California 90-day Foreclosure Moratorium

On February 20, 2009, the Governor signed Senate Bill SBX2 7, which puts an additional 90-day hold on foreclosures to allow for loan modifications. In cases where the lender is not willing to do a modification, this will not force them to do so. They just have to wait another 90 days. However, it will provide a little breathing space for some people.

The bill is not in effect yet and does not go into effect until 14-days after certain regulations have been drafted. And even after it goes into effect, mortgage companies can apply for an exemption upon a showing that they have an acceptable loan modification program. My personal feeling is that this will do little to stem the flood of foreclosures.

Recipe for Disaster: The Formula That Killed Wall Street

This is a fascinating article about a formula used for measuring risk on collateralized debt obligations and credit default swaps and how the misuse of that formula led to many of the problems we are experiencing now.

Mortgage Modification Bill--How do I Prepare?

I get this question all the time: How can I take advantage of the mortgage modification bill going through Congres right now?

My first answer is a caveat: We have no idea what the final bill will look like (or if it will even pass), so any action we take right now is speculative. With that caveat in mind, however, we do know that there are several pre-filing requirements that will probably be in the mortgage modification bill. There are two pre-filing prerequisites under the current bill: (1) the debtor must have requested a loan modification from the lender at least 15 days before filing (unless the filing is within 30 days of a foreclosure sale) and (2) the debtor must have received a notice that a foreclosure may be commenced. The first is easy and most of my clients have done this on their own before they ever come to see me. The second is a little more complicated because (depending on what this means), debtors would likely have to get behind on their mortgage payments to make this an option. Some people have suggested that this could refer to the original deed of trust, but I don't think I would rely upon that. However, a letter mentioning foreclosure should be sufficient. That being said, I would not advise a client to do anything that might result in them getting a foreclosure notice until after this bill has been signed, because we still do not know (1) whether the bill will be signed and (2) what provisions will be in the final bill.

View the current text of HR 1106 here.

Finally, a Voluntary Loan Modification That Makes Sense

I have gone over numerous loan modification proposals sent to my clients recently. In almost every case, the proposed modification makes no sense and you know the client will end back in the same situation in about 6 months. (One exception is modifications obtained through litigation.) However, I just saw a loan modification from Wachovia that actually made sense. It had principal reduction of about 20%, interest only payments for about 10 years and then a fully amortized principal and interest payment for the next 30 years. Congratulations to Wachovia Mortgage for doing at least one reasonable loan modification.