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nacba.jpgThe Federal Housing Finance Agency (FHFA) that recently approved of HAMP principal reduction for Freddie and Fannie loans has rejected a proposal by the National Association of Consumer Bankruptcy Attorneys (NACBA). The Principal Paydown Plan is designed to amend the bankruptcy code to allow for payments during a Chapter 13 to go towards principal to substantially reduce the balance owed on an underwater home.

According to an email update by NACBA, many members of Congress have endorsed the Principal Payback Plan. However, despite FHFA Director DeMarco’s initial positive comments about the Principal Paydown Plan, which he said struck him as “being responsible,” and a “credible way to address the crisis while recognizing various interests mortgaged properties,” he recently wrote to Congress informing them that the agency would not be implementing the Principal Paydown Plan. FHFA concluded that few GSE borrowers have filed for chapter 13 bankruptcy and are underwater and therefore the proposal would not be all that helpful. They did, however, commit to doing what they can to help eligible borrowers in bankruptcy get the HAMP modifications they qualify for.

Personally, I see a lot of homeowners that would qualify for the Principal Paydown Plan. Moreover, until something is done about the conflict of interest of servicers, we are not going to see any widespread adoption of principal reduction for Fannie and Freddie loans.

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The Home Affordable Modification Program (HAMP) is being extended and expanded to reach more borrowers- will it be enough to help or an example of “too little too late”?

On January 27, 2012, the Treasury department announced the revisions.

First, to encourage principal reduction, the Treasury is tripling incentives and paying 18 to 63 cents on the dollar depending upon the change in the loan-to-value ratio. In the past, the Federal Housing Finance Agency (FHFA) prohibited Freddie and Fannie from using HAMP to reduce principal. Treasury now allows the incentives for Freddie and Fannie if they allow servicers to forgive principal in a HAMP modification. So if your servicer previously denied your HAMP modification, check to see if your loans are owned by Freddie or Fannie because the rules may be different now. Here’s how to do that.

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Nation Mortgage News reports today that Ocwen is on the verge of closing on two large MSR purchases: a $15 billion package of nonprime product from JPMorgan Chase, and a $26 billion deal from Saxon Mortgage.

Both could close this month. The $300 billion figure, the company says, excludes the JPM and Saxon transactions. Investment banking officials told National Mortgage News that Ocwen and JPM are discussing additional purchases. Once these two transactions are completed Ocwen will control roughly $140 billion of MSRs, most of it tied to nonprime loans.

The relevance is that we and other attorneys see Ocwen doing principal reductions. Sometimes outright and sometimes in an equity share participation arrangement. Some may only appear to be a principal reduction, but are actually a balloon. We also have been able to have a rapport with Ocwen unlike some other big players.

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price v value.jpgQuotation of the Day:

“The fundamental issue is that law schools are producing people who are not capable of being counselors. They are lawyers in the sense that they have law degrees, but they aren’t ready to be a provider of services.” Jeffrey W. Carr, General Counsel.

At my Tampa, Florida law firm we pride ourselves in our abilities to counsel clients as to their options and help make decisions that may impact the rest of their lives. We don’t take that responsibility lightly. We don’t just file bankruptcy for everyone who contacts us. It is not one size fits all. We don’t mandate that our bankruptcy clients file according to our schedule when simple timing and planning achieves a much better result. We don’t suggest every client defend their foreclosure or maintain a scorched earth policy. We are able to advise our clients regarding both bankruptcy and foreclosure or civil defense. I have 20 years legal experience in areas of bankruptcy and civil litigation (including foreclosure defense).

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If you are like most Florida consumers overloaded with debt, by not considering bankruptcy, you are continuing to just throw money away on debt servicing. Once you get behind, it can be nearly impossible to catch up especially now with the costs of living rising higher than wage increases. You have options rather than see your money continue to go down the drain: speak with a bankruptcy attorney. Quit delaying. Make a decision now. Bankruptcy may or may not be the answer. But you owe it to your family and yourself to find out if it is.

debt whirlpool.jpgNationwide bankruptcies by consumers declined approximately 10% last year. Is this a sign the economy is improving? In part perhaps. But mostly, it may be from indecision, and the inability to pay up to $2,000 to file bankruptcy. The debt is still there and getting bigger in most cases.

The general need for bankruptcy is still present, but the financial ability of clients to pay the fees has decreased. The availability for credit is diminished. In the past, as long as you were breathing, you were able to secure a car loan and probably even a home loan. Not anymore. Costs of food and other essentials have skyrocketed leaving less disposable income. The availability of funds to pay one-time fees for a bankruptcy attorney or other unexpected expenses is non-existent for some clients.

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student loan debt hat.jpgTonight at 10:00 p.m. the lead story on Channel 13 inTampa is about the National Association of Consumer Bankruptcy Attorneys’ survey that came out today warning of an emerging student loan debt bomb. News Reporter Jeremy Campbell interviewed me about this study and the future impact of student loan debt.

It is very difficult to discharge a student loan in bankruptcy. A debtor has to show an undue hardship that will likely persist for the majority of the repayment period (which runs from 10 to 25 years). They have to show they have minimized their expenses and maximized their income. They also have to prove they have made a good faith effort to repay. Partial discharges of debt are possible and often a favored result for both parties.

The NACBA study shows that four out of five bankruptcy attorneys say that potential clients with student loan debt have increased significantly or somewhat over the last three-four years. Approximately 95 percent determine that few student loan debtors have any chance of obtaining a discharge as a result of an undue hardship.

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short-sale seesaw.jpgBloomberg today reports that banks are offering as much as $35,000 to delinquent homeowners to sell their home in a short sale. In doing so, the banks avoid the costly foreclosure process especially when their loan documents are questionable and perhaps fraudulently prepared. I imagine we will be seeing a few of these in Florida, a judicial foreclosure state with particularly well trained and knowledgeable foreclosure defense attorneys.

JP Morgan Chase reportedly is sending out letters to borrowers offering up to $35,000. They are also offering deficiency waivers for the balance.

So open the mail – and ask your lender what move out incentives they are offering for a short sale. Perhaps you have more negotiation strength than you think. But don’t let the mortgage company get a default against you – it will both weaken your position and will allow the foreclosure to proceed against you at a faster pace eliminating your short sale opportunities.

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hurdle2.jpgDue to the particularly bad housing market in Florida, more of our bankruptcy debtors are finding themselves exceeding the debt caps in a Chapter 13 when they have severely underwater homes. When this happens, a debtor becomes ineligible for Chapter 13 relief and is required to file a more expensive and cumbersome Chapter 11 in order to keep their home. Thus, those clients who most need the relief of a Chapter 13 reorganization plan, including stripping their second mortgage and having up to 60 months to catch up on their first mortgage, are denied the relief because they exceed the amount of debt allowed in a Chapter 13. Presently, the maximum amount of secured debt allowed is $1,081,400 and $360,475 for unsecured debt. It is the unsecured debt cap that becomes a problem with large underwater second mortgages, undersecured first mortgages, combined with credit card or medical debt.

This hurdle was likely not even considered by Congress when it established the debt caps in the first place. With the enactment of the Bankruptcy Code in 1978, Chapter 13s became much more widely used as sole proprietors became eligible for the first time. Prior to the 1978 revisions only wage earners qualified. While opening up Chapter 13 relief to any with regular income (including business owners and social security recipients), Congress saw the potential for abuse and established debt caps so that sole proprietors of large businesses could not evade the more stringent and creditor-friendly requirements of a Chapter 11.

So what was intended as an expansion of the scope of Chapter 13 eligibility has inadvertently turned out to be a hindrance. The courts and trustees have taken different views of eligibility, and until the U.S. Supreme Court or Congress weighs in, uncertainty will rule. Some courts consider it jurisdictional, some consider it discretionary, and the time periods for determining the total debt varies from when the case is filed to after the creditors bar date to see what debt remains after creditors file their proofs of claim and any objections are ruled upon.

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conflict of interest.jpgWhy aren’t we seeing any legislation or rules addressing servicers’ inability and unwillingness to modify loans even when the modification is clearly in the best interest of the investor-owner of the mortgage? Florida foreclosure defense and bankruptcy attorneys see the conflict of interest daily between mortgage servicers and their own clients, why doesn’t the government?

Servicers say they are doing their utmost to help homeowners in need. I say Pinocchio. Uncle Sam has proposed HAMP, HARP and a few other programs. However, the servicers just shrug and pretend to comply, while pocketing trial payments and huge servicing fees. It is a well known fact that servicers get paid much more when a loan is in default and eventually forecloses. Until we address the conflict of interest and incentivize servicers to modify loans, nothing will change. Pinocchio is running this show.

In an interview on January 28, 2012, by CNN Your Bottom Line host Christine Romans, Chip Parker, a foreclosure defense attorney in Jacksonville, Florida states it’s definitely systematic. He describes how it’s a daily occurrence that a mortgage servicer such as Citi Mortgage or Wells Fargo will absolutely refuse to work with someone, even though a VA guideline requires it when the VA guarantees those loans.

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I speak with many clients in the Tampa Bay, Florida area who have heard of cancelled debt and 1099-C forms but they do not really understand the impact of the taxable events that occur in a short sale. An understanding of how a 1099C works in a short sale is especially important at this time of the year.

Whenever a creditor cancels or forgives debt following a debt settlment, short sale or even a foreclosure, the creditor must report the amount of the cancelled debt to the IRS on a Form 1099-C. Under Section 108 of the IRS Code, the IRS imputes the cancelled debt as additional income to you. So if you make $50,000 in annual salary, but your house was sold at a short sale where the loss to the lender was $100,000 (not an uncommon fact pattern in Florida), you will be deemed to have earned $150,000 that year or the next – depending upon whatever year the lender files the 1099-C.

There are three exceptions to this rule. First, you file bankruptcy prior to the issuance of the 1099-C. If debt is discharged in bankruptcy, it is not attributable to you as income. Even if you receive a 1099-C, you can respond by filing your own Form 982 to remove its taxability because of the bankruptcy.

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