NY mortgage plan leaving owners hanging
There’s more bad news for financially strapped New York homeowners.
An ambitious, year-old mortgage-modification program implemented by judges in a Manhattan bankruptcy court has produced the same underwhelming results as President Obama’s national mortgage plan, lawyers and officials familiar with the program told The Post.
The Bankruptcy Loss Mitigation Program tried a hands-on approach to bring banks and ailing homeowners together to work out lower mortgage payments to keep families in their homes — but of the 808 bankrupt Manhattan, Bronx and northern suburban homeowners who applied for the program last year, just 452 were granted access and less than 10 have gotten permanent mortgage modifications, statistics from the clerk’s office of the Federal Bankruptcy court for the Southern District show.
The biggest problem with the program, just as with the federal Home Affordable Mortgage Program, or HAMP, effort, lawyers said, is that bank action is voluntary and their formula for arriving at a permanent modification is secret.
As a result, most of the desperate debtors are left hanging for months waiting for an answer, not knowing if they will be able to hang onto their homes.
“I’d give the program a grade of D,” said David Shaev, a consumer bankruptcy lawyer, who, while praising the intent of the cutting-edge program, feels that it is doomed to failure because it is voluntary.
“Nothing is forcing the banks to do a deal,” said Shaev, a partner with Shaev & Fleischman.
David Babel, a Bronx and Westchester bankruptcy lawyer, said he has received a couple of permanent loan modifications under the program in recent weeks — but he feels the system in place is suffering from the same drawbacks as HAMP, in that the banks don’t appear to be very motivated to get the deals done.
“I haven’t had one loan modification case where the bank got the papers on the first shot,” Babel said, repeating a common complaint of homeowners seeking a HAMP mortgage cut. Paperwork sent to the banks, invariably gets lost or misrouted and modification applications sit under review for months.
Andrea B. Malin, who works exclusively on personal bankruptcy reorganizations, said the first six months of the program were particularly discouraging because the banks had trouble getting up to speed.
It has improved lately, she said.
Shaev said the bankruptcy court’s program — which is open to those who live in Westchester and Putnam counties and the two city boroughs who file for Chapter 13 personal reorganization — would work a lot better if judges had the power to force banks to accept a cut in the mortgage.
In one Shaev case in Cortland Manor, NY, his client’s home was valued at $428,000 when she filed in 2009 but she owed more on the mortgage — roughly $461,000. She has been waiting nine months to get an answer from the bank on a modification.
“Judges have the right to cut loans on second homes, boats and multi-family homes but not primary residences,” Shaev said.
So today, with judges possessing no more power than the ability to get banks and debtors together in a room, there is little hope of seeing a drop in the number of underwater homes.
One recent study showed that one in five homes in US is underwater.
Judge Cecelia G. Morris, who sits in bankruptcy court in Poughkeepsie and was one of the driving forces behind the program, said getting permanent loan modifications was not the end of the effort.
“In the court room there is success because the two sides are at least talking to each other — where outside this program, with HAMP, the most common complaint from homeowners is that they can’t reach anyone on the phone or can’t get the right paperwork into the right hands,” Morris said in an interview last week.
The judge said while she doesn’t know exactly how many permanent modifications have been produced under her program — which is now being copied in Brooklyn, Queens and Long Island and in other states — she will start to pay closer attention to the result this summer.
Even when the bankruptcy court’s loan-modification program works, and a permanent mortgage haircut is pushed through, the secret machinations of the banks’ processes sometimes produce odd results.
Shaev said he got word this month that a Manhattan client’s mortgage, under the court’s program, was cut from $2,700 a month to $2,300, including arrears — with the interest rate taking a huge cut. But then, he said, he pressed for a HAMP modification and got one weeks later.
“Under HAMP, the payment fell to $900.73 a month,” he said, happily. “I thought I had a great deal under the court plan but HAMP produced an even better one,” Shaev said. “I don’t know if this is even the best result possible, but I’m suggesting to my client that they accept it.”