Yesterday, the Federal Housing Finance Agency (FHFA), which administers both Fannie & Freddie, issued a statement that HARP modifications will not include principal reductions. To review the statement, click here.

The Principal Reduction Alternative (PRA) is a program under the Making Home Affordable umbrella designed for assisting homeowners whose home values are less than the amount they owe on their mortgages. PRA was launched in 2010 for loan-to-value ratios above 115%, in which principal forgiveness was the first step in the modification process to lower the loan payment, before reducing the interest rate or extending the term.

According to FHFA, PRA "would not make a meaningful improvement in reducing foreclosures in a cost effective way for taxpayers". In fact, FHFA was concerned with the moral hazard that PRA would cause in furthering strategic default by borrowers who sought to obtain a principal reduction.

To read the Acting Director, Edward J. DeMarco's letter to Congress explaining this announcement, click here.

It appears that this announcement will kill most principal reductions offered by non-GSEs (not Fannie / Freddie loans) as well. The analysis is thorough and Fannie / Freddie have always set the benchmark for the mortgage industry. The takeaway from this announcement is that modifications are going to focus on reducing interest rate and extending the loan term as opposed to reducing principal, which was the way the programs worked prior to the implementation of the PRA option in 2010. To be clear, the reason that the 2010 program was just analyzed by FHFA is that Fannie & Freddie were only recently requested to follow a program utilized by non-GSEs. Yet, this announcement has given lenders an iron wall to hide behind should they also not wish to follow the program, but they were following the program anyway because they were worried about having a public relations backlash.

Do you think that principal reduction should be part of helping struggling homeowners? Or better yet, as Mr. DeMarco's letter states do you think that principal reduction will create more artificial struggling homeowners? I guess we will never know if the chicken or the egg came first when it comes to principal reduction.

Applications must be submitted by September 30, 2012

To read the program guidelines, click here.

The program provides a zero-interest deferred loan of $10,000 to assist with the down payment toward the purchase of an owner occupied, single family residence.

To qualify, the applicant, must not have owned a home during the 3-year period immediately prior to this purchase; have annual income <= 80% of the area median income; have annual household income of >= $30,000; attend mortgage counseling; occupy the property as a principal residence; among others.

Maximum FMV of residence bought under this program must be <= $362,790.

A great program that is worth taking a look at.

Reminder

Tonight, the Suffolk Bar Association is hosting representatives from the Town of Brookhaven, including Tullio Bertoli, Commissioner of Planning, and Robert Quinlan, Town Attorney, who will both comment on Brookhaven's aspects of the HUB. If you are a member of the Bar Association, please attend at 6:30pm in the Board Room. 


Andrew M. Lieb
Real Property Committee Chair 

In an issue often debated and recently re-visited by the Civil Court, Kings County, a residential landlord does not have a duty to mitigate damages when a tenant breaches the lease by vacating the premises prior to the expiration of the term.  See Kings Holding, LLC v. Terrick, 2012 NY Slip OP 51153U. The Court cited to the previous holding of Holy Properties v. Cole Products, which found that the duty to mitigate does not exist concerning commercial premises, and additionally cited to Rios v. Carrillo, which subsequently adopted the holding of Holy Properties by finding that the duty to mitigate does not exist concerning residential premises. It is important to note that in Holy Properties and Rios, both holdings of the Second Department, the leases governing each respective premises specifically provided that the landlord was under no duty to mitigate damages or that the tenant remained liable to landlord for rent upon the cancellation of the lease except as provided by law.
Furthermore,  the landlord is not entitled to rent until the lease term has expired and there is a surrender of the premises by operation of law. In Kings, the surrender occurred after the landlord had submitted a "move out form" to the tenant after the tenant had moved out without notice, notified the tenant of the amount owed in arrears and informed the tenant that it was withholding the security deposit. This date of surrender actually occurred one month after the tenant physically left the premises. The date of surrender will be case specific, but may be interpreted from the conduct of the parties, the abandonment of the premises by tenant and the landlord's acceptance of tenant's surrender.

We previously blogged about 2 proposed items of legislation that were designed to both ensure proper paperwork in foreclosures and to eliminate the shadow docket of foreclosures that have been commenced, but have not moved past the foreclosure settlement conference stage of a residential foreclosure action.