FANNIE MAE and FREDDIE MAC Announce New Mortgage Modification Program for 2017 as HAMP Expires

          Fannie Mae and Freddie Mac in January, 2017 will begin a program to aid homeowners who are behind on their mortgage payments, the companies announced December 14, 2016.
The Flex Modification loan program replaces a the HAMP foreclosure-prevention policy that's set to expire at the end of this year. HAMP was enacted to help distressed homeowner due to the mortgage crisis that started in 2007-2008. Loan servicers have until October, 2017 to start the program.
The new loan modification guidelines are expected to increase the population of homeowners eligible for lower monthly payments, short sales and other alternatives to foreclosure, according to Fannie Mae.
        "We believe the program is flexible to adjust for regional and even local differences in housing," said Bill Cleary, vice president of Fannie Mae's single-family servicing policy. "It provides the greatest amount of assistance to those areas in need." HAMP, was adopted in 2008 as millions of homeowners fell behind on their payments. Over time, more than 1 million trial mortgage modifications were started . Many ended in new defaults, but eight years after the collapse, nearly 360,000 borrowers are still in the program and continue to make payments on their modified loans, according to the Federal Housing Finance Agency. The statistics show the higher percentage of successful modification involved the ones that decreased monthly mortgage payments the most.

        The goal, with HAMP and its replacement, is to prevent foreclosures and preserve homeownership and limit losses to taxpayers, which stand behind the mortgages guaranteed by Fannie and Freddie. In  general the costs to modify a loan are less than to foreclose one and take possession of  delinquent borrowers homes.

       "By avoiding the high costs associated with foreclosures, the Flex Modification will result in significant savings for the Enterprises and taxpayers," FHFA Deputy Director Sandra Thompson said in a written statement. "And it will provide borrowers who face permanent hardships with a sustainable modification." This is good news for both borrowners, lenders and taxpayers that meaningful mortgage modifications will still be an option after Decemeber 31, 2016.

United States Supreme Court Decision Not to Allow Strip Down of Wholly Unsecured Second Mortgages in Chapter 7 Provides No Relief to Homeowners and No Practical Benefit to Secured Lenders

      The United States Supreme Court in the consolidated cases "Bank of Amer. v. Toledo-Cardona," and "Bank of Amer. v. Caulkett" decided on June 1, 2015 that wholly unsecured mortgages cannot be stripped down essentially turning them into discharged unsecured debt. This decision leaves unchanged the existing law that partially unsecured second mortgages cannot be stripped down. This decision reversed the lower court's decisions in these cases upheld by the Eleventh Circuit which gave consumer bankruptcy attorneys and their clients hope throughout the country that real relief could be provided to homeowners in situations similar to the debtors in these cases. The court relied heavily on the previous case dealing with this issue “Dewsnup v. Tims” and like many court decisions not the practical and societal effect on debtors. The reality is that after filing a Chapter 7 with two mortgages with the first mortgage debt exceeding the value of the property the second mortgage holder will not likely recover any funds from the debtor. The debtor homeowner will either surrender their property in the Chapter 7 or wait till they are forced to give up their property post-discharge after the bank forecloses. In many cases these second mortgage debts have been charged off by lender even before the debtors file bankruptcy. One would have hoped the Supreme Court had the foresight to recognize the practical effects of their decision. The result is that more homeowners will lose their homes with no practical benefit to the overwhelming majority of underwater second mortgage holders. Since these mortgage holders’ debts are discharged they will not receive any funds from a foreclosure. Also this decision hurts first mortgage holders as well because even though their debt may exceed the value of the debtors' homes the large majority of these debtors want to stay in their homes and will continue to pay down these mortgages and hold onto their homes for the long run. Also these homeowners would be more inclined to seek acceptable mortgage modifications with first mortgage holders if the second mortgages could be stripped. This would mean less foreclosures and less bank owned properties. Therefore, this is not only a loss for debtors, but for banks as well and the plaintiff lender here may ultimately regret the continuing negative impact this decision will have on the housing market.

Connecticut Homeowners Don't Be Scammed By Bogus Mortgage Modification Companies!

         I have blogged before about the victimization of clients who have retained me after being ripped off by out state mortgage companies. I believe it is a good time to revisit this topic. These companies collect high fees like $5,000 which they sometimes don't even fully explain to their victims that these are fees to them not  funds to be applied to the mortgage debt due, In almost all cases they are unlicensed and operating illegally in Connecticut. More importantly they fail to advise their victims who are defendants in a foreclosure action of the existence of the Superior Court's foreclosure mediation program. This foreclosure mediation program stays the subject foreclosure action to provide the homeowner time to negotiate on their own or with the help of an attorney a mortgage modification with the mortgage lender. This means the foreclosure process does not go forward during mediation and no foreclosure signs or auctions for the homeowner to worry about. The victims of scam artist mortgage modification companies are denied this opportunity since these companies advise their victims not to participate in foreclosure mediation or simply are ignorant it exists. Unfortunately homeowners rely on them and many times lose their homes due to this fact since these companies are really only interested in the fee paid them and not obtaining a mortgage modification for their victims. If you are the victim of a mortgage modification company and still in a foreclosure action it may not be too late to participate in Connecticut's foreclosure mediation  program. You should contact a Connecticut attorney well versed in foreclosure defense and the foreclosure mediation program to file a motion for re -inclusion in this program. With the right argument made on your behalf by your attorney these motions are looked on favorably by Connecticut foreclosure judges and in most cases will be granted. If you are a victim of these bogus mortgage modification companies don't let your home slip a way if there is a chance to save it.

Chapter 13 Bankruptcy or Mortgage Modification What is My Best Option?

            In a perfect world every delinquent homeowner borrower would receive a timely mortgage modification from their lender which neatly fits their current financial situation to save their home. Unfortunately many homeowners who have applied for mortgage modifications have found out that the process moves incredibly slowly especially with the major lenders with the most delinquent loans. Furthermore, when and if a mortgage modification is finally offered it does not offer the relief needed for them to keep their home for the long term. One of the problems is the size of the mortgage arrearage that has accrued during the drawn out mortgage modification process. With government programs like HAMP that  generally do not provide mortgage principal balance reduction the size of these arrearages can offset the effect of  the interest rate deduction and extension of maturity date on the new monthly mortgage payment being offered to homeowners. The problem is when the mortgage arrearage is added to the current principal balance this increase in the principal balance negates the potential reduction offered by the lowered interest rate and extended maturity date. The net result is the borrower being offered a new loan with a principal balance well in excess of the current value of their home with a slightly reduced new mortgage payment. This type of modified loan does not offer any real true benefit to a delinquent homeowner borrower. Therefore, before starting the mortgage modification process with a lender a borrower needs to find out the potential modification programs available for their loan and approval timelines if at all possible. The borrower than should next consult with a bankruptcy attorney to  determine if a Chapter 13 filing is a better option for them than pursuing what may turn out to be a dead end modification.

          The best candidate for a Chapter 13 is a debtor who has suffered a temporary income setback that caused their default, but has now returned to work and said default was not directly attributable to the terms of loan itself. That is it was not an 80/20 high interest loan combination, but instead a loan with a reasonable fixed rate of interest with a monthly payment that now that the borrower is working again is a reasonable amount to pay. The borrower must also have the current ability to pay the extra monthly amount required into a Chapter 13 plan to at least bring the mortgage arrearage current upon completion of the plan. This is an extremely important point. If a borrower does not have sufficient income to fund a plan than a mortgage modification with the necessary lowering of the mortgage payment, if attainable, is the only real option they can pursue to save their home.  However, a borrower who has the current ability to fund a Chapter 13 plan needs to make an important decision. Do they risk applying for a mortgage modification only to be rejected or offered an unacceptable modification and forgo their opportunity to file a Chapter 13 later due to the increase in the mortgage arrearage making it not feasible for them to fund a Chapter 13 plan.  Realistically I have not seen delinquent homeowner borrowers demonstrate the ability to set aside the necessary monthly mortgage payments while applying for a modification to offset the increase in the mortgage arrearage to keep their ability to file Chapter 13 viable. This decision of Chapter 13 versus mortgage modification needs to be made with the advice of bankruptcy counsel who can review the debtor's financials and provide them with a realistic opinion as to the feasibility and success of filing a Chapter 13. The advantage of a Chapter 13 bankruptcy versus a mortgage modification is that the only real party in interest you have to satisfy is the Chapter 13 trustee and the debtor is not subject to the whims of the mortgage lender. If the debtor has sufficient income to support their plan as determined by debtor's counsel and provided to the Chapter 13 trustee the plan will be confirmed. Additional benefits of a Chapter 13 include the possibility of discharging some or all of a debtor's unsecured debt dependent on their assets and income. If a plan is going to include the discharge of unsecured debt wholly unsecured second mortgages can be deemed unsecured by the plan as well judgment liens which impair a debtor's homestead exemption. I have written this blog article based on my experience with debtors over the past several years since the mortgage crisis first started who after one or more years of unsuccessful attempts to obtain a mortgage modification contacted me regarding Chapter 13 as an option only to be told it was no longer feasible due to the amount of their mortgage arrearage. It is my hope that any borrower who is not too delinquent and is weighing their options will consult with a bankruptcy attorney first before blindly applying for a mortgage modification so they can make an informed decision what option best fits their situation.

Tax Exemption for Mortgage Debt Relief is Extended for 2017

   2017 Update-

"On February 9, 2018 the President signed into law a one-year extension of the exclusion. The retroactive extension was buried in the 652 page Bipartisan Budget Act of 2018, Public Law No. 115-123 § 40201....The Act revives the exclusion from taxable income for qualifying principal residence indebtedness discharged before January 1, 2018 and to written discharge agreements executed before January 1, 2018. This will enable individual taxpayers to claim the exclusion for returns they file for their 2017 calendar year income. Given that Congress has rejected prior attempts to make the exclusion permanent, the likelihood of future extensions is doubtful." see full article @ https://library.nclc.org/last-minute-relief-foreclosed-and-struggling-homeowners-now-filing-their-taxes 

  Update for 2014-As of January 1, 2014 the tax relief act was not extended. There is a bill sponsored by two CT congressman to extend pending, but with our gridlocked Congress no guarantee that any extension is forthcoming. There is still a way for many sellers with pending short sales or in need of short sales to avoid negative tax consequences in 2014. If the seller is insolvent at time of sale the forgiven debt will not be considered as income if their liabilities exceed their assets in an amount equal to or in excess of the forgiven amount. IRS Publication 4681 provides examples of the application of this exception and a worksheet to calculate personal assets and liabilities to use for individuals tax returns. Although unusual some bankrupt homeowners seek to short sell after receiving a bankruptcy discharge. In these situations the mortgage debt  discharged by the bankruptcy does not constitute taxable income and there is no debt cancelled by the bank's acceptance of a short sale just the release of the mortgage securing the home.

      In 2007 to avoid hitting distressed homeowners with the double whammy of foreclosure and tax debt from uncollected foreclosure deficiencies The Mortgage Forgiveness Debt Relief Act was enacted. This Act is set to expire on December 31, 2012 and based on the current political climate in Congress things do not look good for the extension of this Act. This Act applies not only to foreclosure deficiencies forgiven, but to short sales, deeds in lieu of foreclosure and mortgage modifications with principal forgiveness.  It has allowed underwater financially strapped homeowners to take advantage of government and lender mortgage relief efforts without the consequence of receiving a 1099 with phantom income and related high tax liability. Short sales have become an attractive option for many homeowners and lenders since the homeowner is relieved of the underwater property and mortgage debt and the lender receives an acceptable payment from the sale without having to incur the costs and delays involved with the foreclosure, maintenance and sale of the property. Short sales have also been fueled by the National Mortgage Settlement stemming from the litigation brought by the State Attorney Generals against mortgage lenders. This Settlement has also spawned mortgage modifications with actual principal forgiveness which I have personally seen increase this year. Before this settlement act my clients that received debt forgiveness were in contested foreclosure cases that I had filed special defenses and counterclaims. The impact of the loss of the tax forgiveness in 2012 will take the teeth out of this settlement leaving distressed homeowners without the relief it was intended to provide them. They will not benefit from a short sale or mortgage modification with forgiven debt if they are faced with a large tax liability.  Unfortunately these tax liabilities will be large since many of these mortgages have been in default for years combined with properties that are significantly underwater so phantom income in excess of $100,000.00 or more will not be an unusual consequence. Also since the IRS is provided with such extraordinary collection powers and income tax debt is treated as a priority debt in bankruptcy there is no debt more frightening to any U.S. citizen than delinquent income tax debt.

What the loss of this tax relief will mean is that more distressed homeowners who cannot afford their underwater homes will simply walk away from them. Homeowners who would have originally viewed a mortgage modification with principal forgiveness as a godsend will not accept these offers due to the accompanying tax burden. These facts will in turn lead to more foreclosures and more borrowers may have to file bankruptcy to discharge foreclosure deficiencies that could have been avoided with the Act in place with a short sale or mortgage modification. Another sad consequence is that for distressed homeowners who really want to hold onto there homes they may be forced to accept a mortgage modification with no debt forgiveness despite being eligible for it just to avoid the negative tax consequences. This would negate the intended benefit of the attorney general’s settlement act and provide an unintended benefit to lenders. There is little more than a month for Congress to act and there are even larger issues being debated in Washington that overshadow the need to extend this mortgage debt relief act. One can only hope that as the year closes the vital need for the extension of this act is recognized for the sake of not only distressed homeowners, but for the entire housing market since the negative effects of increased foreclosures will continue to drag the U.S. economy down into 2013 and beyond.
UPDATE: THIS TAX EXEMPTION WAS EXTENDED TILL JANUARY 1, 2015 WHICH IS PROJECTED TO BE THE LAST EXTENSION DUE TO POLITICAL REASONS.

Why Go Out of State When The Mortgage Modification Expertise You Need Is Here In Connecticut?

    It disappoints me to still hear from prospective foreclosure and mortgage modification clients who have paid out of state mortgage modification companies or so called "national law firms" that have failed to obtain mortgage modifications for them. These companies are usually not properly licensed with the Connecticut Department of Banking and these law firms are not authorized to practice law in this state and woefully uninformed as to foreclosure law in Connecticut. Most are also unaware of the existence and benefit of the court's foreclosure mediation program. I have to admit I was initially skeptical about the foreclosure mediation program; however I now see it as a very effective tool to negotiate with lenders and their foreclosure counsel for acceptable resolutions of my clients' foreclosure cases including mortgage modifications, short sales and deeds in lieu of foreclosure. These companies and law firms blanket the internet with their advertisements and promises of great results for homeowners desperately seeking to save their homes. They take advantage of these homeowners' desperation with promises of unrealistic modifications to obtain payment of their fees before even seeing all of their clients' financials. In these situations the phrase " If it sounds too good to be true than it is not true" comes to mind when it comes to these advertisements and promises. These modification companies and national law firms are ripping people off and using their ill gotten profits to lure in more victims with their misleading and false advertising tactics. If you need help in Connecticut with a foreclosure or a mortgage modification contact an experienced Connecticut attorney to help you. A Connecticut attorney can represent you throughout the whole process including filing an appearance for you in a foreclosure action or file bankruptcy as needed which these out of state companies and law firms cannot do. Don't waste your money with any of these out of state charlatans and compound your problems by having to contact our Attorney General and Department of Banking in an attempt to get back the fees you wasted by hiring them.