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Will the Federal Mortgage Modification Guidelines Change the Game?

Posted By Cliff Tuttle | February 19, 2009

Posted by Cliff Tuttle

President Obama announced in a speech on February 18 that federal guidelines for mortgage modification would be appearing in about two weeks that would apply to any home mortgage lender receiving federal bailout assistance. PNC Bank, who received such assistance when it acquired National City Bank, anticipated this announcement by suspending foreclosure activity until the regulations are made public.

Public attention is starting to focus on mortgage modifications as a means of turning back the tide of individual tragedies as well as strengthening the economy and the banking system. This is not simply a matter of keeping families in homes. A resumption of the flow of payments, where feasible, from borrowers who became mired in the foreclosure trap but have enough income to make substantial, even full payments if the delinquency could be handled, would be a boost to beleaguered mortgagors. It becomes increasingly evident that the circumstances of delinquent borrowers are quite different and that many can be solved with the application of common sense. The New York Times reported today that some lenders have modified a substantial number of mortgages in foreclosure. On the other hand, Wells Fargo, to name one, has modified very few as a percentage of the total in foreclosure. Some of these lenders argue that they are only servicers and blame the problem on the recalcitrance or slowness of investors to approve modifications. But if they intend to accept bailout funds, they will have to find a way to bring the investors on board. While the doings of the trusts that own a vast number of residential mortgages have always been shrouded in secrecy, there is some evidence that this ice jam is starting to break.

As the Allegheny County Court of Common Pleas begins mediating mortgage foreclosures, the federal guidelines may provide a means for accelerating the resolution of local cases. Home lenders who receive bailout funds should come prepared to make offers consistent with the guidelines. Having a tangible, enforceable standard to measure lender compliance should make a great deal of difference in the mediation process.

Judges are skilled and experienced in encouraging litigants to settle cases. The judge can turn the heat on a plaintiff by refusing to permit a case to proceed with foreclosure until it makes a good faith offer, consistent with the guidelines. The judge can also motivate a bewildered defendant to accept a reasonable offer. Often, a skilled mediator can suggest the middle ground and close the gap between the two parties’ positions. Hopefully, this process will result in the resolution of many cases, yielding economic benefits to both parties, the region and the country.



CLIFF TUTTLE has been a Pennsylvania lawyer for over 45 years and (inter alia) is a real estate litigator and legal writer. The posts in this blog are intended to provide general information about legal topics of interest to lawyers and consumers with a Pittsburgh and Western Pennsylvania focus. However, this information does not constitute legal advice and there is no lawyer-client relationship created when you read this blog. You are encouraged to leave comments but be aware that posted comments can be read by others. If you wish to contact me in privacy, please use the Contact Form located immediately below this message. I will reply promptly and in strict confidence.

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