The Freedom Recovery Plan for Distressed Borrowers and Impaired Lenders
The Freedom Recovery Plan for Distressed Borrowers and Impaired Lenders will encourage homeowners to seek out and settle with their mortgagees, without fear of being immediately dispossessed of occupancy. It is designed, among other provisions, to give borrowers an opportunity to reverse the debilitating practices of dis-saving and over-consumption, as well as afford distressed homeowners a period within which to rebuild their financial lives and, ideally, redeem their homes
The principal Plan elements, and the legislation required to enact them, would be as follows:
I. Eligibility – Mortgage loans eligible for settlement under the Plan must involve some version of demonstrable impairment (a “Qualified Impaired Mortgage,” or “QIM”). The eligibility
requirements’ intent is to eliminate, from the Plan’s mandatory settlement requirements,
mortgage loans that are in default merely because of homeowner unwillingness to make
payments, or are otherwise restructureable through ordinary nonmandatory, arms-length
negotiation between lender and borrower.
Accordingly, to be considered a QIM, a mortgage loan must satisfy one or more of the following
tests:
a. It must satisfy both of the following criteria:
i. Have a prevailing accruing interest rate higher than [10]%;
ii. Have an outstanding principal balance higher than 90% of the value of the underlying
home at the time of the settlement.
OR:
b. It must satisfy both of the following criteria:
i. Have an outstanding principal balance that is equal to, or higher than, 110% of the
value of the underlying home at the time of the settlement;
ii. Either:
1. the borrower can demonstrate and certify (under penalties of perjury) that the
total of mortgage debt service, real estate taxes and homeowner’s insurance
costs relating to the home constitute more than 40% of the homeowner’s
normalized family gross income; or
2. the borrower can demonstrate and certify (under penalties of perjury) that the
borrower or the borrower’s spouse/partner has lost his or her job, suffered a
disabling medical condition, suffered the death of a spouse/partner, or has
been divorced from and abandoned by a former spouse/partner—in all cases,
after the mortgage loan was originally made.
OR:
c. The mortgage lender has issued to the borrower/homeowner a notice of default and intent to
foreclose, and has commenced court proceedings for foreclosure.
Notwithstanding the foregoing, mortgage loans will not automatically qualify as QIMs (x) if it
can be demonstrated that a borrower made a material misrepresentation on his loan application,
(y) if the property securing the mortgage is not the borrower’s primary residence; or (z) if at least three monthly payments were not received on the loan since its origination (i.e., the borrower does not have a history of making concerted efforts to pay).
Any mortgage loan satisfying the criteria in a, b or c, above, shall be a QIM and shall give the
borrower the right to participate in a settlement under the Plan, with the lender mandated to
effectuate such settlement on the borrower’s request. Notwithstanding the foregoing, a settlement under the Plan shall be available to all borrowers and lenders, by mutual agreement, regardless of whether the above criteria are satisfied
Surrender of Deeds and Settlement of Mortgage Loan Obligations –
Lenders will take title to homes settled under the Plan. The lender will release the borrower from any and all obligations associated with the former loan and will take title as-is and without recourse to the former borrower. No interest, penalties or fees may be assessed by the lender in connection with the settlement. Lender and borrower shall mutually release each other from any preexisting claims or threatened claims at the time of the settlement. The only continuing relationship between lender and borrower shall be set forth in the Recovery Lease pertaining to the subject home
source
Daniel Alpert
http://www.westwoodcapital.com/opinion/images/stories/articles_oct/the_freedom_recovery_plan.pdf
The principal Plan elements, and the legislation required to enact them, would be as follows:
I. Eligibility – Mortgage loans eligible for settlement under the Plan must involve some version of demonstrable impairment (a “Qualified Impaired Mortgage,” or “QIM”). The eligibility
requirements’ intent is to eliminate, from the Plan’s mandatory settlement requirements,
mortgage loans that are in default merely because of homeowner unwillingness to make
payments, or are otherwise restructureable through ordinary nonmandatory, arms-length
negotiation between lender and borrower.
Accordingly, to be considered a QIM, a mortgage loan must satisfy one or more of the following
tests:
a. It must satisfy both of the following criteria:
i. Have a prevailing accruing interest rate higher than [10]%;
ii. Have an outstanding principal balance higher than 90% of the value of the underlying
home at the time of the settlement.
OR:
b. It must satisfy both of the following criteria:
i. Have an outstanding principal balance that is equal to, or higher than, 110% of the
value of the underlying home at the time of the settlement;
ii. Either:
1. the borrower can demonstrate and certify (under penalties of perjury) that the
total of mortgage debt service, real estate taxes and homeowner’s insurance
costs relating to the home constitute more than 40% of the homeowner’s
normalized family gross income; or
2. the borrower can demonstrate and certify (under penalties of perjury) that the
borrower or the borrower’s spouse/partner has lost his or her job, suffered a
disabling medical condition, suffered the death of a spouse/partner, or has
been divorced from and abandoned by a former spouse/partner—in all cases,
after the mortgage loan was originally made.
OR:
c. The mortgage lender has issued to the borrower/homeowner a notice of default and intent to
foreclose, and has commenced court proceedings for foreclosure.
Notwithstanding the foregoing, mortgage loans will not automatically qualify as QIMs (x) if it
can be demonstrated that a borrower made a material misrepresentation on his loan application,
(y) if the property securing the mortgage is not the borrower’s primary residence; or (z) if at least three monthly payments were not received on the loan since its origination (i.e., the borrower does not have a history of making concerted efforts to pay).
Any mortgage loan satisfying the criteria in a, b or c, above, shall be a QIM and shall give the
borrower the right to participate in a settlement under the Plan, with the lender mandated to
effectuate such settlement on the borrower’s request. Notwithstanding the foregoing, a settlement under the Plan shall be available to all borrowers and lenders, by mutual agreement, regardless of whether the above criteria are satisfied
Surrender of Deeds and Settlement of Mortgage Loan Obligations –
Lenders will take title to homes settled under the Plan. The lender will release the borrower from any and all obligations associated with the former loan and will take title as-is and without recourse to the former borrower. No interest, penalties or fees may be assessed by the lender in connection with the settlement. Lender and borrower shall mutually release each other from any preexisting claims or threatened claims at the time of the settlement. The only continuing relationship between lender and borrower shall be set forth in the Recovery Lease pertaining to the subject home
source
Daniel Alpert
http://www.westwoodcapital.com/opinion/images/stories/articles_oct/the_freedom_recovery_plan.pdf
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