Friday, February 24, 2012
Rep. Rich Workman’s bill (H.B. 549) recently cleared the House Judiciary committee by a 17-1 vote. If the bill continues, as anticipated, it will significantly affect the amount and duration of alimony that one spouse can expect from the other. Rep Workman (R-BREVARD) has stated that H.B. 549 is legislation that is “clarifying the law and making it fair to all parties involved."
The legislation will make discernible differences to the current divorce statute, including the re-designation of permanent alimony as long term alimony and revising provisions relating to its award. In long term alimonies, the payments may not exceed 60% of the length of the marriage. Another major departure from the current law involves the requirement that a judge consider the impact of divorce on the standard of living to both parties. Currently, many times judges will use alimony to help the receiving spouse maintain his or her standard of living. Moving forward, HB 549 will require judge to accept the fact that both spouses will have a reduced standard of living.
Also, in any award of alimony, the court may order payments which may not exceed 20 percent of the payor's monthly net income to include all sources of income averaged over the last 3 years of the marriage. The bill eliminates the ability of the court to consider the adultery of either spouse in determining the amount of alimony, if any, to be awarded. However, adultery would still be considered to the extent that the cheating spouse spent a substantial amount of money on his or her paramour. Rightfully so, the non-cheating spouse would be compensated for the dissipation of marital funds spent on the paramour.
Some of the other notable changes include:
- Any award of alimony terminates upon the payor attaining the full retirement age. The payor's ability to work beyond that age may not be used as a reason to extend alimony.
- A payor who was married to the alimony recipient for more than 7 years may file a modification action in accordance with s. 61.08(4), Florida Statutes, no earlier than 2 years after the effective date of this act.
- In accordance with s. 61.14, if an alimony award has been modified to terminate due to a supportive relationship and that supportive relationship does not produce a marriage, the recipient is not entitled to reinstatement of alimony from the payor.
This act shall take effect on July 1, 2012
Monday, February 13, 2012
Congress Pushes Federal Housing Finance Agency to Implement Principal Paydown Plan
After expending substantial efforts in support of its Principal Paydown Plan, the National Association of Consumer Bankruptcy Attorneys (NACBA) has gained some important allies on Capitol Hill. NACBA recently announced that a significant number of Congress Members have endorsed its Principal Paydown Plan, and that Senators and Congress Members are pushing the Federal Housing Finance Agency (FHFA) to implement the plan.
NACBA’s Principal Paydown Plan is designed to assist homeowners who are underwater on their mortgage payments by reducing the principal balance. Under this proposed plan, interest rates would be reduced to 0% for five years, allowing the borrower’s entire monthly mortgage payment to go directly toward the principal. Similar to HAMP loan modifications, the minimum monthly payment would be calculated based on the borrower’s gross income. After this initial five-year period, the remaining principal balance would be amortized over 25 years at the Freddie Mac survey rate. The Principal Paydown Plan would allow bankruptcy judges to force these loan modifications for certain mortgages in Chapter 13 bankruptcy cases, a strategy not currently permitted under the federal Bankruptcy Code. Under current bankruptcy laws, a loan modification cannot be made unless the mortgage lender agrees to it.
The director of the FHFA, Edward Demarco, initially made positive comments regarding the Principal Paydown Plan, stating that the plan struck him as “responsible” and noting that it was a “credible way to address the crisis while recognizing [that] various interests mortgaged properties.” Despite these initial encouraging comments, Demarco recently informed Congress that the FHFA would not be implementing the Principal Paydown Plan. Demarco claims that only a small amount of Fannie Mae and Freddie Mac borrowers have filed for chapter 13 bankruptcy, thus, the proposed plan would not be significantly helpful. The Agency did, however, commit to helping eligible borrowers obtain HAMP modifications. NACBA counters that the FHFA’s response is “disappointing and inadequate,” but remains hopeful that the Agency will change its position in response to requests by Congress Members and Senators.
Despite the FHFA’s initial rejection, Congress Members and Senators who support the Principal Paydown Plan are now pushing the Agency to implement the plan. In private meetings and letters to the FHFA, Congress Members and Senators have requested that the Agency reconsider its initial position to decline the plan. Namely, Members of Congress and Senators are encouraging the FHFA to exercise its authority over Fannie Mae and Freddie Mac by requiring them to agree to the Principal Paydown Plan when proposed by a struggling homeowner in chapter 13 bankruptcy cases. If the FHFA adopts the Principal Payment Plan, NACBA believes that it will help struggling homeowners, stabilize the housing market, and increase home values.
So far, the Principal Paydown Plan has not been implemented, thus, we are unable to currently use bankruptcy to force the modification or principal pay-down of a home mortgage. However, we will continue to closely monitor the situation for any potential changes or strategies available to help struggling homeowners.
Wednesday, February 8, 2012
Recent Changes to the Home Affordable Modification Program
In 2009, the federal government implemented the Home Affordable Modification Program (“HAMP”) to help struggling homeowners avoid foreclosure by modifying their loans in order to reduce monthly mortgage payments. The program was not met with as much success as anticipated, and as a result, the federal government is attempting to make enhancements to the program in hopes of reaching more homeowners. On January 27, 2012, federal officials announced that the HAMP program will be undergoing many changes including extending the program for another year, expanding eligibility, and increasing incentives for principal reductions.
While HAMP was initially set to expire at the end of this year, the program will now continue through December 13, 2013. Further, many borrowers previously ineligible for assistance will now qualify for loan modifications under the new eligibility requirements. Formerly, borrowers whose housing expenses accounted for less than 31 percent of their income were automatically ineligible for loan modification. Under the new eligibility requirements, borrowers who housing expenses constitute less than 31 percent of their income will no longer be automatically excluded. This class of borrowers will be evaluated under a more flexible debt-to-income standard, which would allow secondary debt to be considered in the evaluation. Therefore, borrowers who have second liens or additional secondary debt could potentially be eligible for loan modification despite the fact that their housing expenses fall below the percentage ceiling. Additionally, eligibility will be expanded to include tenant-occupied rental properties and vacant properties intended for future rental.
The federal government also significantly increased investor incentives in order to encourage investors to engage in principal reductions. Under the new guidelines, banks and mortgage companies will receive 18 cents to 63 cents on the dollar to forgive portions of borrowers' mortgage debt— a huge increase from the 6 cents to 21 cents they were offered under previous guidelines. Further, the Treasury has notified the Federal Housing Finance Agency that it will offer principal reduction incentives to Fannie Mae or Freddie Mac if they permit servicers to engage in principal reductions in conjunction with a HAMP modification. Previously, government-sponsored enterprises, such as Fannie Mae and Freddie Mac, did not benefit from principal reduction loan modifications, which contributed to the underuse of principal reduction in most loan modifications.
According to Massad, Assistant Secretary for Financial Stability, “[e]xtending the reach of HAMP will assist a broader pool of struggling homeowners, offer support for tenants at risk of displacement due to foreclosure, and provide more robust relief to those who participate.” Despite these changes, many remain skeptical that HAMP will be any more effective in helping struggling borrowers avoid foreclosure than it was previously. While only time will tell, the recent changes appear to be a step in the right direction for the federal government in assisting homeowners and improving the housing market.