Sonoma County Bankruptcy Lawyer Blog

The White House has launched a major expansion of the Home Affordable Refinance Program (HARP), as Reuters reports.

The HARP program had been limited to borrowers whose homes were no more than 125 percent underwater. That made the program of extremely limited usefulness to borrowers who bought at the top of the market only to find their values at half of the mortgage amount.

It should be relatively easy to qualify - just show you made the last six mortgage payments.

And banks may be more willing to participate in loan mods than they were before:

To encourage banks to participate in the revamped program, FHFA moved to protect lenders from having to buy back loans if underwriting problems are later found. "Of all the barriers, this may be the most significant," said Gene Sperling, director of the White House National Economic Council.

It will be interesting to see how this pans out in the real world. The White House says a million people will be helped. In the past, banks have strung borrowers along only to decide they don't qualify. With the rules eased, hopefully that will change, and people with 6+ percent mortgages can at least refi.

But as Lawrence Summers points out - what we really need is to cram down the ridiculous principal balances. It's hard to imagine that will ever take hold but the banks should realize they are to blame for the absurd prices people bought at and that rational people are not going to keep paying on a mortgage that will never come above water again.

Anyone who's tried to get a loan mod through HAMP (Home Affordable Modification Program) knows it's mostly a joke. The program is so voluntary for banks, that somehow most people wind up not qualifying. And then going into foreclosure.

But Bankruptcy Courts around the country are trying to use the power of the judiciary to force banks to modify loans. In Rhode Island and New York, courts have loss mitigation programs that require banks to be transparent in their loan mod programs, according to John Rao, an attorney with the National Consumer Law Center in Boston.

"These programs do not require servicers or lenders to implement a particular loss mitigation option," Rao said. "Instead, they set a standard for transparency and accountability in the foreclosure process that is often lacking without this intervention."

"We've known for some time that the large loan servicers play all sorts of games to slow down and derail the modification process, and earlier this month learned that they are playing fast and loose with the foreclosure process itself," Whitehouse said at the hearing, held at Rhode Island Housing's downtown offices.

Hmm, perhaps a similar program could be started in hard-hit California...

The LA Tiimes reports that loan mods have crashed, perhaps in a sign that homeowners have far more financial problems than just a loan mod can cure.

"Even with a substantial reduction in mortgage payment and even some reduction in principal, you still have people who are over their head financially because of their reduced financial circumstances," independent analyst Bert Ely said. "Isn't it time to just rethink this whole business of modification ... and let the market clear through foreclosures and short sales?"'

If that seems harsh, perhaps it just speaks to the state of the economy and the unsustainable weight of equity loans, credit cards and lack of employment. Here in the North Bay, unsustainable mortgages are certainly not the only think leading people to seek bankruptcy protection.