Government Efforts to Prevent Mortgage Foreclosures: Modifications, Refinancings and Cram Downs
By: Laurence E. Platt, Kerri M. Smith
Using a trio of tools to triage those whom it realistically can seek to help, the federal government has stepped up its efforts to fight residential mortgage foreclosures. Announcement of the details of the Obama Administration’s Making Home Affordable Program (“the Plan”) on March 4, 2009, makes clear that the federal government will rely on loan modifications, refinancings and cram downs to try to keep borrowers in their homes. In addition, the recent passage of H.R. 1106, Helping Families Save Their Homes Act of 2009 (“H.R. 1106” or “the Bill”), by the House of Representatives, bolsters the Plan’s agenda by allowing bankruptcy judges unilaterally to modify mortgage loans, and providing a safe harbor against investor liability for servicers that make loan modifications subject to the Plan.
While most elements of the Administration’s Plan can proceed without Congressional approval, the House Bill must be passed by the Senate to become law. No one can tell in advance whether these anti-foreclosure lifelines will work in an increasingly deteriorating economy. While the individual consumer who ultimately saves his or her home from foreclosure will appreciate the effort, many investors and unemployed borrowers are less hopeful about these measures.
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