Bankruptcy Mortgage Mediation Program Is Gaining Momentum

Mortgage Modification Mediation Program in Chapter 13 bankruptcy continues to gain momentum, there are more positive signs on the horizon.

Just yesterday, our firm modified a mortgage with a small bank.  The homeowner had accumulated $43,000 in accrued interest and late fees.  The bank waived the accrued interest and fees, and we reset $119,000 principal balance with payments over 17 years at ZERO PERCENT interest.

The key to a result like this is organization, preparation and specific knowledge of mortgage mods and mediation.  My firm boasts a 100% successful modification rate in the bankruptcy mediation program in part because of our skill set, in part because the bankruptcy judges ensure that banks act in good faith during the process and in part because IT JUST MAKES GOOD BUSINESS SENSE.

There are signs that the Federal Reserve will exert pressure to modify mortgages because it has agreed to purchase $40 billion of Fannie Mae and Freddie Mac loans per month indefinitely.  This is the third time since the economic crisis that the Fed has stepped in to try and kick-start the economy with a policy of quantitative easing.  Some peg the ultimate price tag for QE3 at $800 billion plus.

But how QE3 impact mortgage modifications?

QE3’s indefinite time period is meant to allow the Fed the flexibility of tying the relief to economic recovery rather than committing to an arbitrary deadline.  I believe this will result in a greater emphasis on mortgage modifications because the Fed now has a vested interest to be a forceful voice upon Fannie specifically and the private market generally to make deals with struggling homeowners.

Fannie Mae and Freddie Mac currently have notoriously rigid guidelines that make modification for many homeowners unappealing at best and impossible at worst.  In addition to absurd documentation demands, they have a strict policy against principal reduction.

I foresee pressure from the Fed to ease these policies to encourage more workouts.  Since the rest of the mortgage market tends to follow Fannie’s lead, this could ultimately thaw the frozen tundra of mortgage modifications.  Smaller banks have shown they are aggressively seeking modifications of their own residential loan portfolio, not because they are kind-hearted but because they know it makes sound business sense.

If Fannie, Freddie and the Federal Reserve can take a cue from the smaller banks, modification of mortgages will become more commonplace, and we can finally amp up this anemic recovery.