Principal Paydown Plan

NACBA’s Principal Paydown Plan

Dear NACBA Members,

I am pleased to report that NACBA’s “principal paydown plan,” designed to help struggling homeowners in chapter 13 save their homes from foreclosure, is now under serious consideration by the Federal Housing Finance Agency (FHFA). This is the result of work over the past year by the NACBA Board, Legislative Committee and individual NACBA members to explain and build support for this plan among lawmakers, policymakers in the various federal agencies and the White House, and with consumer, housing and other allies. The concept of the principal paydown plan grew out of the recognition that it would not be possible to get legislation adopted that would address the continuing foreclosure crisis and that instead we would need a solution that could be implemented outside of the legislative arena.

This page was created to give you the latest information related to the Principal Paydown Plan’s implementation. Please review these documents, including the Executive Summary listed below, and feel free to contact us about any questions concerning the program. We will continue to keep you up to date on new developments on this issue.

Sincerely,
Ike Shulman
NACBA Legislative Chair

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PRINCIPAL PAYDOWN PLAN, EXECUTIVE SUMMARY

  • This plan restructures certain undersecured (underwater) mortgages in Chapter 13 bankruptcy cases so the homeowner can pay down the loan principal and reduce negative equity and acquire equity faster than with the existing loan
  • This is accomplished by reducing the interest rate to 0% for five years, letting the borrower’s entire monthly loan payment go directly to the principal
  • During the five-year period, the borrower’s minimum monthly housing payment is calculated similar to a HAMP modification payment, at 31% of gross income
  • At the end of the initial five-year period, the remaining principal balance is amortized over 25 years at the Freddie Mac survey rate
  • The bankruptcy judge, with the assistance of the Chapter 13 Trustee, reviews the borrower’s budget to confirm the eligibility of the borrower and feasibility of the payments; and they oversee the implementation of the plan
  • There is no cramdown – the benefit to the borrower is achieved by actually paying down the loan
  • In exchange for this benefit, the borrower agrees to a general settlement of all claims against the lender and servicer and avoiding future title and loan litigation
  • The federal government and US taxpayers’ substantial liability on Fannie Mae and Freddie Mac owned and insured loans would be reduced by this plan
  • Everyone wins with this plan – even the borrower’s community and local government benefit from improved neighborhood stability