Friday, November 7, 2008

Will President-Elect Obama Now Make Chapter 13 Mortgage Modification Part of His First-100-Days Economic Plan?

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys,

What did Barack Obama say before his election about bankruptcy reform in general and specifically about mortgage modification through bankruptcy, and what is likely to occur now that he is the President-elect?

In my Bankruptcy Bulletin on August 28 of this year titled Prospects for Amendments to BAPCPA Under an Obama-Biden Administration, I referred to references in candidate Obama's website to his proposed reforms to bankruptcy law and to his speech the prior month almost exclusively on bankruptcy reform issues. I said "in Barack Obama's website one of his 10 key bullet-points on the Economy is 'Reform Bankruptcy Laws.' He proposes amending bankruptcy law to allow modifications of mortgages, and to create some kind of streamlined medical bankruptcy."

I concluded that Bulletin with:
Perhaps a more realistic view turns on broader economic and political developments in the next few months. IF Obama-Biden win in November, and especially IF there are some Democratic gains, as is generally expected, in both the House and the Senate, there will be tremendous political pressure on the Democrats to address the foreclosure and other economic problems. The new Housing and Economic Recovery Act's $300 billion voluntary program to refinance troubled mortgages begins being implemented on October 1, 2008, with much speculation about whether it will indeed help 400,000 households as was projected. If this program, and the other components of the Act, are successful, together with all the other forces on the real estate and financial sectors, at significantly improving the foreclosure and general economic situation, there may be less pressure to act. Given that this is just a few months from now, a greatly improved outlook seems doubtful. More likely BANCAP reform of some sort would be part of their "first 100 days" plan.
Obama gave his speech and these bankruptcy reforms were put on his website, and I wrote the above, before the incredible financial events of September and October. Obama-Biden did win the election, the Congressional gains by the Democratic party were even larger than many expected, including Gordon Smith's very close loss to Jeff Merkley in the Senate here in Oregon, and the Help for Homeowners program was implemented more than a month ago. And my conclusion that "a greatly improved outlook seems doubtful" now seems like a vast understatement, making it more likely that something dramatic to deal directly with the foreclosure situation will be part of Obama's economic plan. But with so much else unexpected that has happened, I believe that some initiative bigger than, or perhaps in conjunction with, Chapter 13 mortgage modification will be implemented.

Here is a sampling of what the blogosphere is saying about the current prospects for bankruptcy law reform and specifically Chapter 13 mortgage modifications.

At the outset, the Housing and Economic Recovery Act's Hope for Homeowners voluntary FHA refinancing program has gotten off to a very slow start since October 1 when it went into effect, according to the blog story entitled Government's Mortgage Relief Program Not Popular. It states that in contrast to the initial publicized goal to help as many as 400,000 homeowners in its three-years in existence, "it appears that [Hope for Homeowners] is turning out to be just one more failed attempt to break the foreclosure crisis, as less than 100 people applied for the program last month. The FHA [now] projects that only 13,300 struggling homeowners will actually use the program during the first year."

In mid-October Senator Chris Dodd (D-CT), Chairman of the Senate Banking, Housing, and Urban Affairs Committee, made the following announcement, contained on his Committee's website: DODD . . . OUTLINES CONSUMER-FOCUSED AGENDA TO COMPLETE ECONOMIC RECOVERY. Issues pertinent to foreclosures covered two of the four items in his agenda:
Homeownership Preservation: 9,800 families enter foreclosure each day. We should declare a temporary moratorium on foreclosures so that lenders, servicers and homeowners can come together to try to restructure their loans on terms agreeable to all. Bankruptcy Reform: It is irrational and unjust that a family that owns one home receives less protection under our laws than a family that owns two or more homes. The average American homeowner should be able to seek the protection of bankruptcy court to save his or her home.
And according to a blog story entitled Senate banking chairman: credit card reform on tap:
the Connecticut Democrat [Dodd] said he plans to include credit card reform as well as bankruptcy law reform in a package of consumer protection measures he hopes to schedule during special hearings in November or when Congress returns from winter break in January under a new administration.
Here's a day-after-election blog story: Obama will usher in credit card reform, observers say: Bankruptcy, mortgage reform and credit card industry rules on tap, which includes:
Sam Gerdano, executive director of the American Bankruptcy Institute, a nonpartisan educational research foundation, agreed that pressure is on for quick results and passage of something to help debt-ridden consumers. He said members of the current, lame duck 110th Congress, may attempt to pass consumer-friendly legislation and hope that President Bush will sign it before leaving office.
And finally, here is a day-after-election plea by a Florida attorney for quick mortgage modification amendment to the bankruptcy law: President Elect Obama-Congratulations-Please Amend the Bankruptcy Code.

by: Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys

Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or provide and legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

© 2008 Bankruptcy Litigation Support for Attorneys