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The firm is open to taking on clients who can demonstrate that they have been wrongfully denied a loan modification under the terms of the Obama administration's Home Affordable Mortgage Program or HAMP, or where the loan service has failed comply with the mandatory provisions of HAMP.

A new legal theory is emerging that may assist homeowners in receiving proper and fair consideration for a loan modification.  While you are not entitled to a loan modification, you may have the contractual right to be fairly considered pursuant to the published guidelines and directives issued by Fannie Mae and the Treasury Department. 

Understand the context of this emerging legal theory.  Over the last year, most loan servicers have entered into a contract with Fannie Mae as the agent for the U.S. Treasury department.  An actual contract sample is attached: http://www.consumerlaw.org/issues/financial_distress/content/loan_modification/RGMortgageCorporation.pdf

The contract's terms includes the published guidelines and directives published by the government.  Some of the guidelines are discretionary and some are mandatory.   The legal question is:  did the government and the loan servicers intend that borrowers are the "intended" beneficiaries to the contract?  If so, such a third party beneficiary can sue to enforce the performance of the contract.  

To date, I know of three federal cases moving this theory through the courts.  All three have faced motions to dismiss by loan servicers.  One motion succeeded, one failed and the third, a class action suit, is pending. 

Under the right facts, with the right judge...the theory should work to get a consumer a fair chance at a loan mod.  These days, good faith consideration for loan modification is the exception, and not the rule.          

The Housing and Economic Recovery Act of 2008 contains "HOPE for Homeowners Act of 2008"  & provides a new tool for attorneys and clients in the defense of home foreclosure. 

Effective October 1, 2008 expiring on September 30, 2011, you can view the Housing and Economic Recovery Act of 2008.   

The Act creates a voluntary program within FHA to back FHA-insured mortgages to homeowners in financial distress. FHA-approved lenders will refinance up to $300 Billion in distressed loans for owner-occupants at risk of losing their homes to foreclosure. Akin to a "short sales", the old lenders must voluntarily agree to cut their loan balances down to 90% of the new appraised value of the home.  The distressed borrower gets a new 30 year fixed rate loan and a fresh start and can borrow up to 95% of the new appraised value, subject to new FHA local borrowing limits.  The devil is in the details and the HUD regulations have yet to be publically released.  Here are the potential catches:

1. The program is voluntary for the old lenders.  A second mortgage company may throw a wrench into the equation and demand a piece of the loan proceeds from the first mortgage company.  Although an unsecured second mortgage lien could be involuntarily wiped out and avoided in Chapter 13 bankruptcy, it is unknown if this program can be used to refinance a distressed homeowner out of "BK". 
2. Homeowners must agree to share newly created equity and future appreciation with FHA and the old lenders.  If you sell or refinance anytime after 5 years, you have to give FHA 50% of your appreciation!  FHA will then share this money with the lenders who suffered a loss.  The appreciation sharing percentage is 100% if you sell or refinance in the first year and then decreases by 10% per year and never drops below 50%.  Obviously, you will not want to keep this loan longer than necessary.
3. Homeowners must prove they can afford the new 30 year fixed payment and certify that they did not intentionally default on the old loan.  A Homeowner's old mortgage debt to income ratio must have been greater than 31 percent as of March 1, 2008.  No investors or investor properties will qualify.
4. All junior liens have to be extinguished before the deal can close.  There is no subordination allowed.  Thereafter, homeowners are somewhat restricted on taking out future second mortgages.
5. New Borrowers must pay an annual insurance premium, amounting to 1.5 percent of the principal. The payment must be rolled into the monthly payment along with property tax and insurance.

The government estimates that this new program could prevent up to 400,000 foreclosures.  But because this is a voluntary program, it is unclear how much impact that this law will have on stemming the tide of the crisis.  Given the cost of holding REO inventory, first mortgage companies should jump at the chance to cash out of bad loans and gain access to new cash.  What the second lien holders do is less certain.  One thing is clear:  the HOPE for Homeowners Act of 2008 can't hurt distressed homeowners.  The new law provides another arrow in the quiver of foreclosure defense attorneys in preventing foreclosure and perhaps a boon for the struggling mortgage industry.

Joe Roberts

California Deft Relief and Foreclosure Defense Attorney