In my earlier bankruptcy blog, Bankruptcy’s Not An Option for Fannie And Freddie, I discussed the two mortgage giants that were placed under federal control, making the “implicit guarantee” of FNMA and FMAC mortgages a very explicit government guarantee. As a bankruptcy attorney in Indiana who every day is advising clients about foreclosure on their mortgages, I was very happy to read about the latest effort to help homeowners struggling to avoid foreclosure.
Senators on the Banking Committee urged Fannie Mae and Freddie Mac to “freeze” foreclosures for at least 90 days. The idea behind this freeze action would be to buy time for lenders to renegotiate loan terms with borrowers, to try to avoid foreclosures and to keep borrowers in their homes.
FNMA and FMAC have the power to foreclosure not only on their own loans (meaning loans for which they are the actual lenders), and can also foreclose on loans they guarantee. That means half the nation’s residential mortgage market is involved in one of these two ways with Fannie and Freddie.
I’m often asked whether foreclosure of a mortgage is an inevitable part of filing bankruptcy, and in these bankruptcy blogs I’ve taken pains to explain that it is not. In most cases, through filing a Chapter 13 bankruptcy repayment plan, a family’s home can be saved from foreclosure. In Dis or Dat? Foreclosure or Bankruptcy? I explained that each person’s situation is different. As I meet with clilents in one of my four bankruptcy law offices (Indianapolis, Anderson, Columbus, and Bloomington), it’s important for us to discuss all the options. Over the years, I’ve worked with tens of thousands of clients, and one size certainly doesn’t fit all. Often, where children are involved, a homeowner will try anything to avoid changing school districts, for example. In other situations, where the clients’ income has dropped dramatically, they are actually better off renting for awhile or at least downsizing
In all cases where foreclosure looms, though, it’s worth talking with the lender and exploring all the options. Certainly negotiating with lenders on behalf of homeowners is one valuable service I provide for my bankrtupcy clients. So if you like, senators of the U.S. Banking Committee, you can add Mark Zuckerberg’s signature to your letter to Fannie Mae and Freddie Mac!