Mortgage Modification's Amazing Result: Bank Forgives First Mor...

This past week I witnessed one of the most extraordinary results  imaginable in a Chapter 13 mortgage mediation when two married homeowners were able to combine several new mortgage incentive and rebate programs to achieve the ultimate mortgage modification possible...a total and complete write off of their principal balance.  By the time all the mortgage program benefits were applied this bank agreed to strip off the homeowners’ entire first mortgage. The mortgage balance is 0; this family owns their house free and clear. 

The homeowners, married with children, own a house with a $225,000 first mortgage and a current value of $150,000. The husband lost his highly paid  job in the automobile industry. The wife works for a start up company which processes used cooking oil and alge into motor fuel and gasoline. The couple filed a Chapter 13 bankruptcy and requested mortgage mediation. The court issued its standard mediation order. The clients were hoping to reduce the mortgage payment to an amount affordable with the wife’s income. The mediation took place at the office of an experienced mediator named Sloof Lipra.  At the conclusion of the mediation the entire mortgage balance disappeared. Official papers were signed today. 

Here’s how it happened. As reported in yesterday's Wall Street Journal, the Obama administration is gradually rolling out new programs to provide increased mortgage relief to financially upside down homeowners. In addition to those programs made public and implemented nationally, the  administration has various local pilot programs to assist deserving homeowners . The pilot programs each contain government payments to banks who forgive part of mortgage principal. Most of these programs are in a secret “test phase” and have not yet been made public. Additionally, the administration has created many mortgage rebates and incentive to further its “green energy” agenda and to compensate labor union members. The trick is knowing about and understanding these programs before their official release, and then combining the programs so that the total government incentive payments to banks exceed the homeowner’s mortgage balance. 

For example, most people don’t know about  a secret pilot program that pays banks to reduce up to $35,000 of mortgage debt for homeowners who demonstrate their commitment to “green energy” by owning solar water heating. These homeowners had a dilapidated old solar heater that qualified them for this mortgage program. Another pilot program provides up to a 25% mortgage principal reduction to unemployed homeowners (like the husband)  whose family income exceeded $250,000 during the past ten years and is now below poverty levels, the so-called “newly poor.” Still another test program offers principal forgiveness to certain disabled union employees of the auto industry living in Ohio, Florida, Iowa, or Pennsylvania. Still another pilot mortgage program provides principal write downs to employees of “green energy” companies, similar to assistance previously offered first time home buyers and Iraq war veterans.

Some readers might believe that these homeowners “fooled” the mortgage company into wiping out the clients’ entire first mortgage.  I disagree. By thoroughly researching unpublished mortgage reduction incentives, packaging applicable pilot programs, and then educating the lender during the mediation these homeowners were able to achieve the extraordinary outcome of a free house.