Contoversial Nationwide Service To Facilitate Loan Modifications In Bankruptcy Leaves Debtor Attorneys Divided

MSNBC.com reports:

• Aiming to keep overextended borrowers in their homes, judges and trustees in the federal bankruptcy court system have helped a small Kentucky firm set up a nationwide service intended to speed the modification of troubled mortgages.

• But the court system’s unusual support for the private project, which some supporters believe could also help stem a surge in bankruptcies, has divided debtor attorneys, some of whom believe their colleagues have gotten in bed with the enemy and others who say it is just one potential tool to clean up a giant mess. It could, however, make millions for its creator.

• The idea behind the “Debtors Counsel Loss Mitigation Web Portal” is simple, owner Joseph C. Smith II told msnbc.com in an interview. Attorneys representing troubled borrowers can use a single Web site to communicate with many mortgage servicers and lenders about changing the terms of loans. The servicers and lenders, in turn, can consolidate their work on such requests.

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• [D]avid Baker, a bankruptcy attorney from Boston, told msnbc.com that he is using the site and “I’m certainly going to put as many of my clients through it as I can in hopes that we accomplish something.”

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• But [April] Charney, the Florida legal aid attorney, said her work has proven that, because of securitization issues, the true ownership of many currently troubled mortgages cannot be determined, which means that deals with lenders cannot be made. “Maybe they’re using this data to access a workout, but if you’re in my world you know there’s no workouts to be had,” she said. “I don’t want my client giving out financial information to the other side, and that’s what you’re doing with this portal.”

For more, see Bankruptcy system takes on the mortgage mess (Federal trustees help private entity land role as delinquent-loan middleman) (go here for entire story on one web page).