Steering Loan Modifications Post-Pandemic

85 Law & Contemporary Problems (Forthcoming 2022)

22 Pages Posted: 25 Jun 2021

See all articles by Pamela Foohey

Pamela Foohey

Yeshiva University - Benjamin N. Cardozo School of Law

Dalié Jiménez

University of California, Irvine School of Law; Harvard Law School - Center on the Legal Profession

Christopher K. Odinet

University of Iowa - College of Law

Date Written: June 15, 2021

Abstract

As part of federal and state relief programs created during the COVID-19 pandemic, many American households received pauses on their largest debts, particularly on mortgages and student loans. Other people may have come to agreements with their lenders, likewise pausing or altering payment on other debts, such as auto loans and credit cards. This relief allowed households to allocate their savings and income to necessary expenses, like groceries, utilities, and medicine. But forbearance does not equal forgiveness. At the end of the various relief periods and moratoria, people will have to resume paying all their debts, the amounts of which may have increased to account for the missed or reduced payments. Yet in the interim months, people have faced persistent unemployment and dwindling household wealth. Many likely will be unable to resume all debt payments, leading them into formal or informal bankruptcy. Incentivizing lenders to work with people to craft successful loan modifications will stave off a swell of bankruptcy filings and economic loss. The 2008 financial crisis showed how poorly prepared creditors were to offer successful debt workouts. Now is the time for policymakers to plan for the coming crash of needed loan modifications across consumer credit products. This Essay sketches a path for how that should be done.

Keywords: COVID-19, coronavirus, consumer debt, consumer credit, debt collection, forbearance, moratorium, modification, mortgages, mortgage servicing, loan servicing, auto loan, credit cards, student loans, bankruptcy, foreclosure, repossession, garnishment, CARES Act, American Rescue Plan Act, CFPB, UDAAP

JEL Classification: D10, K36

Suggested Citation

Foohey, Pamela and Jiménez, Dalié and Odinet, Christopher K., Steering Loan Modifications Post-Pandemic (June 15, 2021). 85 Law & Contemporary Problems (Forthcoming 2022), Available at SSRN: https://ssrn.com/abstract=3869961 or http://dx.doi.org/10.2139/ssrn.3869961

Pamela Foohey (Contact Author)

Yeshiva University - Benjamin N. Cardozo School of Law

55 Fifth Ave.
New York, NY 10003
United States

Dalié Jiménez

University of California, Irvine School of Law ( email )

401 E. Peltason Dr.
Ste. 1000
Irvine, CA 92697-1000
United States

HOME PAGE: http://www.law.uci.edu/faculty/full-time/jimenez/

Harvard Law School - Center on the Legal Profession ( email )

1585 Massachusetts Avenue
Wasserstein Hall, Suite 5018
Cambridge, MA 02138
United States

Christopher K. Odinet

University of Iowa - College of Law ( email )

130 Byington Road
Iowa City, IA 52242
United States

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