I know judges do it, but there is no guarantee your judge will and technically they aren’t abiding by the law. If unlimited mods were available in bankruptcy, the rate would go up to 10 million per year. Everyone with an underwater mortgage would file and even if you were close, you’d file. The banks would collapse even faster than they are now.
Ideally, there should be a write down of the mortgage and a cut in principal to actual value with a profit sharing kicker for the future. Banks lose far more in foreclosure than they would from massaive mods.
Judges? They would have nothing to do with it in most states. In a chapter 7 they rarely will sign off on a mortgage reaffirmation agreement anyway.
A during BK mod is up to the bank. Hell, ANY mod is.
As far as which way foreclosure/mod is a more probable loss, I’d go with this scenario. Most of the ‘first time’ home buyers who could not have qualified for a conventional mortgage, will most likely default on a mod as well. That is IF they ever get to “permanent mod” status. Something pathetically few qualified folks ever reach because of bank obstinacy and incompetence.
Here’s the issue with principle write-downs. What happens to the guy who is making his payments despite loss in market value? Does he get a readjustment too?
I’d argue the best way to handle that is with a partial principle forbearance. I think the current guideline limit is 30% of principle. Just set aside whatever amount, up to that percentage as a ballon payment at the end of the mortgage.
But banks for the most part are not even doing this.