowers whose loans far exceed the depressed values of their homes. Principal reductions are the best incentive for such borrowers to keep making monthly mortgage payments, some activists and investors say.
Big banks, mortgage giants Fannie Mae and Freddie Mac and the Obama administration generally have resisted shrinking what borrowers owe, preferring to reduce interest rates to as little as 2% or extend payments to as long as 40 years. Treasury Department officials have worried that if some borrowers get their principals reduced, even borrowers who aren’t behind will stop paying unless they get the same break.
The strange bedfellows pushing for more principal reductions point to some scary numbers. According to real-estate data firm First American Core Logic Inc., about one-fourth of U.S. households with a mortgage were “under water”—or owed more than their homes were worth—as of Sept. 30.
Andy McMillan
Activist Bruce Marks, above last March, has worked to avert foreclosures. Another activist, below, wore his slogan on his shirt at a mortgage-restructuring event last fall.
Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group LP, estimates 7.1 million of the 7.9 million households now behind on their mortgage payments will lose their homes to foreclosure if nothing is done to change current loan-modification programs. “Principal reduction is the only answer,” she says.
Mr. Marks says mortgage-bond investors like Pacific Investment Management Co., or Pimco, a unit of Allianz SE, are “on the same page we’re on.” That is a significant change of tune by the well-known activist, who is chief executive of a Boston nonprofit group called Neighborhood Assistance Corp. of America. NACA counsels struggling mortgage borrowers.
Last year, Mr. Marks argued that investors were blocking loan modifications. He put a bright-red label that said “predator” over a picture of Pimco co-founder Bill Gross on NACA’s Web site.
Mr. Marks also threatened to send bus-loads of protesters to bond manager Pimco’s headquarters in Newport Beach, Calif. Pimco headed off the protest by inviting Mr. Marks in for a chat with Pimco Chief Executive Mohamed El-Erian and other senior executives. Mr. Marks came away persuaded that banks, not investors, are dragging their feet on loan modifications.
Working With Wall Street
Scott Simon, a Pimco managing director, has recently participated with the activist in Washington meetings about loan-modification snarls. “They help a lot of people,” Mr. Simon says of NACA’s borrower-counseling services.
Other activists also have noted the convergence of their views with those of investors. “We will work with Wall Street” or anyone else who favors “effective” loan modifications that reduce principal balances, says John Taylor, CEO of the National Community Reinvestment Coalition, which includes more than 600 community groups.
Investors in mortgage securities already have had to mark down their holdings to the distressed levels prevailing in the market. Reducing principal on the loans backing those securities probably wouldn’t require any further write-downs to their holdings. Many investors favor reducing principal in a way that would allow the loans to be refinanced into smaller mortgages insured by the Federal Housing Administration. Refinancing would trigger cash payments to holders of the securities as old mortgages are paid off at a discount.
Banks’ Conundrum
It is more complicated for financial institutions. U.S. banks, thrifts and credit unions held about $952 billion of home equity and other junior-lien mortgages as of Sept. 30, according to Federal Reserve data. If the principal owed on first mortgages is reduced, the institutions probably would have to write down or write off many of the second-lien loans, potentially sapping their capital.
Even so, some banks seem to be warming to the idea of principal reductions.
“Everybody’s realizing there is a place for principal reductions to a much greater extent than before,” says Jack Schakett, a senior Bank of America Corp. executive involved in loan workouts.
At Wells Fargo & Co., though, Mike Heid, co-president of the home-mortgage unit, says principal reductions raise a “fairness issue.” If you are paying your mortgage on time and see your delinquent neighbor rewarded with a smaller loan balance, “why wouldn’t you be entitled to one, too?” he asks.
Treasury officials have said they are considering how to deal with deeply underwater borrowers. “Negative equity is a big challenge,” Seth Wheeler, a Treasury official, told investors at a conference last week.
Investors aren’t united on the best way to modify loans. Many investors like the idea of refinancing borrowers into smaller loans. But BlackRock Inc., a major mortgage-bond investor, is pushing the controversial idea of letting bankruptcy judges restructure shaky mortgages. The company wants to require that judges wipe out credit-card debt and second liens, mostly held by banks, before touching the first liens often held by investors.
‘Give a Little’
Micah Green, a partner at law firm Patton Boggs LLP who represents some large investors in mortgages, says BlackRock`s idea is good in principle but may not be politically feasible given bank lobbying. Banks, which have been offered Treasury incentives for easing the terms on second liens, should work with investors to help put consumers into “new, properly sized” loans, Mr. Green says. “Everybody’s going to have to give a little for it to work,” he says.
Ms. Goodman says regulators may need to allow banks to recognize losses on second-lien loans over an extended period of time to avert a disastrous immediate hit to their capital level
BAD NEWS – THE LEGISLATION WAS DEFEATED IN THE SENATE … IT IS BACK TO THE DRAWING BOARD WHEN IT COMES TO PRINCIPAL REDUCTION RELIEF FOR HOMEOWNERS WHO ARE UNDERWATER ON THEIR HOMES.
YOU CAN STILL HELP – PLEASE SEND YOUR CONGRESSMEN AND SENATORS THE FOLLOWING EMAILS –
Please email your friends the link to this Website and encourage them to do the same. If they are outside the State of Michigan, they can find their U.S. Senators by going to the following link:
For Your Congressman, you need to look up the address based upon your Zip Code and the 4-digit Extension. You can get both of these at the following link:
Then paste the following messages into separate emails to each person:
EMAIL #1
We are very frustrated. We are underwater on our homes. Unemployment is rampant in the Michigan area and many, many people, including our friends and acquaintances are counting on receiving some form of relief. The Helping Families Save Their Homes in Bankruptcy Act of 2009 which includeD the cram down provision in bankruptcy was critically important. Please take such action to reintroduce and pass this important legislation. Chrysler’s Bankruptcy (and soon GM’s) is and will continue to cause Michigan to suffer a disproportionate hardship in the housing market for many, many years. This legislation would be a positive step in getting the mortgage lenders to negotiate outside of Bankruptcy due to the threat of filing. At present, everything done to date does NOTHING to truly push the lender to deal with us fairly. We need your help and ask that you garner support among your colleagues to reintroduce this legislation and get meaningful relief passed – with the cram down intact. Thank you.
I respectfully wish to remind you of a campaign pledge and promise repeatedly made – to the millions of American’s who are underwater in their homes ..and have suffered elimination or severe decline in incomes. The current word is that the Democratic leadership is going to abandon the cram down legislation when Spring term returns. In states such as Michigan, the 80-105% program means nothing, because property values have declined too dramatically – leaving home values too low in ratio to mortgages to qualify.
You are a pragmatic individual – so you understand that the lenders will not negotiate in good faith to reduce principal balances unless there is a leverage point (i.e. a stick). Thus far, virtually no lender has agreed to reduce principal on any mortgage.
I’m an attorney in Metro Detroit. In November, we began a radio show, “The Financial Crisis Talk Center” on Saturday mornings (www.financialcrisistalkcenter.com). The show allows callers to call in and vent; we also include guests and our suggestions to tell people how to whether this storm. For the past 4 months, I have been telling listeners to wait – that the Homeowners Relief Act, which has your support, will pass – and then, and only then, will we be in a position to negotiate meaningful mortgage modifications outside (and if necessary, inside) the bankruptcy process.
What am I to tell them now? Yesterday, I informed them how the political process works. When it wants something – it talks about it and the media then dives into the issue for more buzz. When it wants something to go away – it stops talking about it – so the media has nothing to ask. This is precisely what you are doing with two critical issues that face Michigan and the Midwest. The first, is the Bankruptcy legislation – here you have stopped talking about it – which means you’re abandoning it – and now it is going away.
The second – on the auto front. Before you acknowledged that bankruptcy would decimate the country because – (1) people will not buy cars from a company in bankruptcy because of (a) warranty concerns, and (b) recognition that resale value will be nil; and (2) that 3 million jobs downline are at stake.
Now – the “floated” notion of a 361 Bankruptcy for GM is being talked about – and the solution to put all at ease is that the Government will back the car warranties.
What is silent – and therefore not challenged by the media – is that no one will buy a car due to the resale issue; as well as the 3 million lost jobs.
Bottom line – good people are suffering real hardship in the Midwest. Many of these people broke rank and voted for you – and believe in you. I respectfully submit, however, that you need to follow through on the support y you pledged to them – and keep in mind, from here, the support of the banks, insurance companies and credit card issuers is looking a lot like the trickle down … that doesn’t trickle.
Of course, you are welcome to call in and address these issues as a guest on our show, next Saturday at 9 AM. Our US Congressmen (Thad McCotter and Gary Peters) appear as guests on a regular basis.
Most important – please “talk about the Bankruptcy reform” and make it happen. I recognize the monumental tasks you face – but I, like most of Michigan, believe in you and believe you can make it happen if you remember the people.
PLEASE WRITE PRESIDENT OBAMA AND REQUEST THAT HE RENEW HIS PLEDGE AND SUPPORT FOR THE CRAM DOWN LEGISLATION THAT WILL HELP HOMEOWNERS UNDERWATER IN THEIR HOMES …. YOU CAN REACH HIM AT:
MORTGAGE MODIFICATION, EXECUTIVE COMPENSATION LIKELY TO BE DROPPED FROM SENATE AGENDA
Senate Democratic leaders appear likely to drop several high-profile legislative issues from their agenda, including efforts to tax bonuses paid to corporate executives and giving bankruptcy judges the ability reduce mortgage payments on the primary mortgages of chapter 13 debtors, according to a CongressDaily report today. Senate aides said that the legislative agenda this year might increasingly focus on revamping financial regulations — which could reach the Senate floor in late summer — and on health care reform. The chamber will reconvene April 20 by taking up a fraud-enforcement bill that authorizes increasing Justice Department funding and authority to crack down on mortgage fraud and other crimes related to federal assistance programs. Those efforts come as more high-profile legislation sits on the back burner in the face of opposition from Republicans and moderate Democrats. Senate Majority Leader Harry Reid (D-Nev.) and Senate Finance Chairman Max Baucus (D-Mont.) have said that they have not dropped efforts to craft a bill slapping heavy taxes on bonuses for firms such as American International Group that received bailout money, but Democrats have no immediate plans to move an AIG bill in the face of White House concerns and strong opposition from the banking industry. Also faltering is mortgage cramdown legislation that lobbyists and some senators say lacks the votes to pass. Reid has said previously that he is prepared to drop the cramdown language provision from a broader housing bill if the votes are not there.
As of now, the bill has passed the House, but is being delayed in the Senate. Timing as of now looks like it will come up after the Spring Recess in mid April.
As of 3-18-2009 (No Change as of March 31, 2009)
Senate Democrat Says 60 Votes Not Likely on Cramdown Provision
A key Senate Democrat said yesterday that it was unlikely the chamber would consider a bill to allow bankruptcy judges to modify terms of a primary mortgage until after the spring recess, CongressDaily reported today. Sen. Evan Bayh (D-Ind.) said there is not enough support to prevent a filibuster of the bill that would allow mortgages to be restructured through a chapter 13 filing. “I think this is going to be probably not taken up until after the upcoming recess. But right now I think there is going be some difficulty in getting to the 60 votes,” said Bayh. Senate Majority Leader Reid said that timeframe was about right. “I would expect very soon after we get back after April recess that we’ll be working on what they [Banking Committee] report out,” he said. He is working with Judiciary ranking member Arlen Specter to narrow the eligibility for borrowers who could cram down the principal of their mortgages. Senate staffers met yesterday afternoon in an effort to work on a compromise. The House-passed version allows bankruptcy judges to consider whether homeowners were offered a “qualified” loan workout similar to a plan the Obama administration has announced to help lower the interest rate for up to 9 million families. But the House measure did not mandate that the borrower had to take such an offer if he were eligible, in lieu of cramdown – a provision advocated by the lending industry. Senate moderates are pushing for such a requirement. Bayh said he is looking to impose a sunset period for the cramdown provisions
Economic relief Strenghten bankruptcy laws to protect mortgage consumers
KEN GROSS • March 9, 2009
In times past, Americans were told to tighten our belts and streamline expenses. This economic crisis, however, is much different. e are in a war for survival. But if this is war — who is the enemy? Advertisement
The banks and credit card issuers are the enemy. How can banks be allowed to charge people 32% interest? How can banks have the right to bump interest rates up to 32% when you are only one day late on a payment? In the current crisis, the banks have made matters even worse. Thousands of people who have never been late on a credit card payment have seen their credit ratings ruined in the last four months.
Here’s what has happened. Your credit score is a function of your payment history, the amount of debt that you have and your available credit. When the credit crunch occurred, banks slashed the available credit lines of thousands of their customers, reducing their customers’ credit limits down to the outstanding balance on the accounts.
This action ruins the individual’s credit score because the cardholder’s ratio of debt to available credit immediately sinks to zero. Is there any doubt that the banks are the enemy? Many of these banks have taken billions of federal TARP money. Rather than using this money to ease the credit market, they have the audacity to use these funds to pay billions in bonuses to their employees.
So what is the solution?
The banks and mortgage lenders are not going to help unless it is in their financial interest. Our government, which has failed us miserably over the last decade, is finally waking up. The proposed Helping Families Save Their Homes in Bankruptcy Act of 2009 is a positive step. This legislation, which has the Obama administration’s backing, will provide two opportunities to obtain relief.
The legislation changes Chapter 13 bankruptcy law so that a person who seeks relief will have the ability to reduce the outstanding balance of their home mortgage to the fair market value of the property. More importantly, and what few people realize, is that this legislation will create an opportunity to negotiate with the lender based upon the threat of filing for bankruptcy relief without having to actually file. Every homeowner who is in a negative equity position will have a new channel to negotiate with the mortgage lender. (2 of 2)
Presently, loan modification negotiations are very frustrating and one-sided. This law will improve the homeowner’s bargaining position. The bank will no longer be in a position to dictate the negotiations because the bank will not want to face the prospect of adverse consequences when the bankruptcy judge determines the reduced amount and terms of the renegotiated mortgage. Advertisement
In the year 2025, the textbooks will speak of two economic crises that our nation faced. The first will be the Economic Crisis of the 2000 Decade. The second will be the Great Depression. Now is the time is for each of us to marshal our resources to pursue a strategy so that when greener pastures arrive, we are not saddled with debt from the past era.
Ken Gross is a managing shareholder at Thav, Gross, Steinway and Bennett, P.C., a Metro Detroit law firm specializing in financial crisis management strategy development. Gross is also host of “Financial Crisis Talk Center,” which airs at 9 a.m. Saturdays on WDFN Radio 1130 AM. Write to him at kengross@thavgross.com
