Bankruptcy Reform and Interest Rates: Who Do You Believe?

It just seems like yesterday that Bankruptcy Attorneys across the nation were discussing the new Bankruptcy law (2005) and how it will change bankruptcy practice. Many bankruptcy judges, scholars and practitioners were vehemently opposed to changing the bankruptcy laws.

Unfortunately, we lost that battle and the new bankruptcy laws were implemented. But, we were correct, changing the bankruptcy laws did nothing to change the lending laws and the predatory lending that is so pervasive in this country.

Well, here we are again, a little over two years later, and bankruptcy practitioners, judges and scholars are again discussing how H.R. 3609 will change the bankruptcy landscape that we are still learning how to deal with.

H.R. 3609, if passed in its present form, would allow modification of certain mortgages in bankruptcy. The biggest opponent of the bill is the mortgage industry. The mortgage industry is convinced that if this bill is passed and mortgages are allowed to be modified by bankruptcy judges across the nation, interest rates will rise for everyone.

Well this sure sounds good as a battle cry, I mean who wants to pay higher interest on their purchases. Their logic is simple: If individuals cannot cram down their mortgages in bankruptcy, then mortgage lenders will not suffer losses, and, of course, these savings will be passed onto consumers. Yeah right. Until Wal-Mart gets into the mortgage lending business, I do not see mortgage lenders passing on any savings to the consumer.

Think about it for just one moment, when does the consumer ever catch a break. For example: I live in Fort Myers, Florida, which, over the twenty or so years that I have been here, experienced significant growth. I remember about twenty years ago when they put up the new Cape Coral bridge. The toll on that bridge was only supposed to remain until the new bridge was paid for. Well, that bridge is still there today. I’m sure that bridge has been paid for ten times over.

The most important part of the equation is that the mortgage lending industry has not offered one shred of evidence to support this assertion. Although I am not from Missouri, I would like for them to “show me” some evidence to back up this theory. A battle cry is good to build momentum, but, there needs to be some substance to sustain the argument.

Maybe I am cynical, and of course, I choose to represent debtors instead of lenders, but in the bankruptcy courts across the nation, debtor’s attorneys like me cram down cars, furniture, etc. each and every day of the year. Yet, I still see Rooms to Go offering zero percent financing until 2009. GMAC and Ford Motor Credit still run deals with zero percent financing.

The bottom line is this. The mortgage lending industry is in turmoil. The industry is bleeding cash, and they are afraid of losing anymore money than they are right now. However, I have hundreds of clients who would have liked to stay in their homes but couldn’t because they were unable to afford them.

If this bill passes in its present form, many people in Florida will be able to save their homes. If they stay in their homes, they will pay their mortgages, which means increased revenue to the owners of these mortgages. In Southwest Florida, the estimated number of vacant homes is in the thousands. This is a scary statistic and something needs to be done. Please call your local Congressman and tell them in no uncertain terms to vote for this bill.