In a move that has been widely criticized already this morning, the United States Senate voted 45-51 to kill the “Helping Families Save Their Home Act of 2009.” The Act would have given the United States Bankruptcy Courts jurisdiction to modify a debtor in Chapter 13 bankruptcy’s primary residence mortgage to bring it within affordability standards. The Act was hailed by many in the industry, including bankruptcy judges as “correcting” a long-standing anomaly in the bankruptcy code which allows debtors to modify all kinds of secured debt, including car loans, loans on vacation homes and yachts, but not a loan secured by the debtor’s primary residence.
The Act was not, as the banks love to portray, an effort to “open the doors” to fraudulent bankruptcy filings and trample all over the bank’s rights. In fact, the Act was a very balanced piece of legislation which would have given the Bankruptcy Court judges the ability to modify mortgages for debtors in Chapter 13 who meet certain eligibility requirements. Further, the modifications would be limited to cases where the debtor could actually afford to retain their home and fund a plan of repayment to unsecured creditors, including any unsecured portion of the mortgage holder’s loan. Finally, the Act would have helped stem the rising tide of “Loan Modification” companies which are largely unregulated, in many cases outright scams, and are doing nothing but muddying the waters of legitimate homeowner assistance.
In a second move today, new rules are being put in place which dramatically affect how residential appraisals will be ordered and handled by Fannie Mae and Freddie Mac. The newly enacted standards, referred to as the Home Valuation Code of Conduct, were adopted by the two GSEs (Government Sponsored Enterprises) without complying with any of the procedural laws governing the adoption of a such a sweeping change. In particular, the new rules were not adopted pursuant to the Administrative Procedures Act nor the Regulatory Flexibility Act. The claim made by the Federal Housing Finance Agency is that because they are acting as Conservator for the two failing GSEs, their action in adopting this policy is not an “agency action,” and therefore it is exempt from both judicial review and all of the safeguards of the various procedural laws which would have governed the adoption of such a policy.
It appears that May 1, 2009 was is starting off to be a very good day for banks as a whole.
David L. Gibbs is an attorney with The Gibbs Law firm, APC. The firm’s practice focuses on issues related to Bankruptcy, Business Law and Manufactured Housing; including community subdivision, pre-purchase diligence and analysis as well as advising community owners on operational, financial and enforcement issues. The firm also represents manufactured home dealers in a wide range of issues. David L. Gibbs is admitted to the Federal Courts for the Central and Southern District of California, and also holds a California real estate broker’s license. The firm continues to offer a wide range of real estate and business related services as it has done for 34 years from its offices in San Clemente. Mr. Gibbs can be reached at (949) 492-3350.