The National Association of Consumer Bankruptcy Attorneys (NACBA) has issued a press release which provides evidence that loan modifications are not effectively working for many homeowners. NACBA's research shows that more than half of homeowners in financial distress are not being helped by loan modifications and those that are helped frequently find tat their monthly payments are higher.
The release included a report from Credit Suisse which stated that there will be over 8 million foreclosures in the next 4 years, amounting to 16% of all mortgages in the United States, with 59% of all subprime mortgages included in that number. Previously, the mortgage industry predicted between 2 and 6 milion foreclosures during that time period. The voluntary programs set up to stem the tide of foreclosures has been woefully inadequate to address the extent of the problem, with only about 35% of "modifications" reducing the principal of the loan and/or monthly payments.
There is significant pressure on the President and Congress to amend the Bankruptcy Code to permit judicial loan modifications in Chapter 13. Proponents of this change to the bankruptcy laws recognize the expertise in the bankruptcy system to modify loans in a systematic way, providing the most help possible to troubled homeowners. Credit Suisse also reports that judicial modfication of loans would reduce foreclosures by 20%. It remains to be seen if Congress will adopt NACBA's recommendations and make this change to the Bankruptcy Code. If Congress does amend the Bankruptcy Code to permit loan modifications by bankruptcy judges, and you believe you can be helped by this change, give our office a call.