POSSIBLE RELIEF FOR CHAPTER 13 BANKRUPTCY DEBTORS

UNDER THE NATIONAL MORTGAGE SETTLEMENT

[If the Servicer is a Settlement Participant and the loan is not Fannie/Freddie owned]

Debtor’s Circumstances

Issue

Result

The home is already foreclosed.

Was the foreclosure sale held during the period of 1-1-08 to 12-31-11?

If yes, borrower may be entitled to $1,500-2,000

If no, no relief is available

 

 

 

 

 

 

 

 

 

 

Owner-occupied property and debtor  wishes to keep it (with minor exceptions).

 

 

Does dual track protection (both loan modification application and foreclosure process continue) apply?

If < 120 days delinquent – yes, protection

If => 120 days delinquent – no protection

Under the general settlement, no individual borrower is “entitled” to a modification or principal write-down.  Servicers receive credits toward the value of “Consumer Relief” they have committed to provide over 3-1/2 years.  Also, Side Agreements with California and Florida require additional or overlapping “Consumer Relief” credits to be utilized in their states.

Motivations for servicers are difficult to predict.  However, certain modifications receive higher credits, so servicers may be more likely to offer those types of modifications.

“Consumer relief” granted between March 1, 2012, and February 28, 2013, will receive a 25% bonus credit, so motivation exists for servicers to move quickly this first year.

Principal write-downs for liens with higher LTV ratios generally receive less credit – thus where the property value is higher, the LTV ratio is more likely to be lower and within the higher credit percentage.  A higher property value is also more likely to cause a requested modification to fail the NPV test.  The borrower should consider contesting an unreasonably high property valuation and should provide support for a lower value.

Is the first mortgage servicer Bank of America/ Countrywide and is the first mortgage underwater?

If yes, Exhibit I applies, and the debtor may be entitled to a modification under the  Settlement Loan Modification Program.”  It includes the possibility of principal write-down, interest reduction, and forbearance of principal.  However, the NPV test must be positive with regard to the proposed modification.

Is the first mortgage servicer Ally/GMAC/ Residential Capital?

If yes, Exhibit I applies, and the borrower may be entitled to one of the following:

1) Rate Reduction Refinancing Program (RRRP) requires the borrower to be current on monthly payments.  Typically, refinancing programs have disqualified bankruptcy debtors.  This description does not say that.  Ally will try to force the borrower into this option.  Make sure to state that the payments are not sustainable for the borrower if that is true, in which case the borrower will be considered for the other options..

2) Underwater with Credit Degradation, requires the borrower to be current on    monthly payments, to have suffered FICO drop since origination, and loan must be underwater.  Will reduce principal.

3) Payment Shock Relief requires an underwater loan originated prior to 1-1-09, with interest-only or anticipated interest re-set that will be problematic. Will convert to fully amortizing fixed rate loan, maybe with principal reduction.

 4) Principal Reduction for Delinquent Borrowers, requires underwater loan and 30+- day delinquent (or imminent default) borrower. Will reduce principal, adjust interest – convert to fixed rate, reduce monthly payments, based on HAMP-type underwriting.

Is the second mortgage servicer Ally/GMAC/ Residential Capital and is the second mortgage underwater?

If yes, and if the CLTV > 115% (including both the first mortgage and juniors) the borrower may be entitled to modify the second mortgage to reduce the principal to <= 115%, and reduce the monthly loan payments based on HAMP-2MP methodology.

Is the borrower eligible for refinancing assistance under the general settlement?

If the borrower is in a bankruptcy or has been in a bankruptcy within the last 24 months, the borrower is disqualified from receiving refinancing assistance under the general settlement terms.

© Norma Hammes 2012