The U.S. House of Representatives recently passed its version of the "Helping Families Save Their Homes Act of 2009". The legislation must now go to the U.S. Senate for passage and then the House and Senate versions of the law must be reconciled before the law is presented to the President for his signature.
The House version of the law proposes to permite the VA, FHA, and Department of Agriculture to guarantee or insure mortgage loans modified either out of court or in a bankruptcy case. The law expands the FHA's loan modification abilities to reduce foreclosures by allowing a reduction in interest payments up to 30% of the loan balance. A mortgage's loan repayment period may also be extended and interest rates reduced.
Judicial loan modifications will be permitted under certain circumstances. One requirement for a judicial modification is that the homeowner must contact the lender before applying for a judicial modification. Judges will be able to waive prepayment penaltes, and will require lenders to provide proper notice when assessing fees. Importantly, a homeowners legal claims against predatory lenders will be maintained while the homeowner is in bankruptcy.
Lenders are expected to vigorously fight the legislation during its debate in the Senate. Homeowners should pay attention during this critical time and contact their Senators to encourage support for this important legislation.