Since 2008 the U.S. real estate market has dogged our economic stability. The recession was largely caused by exotic mortgages enabled by mortgage-backed securities creating a false value of real estate. Three years later, Americans continue to struggle with the resultant negative equity in their homes. It is generally understood by experts and laymen that the housing market must be stabilized for the economy to make significant improvements. The National Association of Consumer Bankruptcy Attorneys (“NACBA”) has proposed the Principal Paydown Plan (“Plan”)–a solution to help reduce the number of future foreclosures.
The key components of the Principal Paydown Plan are:
- The Plan restructures certain unsecured debt, including underwater mortgages, in a chapter 13 bankruptcy case, so the homeowner can pay down the loan principal and reduce negative equity.
- The principal reduction is accomplished by reducing the interest rate to 0% during the chapter 13 plan period, which means that the entire payment goes direclyt to principal.
- During the plan period, the borrower’s minimum monthly payment is calculated at 31% fo gross income, a calculation that is similar to the current HAMP modification payment.
- At the end of the initial five-year period, the remaining principal balance is amortized over 25 years at the Freddie Mac survey rate.The borrower settles all claims against the lender.
- The Plan does not utilize the cram-down provisions of Section 506 of the Bankruptcy Code.
Unlike cramdown referenced above, negative equity under the Plan is accomplished by the borrower’s payment of the debt and therefore should be more accepted by the lending industry and consumers alike. The Plan is a viable solution to help deal with the foreclosure crises and help homeowners remain in their homes. Weekes Law encourages bankruptcy attorneys and homeowners to research the and support the Plan. You can show your support of the Plan by signing an electronic petition at https://wwws.whitehouse.gov/petitions/!/petition/help-families-avoid-foreclosure-stabilize-housing-market-and-boost-economy-adopt-principal-paydown/Yj4rq2l8?utm_source=wh.gov&utm_medium=shorturl&utm_campaign=shorturl.