Recent Testimony: Bankruptcy Mortgage Modification Necessary to Enhance HAMP’s Effectiveness

July 29, 2009

On July 9, the House Judiciary Committee’s Subcommittee on Commercial and Administrative Law heard testimony on the effectiveness of voluntary mortgage modification efforts, including the Obama Administration’s Home Affordability Modification Program (HAMP). “Effectiveness” was defined as preventing foreclosures.

Irwin Trauss, of Philadelphia Legal Assistance, testified on behalf of NACBA (The National Association of Consumer Bankruptcy Attorneys.)

Trauss is overall supervisor of the Save Your Home Philly Hotline, which has handled over 10,000 calls from homeowners facing foreclosure. He is also one of the creators of the Philadelphia Court of Common Pleas Foreclosure Diversion Program.

In his testimony, Trauss gave numerous examples of servicers ignoring the requirements of HAMP. Servicers sometimes told homeowners they were not eligible to apply, and often denied applications for reasons that did not comply with the program guidelines.

He also described the program’s failure to help many large sub-groups of homeowners.

Trauss concluded his testimony by stating that “absent significant leverage on the part of homeowners to force a change in behavior, the majority of servicers will continue to find ways to avoid meaningful modifications despite HAMP.

“The only way to change their behavior to the extent required to make meaningful modifications common is to provide the homeowner with leverage over the servicer, such as the threat of a bankruptcy judge imposing a modification.

“The availability of such an option for homeowners would likely complement voluntary programs such as HAMP and the Diversion Program and substantially increase the chances that meaningful long lasting modifications will result.”

The above post was partially excerpted from a National Association of Consumer Bankruptcy Attorneys (NACBA) email alert.

NACBA is a national organization dedicated to serving the needs of consumer bankruptcy attorneys and protecting the rights of consumer debtors in bankruptcy.

Visit NACBA here.