A couple of months ago in my bankruptcy blog, I talked about the Federal Reserve Bank starting a new system of holding auctions to provide cash for banks in addition to regular discount loans. Customers for the Fed’s newest lending program, started just a couple of weeks ago, include investment companies along with commercial banks. This new emergency lending program allows big investment houses to get emergency loans directly from the central bank, through a “discount window” that charges 2.5% interest for overnight loans from the Fed. Apparently, the program was needed, because in each of the first few weeks of the program, investment firms borrowed dollars by the billions.
While the Federal Reserve Bank was working hard to avoid a meltdown by investment companies, the Federal national Mortgage Association or “Fannie Mae” was working just as hard to help homeowners avoid foreclosure. Fannie Mae contracted with law firms for a pilot program, to work with homeowners who have received default notices. The lawyers negotiate “forbearance” plans, which are compromises that allow the people to save their homes through repayment plans over a period of time. Fannie Mae is letting the law firms take steps such as reducing the amount of principal, approving the sale of a property for less than is owed, or allowing borrowers to sign the deed over to the mortgage holder. The idea in all these compromises is to avoid money-losing sheriff’s sales and empty houses that drag down values in entire neighborhoods.
As a bankruptcy attorney in Indiana, I’m keenly interested in any efforts to help people who have fallen on hard times. One of the important services I provide to my clients is helping them make decisions about keeping or selling their homes. Often consumer bankruptcies are filed as a result of one or more of three factors: divorce, job loss, or medical problems, but certainly the housing crisis is becoming a very big factor as well. The new programs from the Federal Reserve and from Fannie Mae are a sign that there is help available.
To me, though, absolutely the most interesting thing about the new Fannie Mae program of using the attorneys to work with people, is that it came about because more than 50% of borrowers in foreclosure never contacted their mortgage servicer! In other words, people in trouble with their home mortgages were just “giving up” instead of negotiating a settlement or payment plan that might allow them to stay in their home! For example, if borrowers enter into a Deed in Lieu of Foreclosure, it looks so much better on their credit report, and can make it easier for them to get into a new home down the road.
And that’s really the message I always try to convey in this blog – please, please don’t ignore the warning signs of financial disaster. Get professional help as soon as possible. The sooner clients talk to me about their debt problems, including those that are mortgage-related, the greater the number of options we have to deal with those issues, and the more satisfactory the outcomes.