An Alternative to Mortgage Modification

An Alternative to Mortgage Modification


As an attorney who represents debtors in bankruptcy, it is frustrating to watch families lose their homes when some basic changes to bankruptcy law would offer an effective alternative to the federal HAMP mortgage modification program, lower the number of foreclosures and let both consumers and banks benefit.

While there is some debate as to whether the economy is starting to rebound, the number of foreclosures continues to increase and jeopardize the fragile recovery. An estimated 6.7 million homes already have been lost to foreclosure and that number is expected to reach 13 million by the end of 2014, resulting in about $1 trillion in direct financial losses to borrowers, local governments and financial institutions.

The National Association of Consumer Bankruptcy Attorneys (“NACBA”) has made a proposal for an alternative to the present HAMP mortgage modification and it is called the Principal Paydown Plan.  The Principal Paydown Plan (which is not currently law) would allow underwater homeowners who file Chapter 13 bankruptcy to apply all  of their monthly mortgage payments to principal for five years by  reducing the interest on their loan to zero percent during their bankruptcy.  Under the present system, whether or not a debtor can qualify for mortgage modification is in the hands of the lender.  This would   dramatically reduce negative home equity, which virtually every housing  economist has cited as the leading factor pushing up home foreclosures  nationwide.

NACBA has been urging the Obama Administration to enact the Principal Paydown Plan (“PPP”) as one meaningful step to address the current foreclosure crisis.   Just recently, the Administration launched an effort to encourage the American public to create, share and sign petitions that communicate views about the government’s actions and policies.  The NACBA has created a petition for the Principal Paydown Plan – sign it now to show your support!

For more information about loan modification and bankruptcy, call our Durham Bankruptcy Lawyers for a free consultation — (919) 313-4636.