NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS ISSUES RESPONSE TO OBAMA ADMINISTRATION PLAN TO SELL VACANT AND ABANDONED PROPERTIES IN FORECLOSURE
WASHINGTON, D.C.///August 12, 2011///National Association of Consumer Bankruptcy Attorneys (NACBA) President William Brewer today issued the following statement in response to the announcement on Wednesday by the Obama Administration that it is looking at developing a plan to sell vacant and abandoned properties owned by Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) as rental properties:
“While there is value in cleaning up the abandoned and vacant foreclosed homes that are a blight on communities across the country, I question why the Administration isn’t more concerned about avoiding preventable foreclosures in the first place. Otherwise, you are looking at a situation here of closing the barn door after you’ve let the cows escape. When provided the opportunity to embrace a plan for judicial mortgage modification in the early years of the foreclosure crisis, the Administration instead relied on voluntary efforts of the servicers to modify mortgages. Their solution – HAMP – is a proven failure with serious nationwide consequences. More than 2.5 million homes were foreclosed on through 2009 and another 8 million are projected to be foreclosed on by the time the crisis abates. So, now we have only a plan to clean up the wreckage inflicted by a bad policy decision that went against US consumers exactly as many forecasted it would.
NACBA urges the Administration to take on the bigger challenge of finding ways of avoiding preventable foreclosures in the first place, rather than just cleaning up the mess after the fact. Toward that end, we have presented the Administration with one possible option, the so-called “Principal Paydown Plan,” under which an undersecured mortgage would be restructured in a Chapter 13 bankruptcy so that the homeowner would immediately start paying down the loan principal and reduce negative equity by reducing the interest rate to zero percent for five years. At the end of this five-year period, the remaining principal balance would be amortized over 25 years at the Freddie Mac survey rate. Leading housing economists have consistently cited the problem of negative home equity as a key factor pushing up the foreclosure numbers.
Not every individual foreclosure can or should be stopped, but there is an urgent need to stem the crisis by closing the growing chasm between prevention and losses. Without stronger policy intervention, not only will millions of families lose their homes unnecessarily, but massive foreclosures will continue to destroy communities, drag down the housing market, and keep a full economic recovery out of reach. It’s time for the Obama Administration to stop focusing on disaster relief and instead put its energies into disaster prevention when it comes to the U.S. foreclosure crisis.”