Mortgage modification legislation makes headway
Legislation that will allow consumers to get a reprieve from foreclosure if they file for bankruptcy is gaining momentum on Capitol Hill. The Helping Families Save Their Homes in Bankruptcy Act, sponsored by U.S. Senator Dick Durbin (D-IL), is opposed by most lenders and industry groups. Citigroup, however, has recently agreed publicly to support the legislation, increasing the chances that it may become law.
For over a year, consumer groups have been calling for legislation that would allow bankruptcy judges to modify home loans for consumers in bankruptcy who meet strict income and expense criteria. Currently, a loan for a homeowner’s principal home cannot be modified, while those for investment properties can. The measure would treat home loans like virtually every type of personal debt, including vacation homes and family farms. It would allow borrowers up to 30 years from the original loan date to repay their mortgages, at a new fixed interest rate. When appropriate, a bankruptcy judge could “cram down” the loan balance to reflect the current property value.
Supporters of the measure point out that it requires no taxpayer funding, and will likely return more money to lenders than allowing more homes to go into foreclosure. Without aggressive action to stem foreclosures, 8.1 million foreclosures are projected in the next five years. That’s one in nine households, or one in six homes with mortgages, according to Credit Suisse research.
Senator Chris Dodd (D-CT), Chairman of the Senate Banking Committee and staunch supporter of Durbin’s proposal, has promised to include the provision in the upcoming economic recovery package.
