Emergency Home Ownership and Mortgage Equity Protection Act: North Carolina Representatives Miller, Butterfield And Watt Sponsor / Co-sponsor HR 3609

20 Feb Emergency Home Ownership and Mortgage Equity Protection Act: North Carolina Representatives Miller, Butterfield And Watt Sponsor / Co-sponsor HR 3609

I would like to thank North Carolina Representatives Miller, Butterfield and Watt for
sponsoring and co-sponsoring HR 3609, and hope that the other 10 members of the North Carolina Congressional delegation join to co-sponsor HR 3609, the “Emergency Home Ownership and Mortgage Equity Protection Act.”

According to the Center for Responsible Lending:

HR 3609 will help 600,000 families nationwide keep their homes. Without
this remedy, massive foreclosures will continue to weaken the entire

In North Carolina, foreclosure starts have increased 200% over the last
9 years, from less than 17,000 in 1998 to almost 50,000 in 2007.

The NC Commissioner of Banks has predicted 55,000 to 60,000 foreclosure
starts in 2008, a 10 – 20% increase over 2007. Two-thirds of these
families will lose their home to foreclosure.

Subprime foreclosures in NC will result in declining house values for
332,000 families who happen to live near one or more homes with a failed
loan. These innocent by-standers will lose almost $500 million in home

The Asheville Citizen-Times wrote a superb editorial on February 7
urging their congressman, Rep. Shuler, to co-sponsor this important
bill. Read the editorial

From the Asheville Citizens-Times

House bill to head off foreclosures deserves green light
A bill under consideration in the U.S. House of Representatives would help about 600,000 families nationwide in financial trouble keep their homes, according to the Center for Responsible Lending.

The bill would change bankruptcy law to permit a judge to modify loans on a family’s primary residence, as he can already do on investment properties, vacation homes and boats.

The Mortgage Bankers Association says the change would encourage homeowners to seek bankruptcy as a way of reducing the payments on their loans. That’s an argument that won’t fly. To qualify for Chapter 13 bankruptcy, the applicant must demonstrate an inability to pay his or her debts.

If the person can pay, the bankruptcy would not be granted. Besides, it’s hard to imagine a person voluntarily seeking bankruptcy, a humiliating and invasive process, if he or she had other alternatives.

Shuler should back it

The bill’s primary sponsor is Rep. Bradley Miller, D-N.C. The bill has 53 cosponsors. Unfortunately, our own 11th District congressman, Heath Shuler, D-Waynesville, is not yet among them. His office said Wednesday that he is still deciding whether to sign on. We would urge him to do so.

At a time of unprecedented problems in the housing market, helping 600,000 families stay in their homes will benefit them, their neighborhoods and the overall economy.

“The bankruptcy law is wildly off-kilter in how it treats homeownership,” said Jack Kemp, a former Housing and Urban Development director and Republican congressman, who supports the change. “Under current law, courts can lower unreasonably high interest rates on secured loans, reschedule secured loan payments to make them more affordable and adjust the secured portion of the loans down to the fair market value of the underlying property — all secured loans, that is, except those secured by the debtor’s home.”

The House bill narrowly targets loans that face foreclosure. Relief is available only to loan products federal regulators consider risky, such as subprime adjustable rate mortgages. Fixed-rate or conventional adjustable-rate loans are not eligible.

When homes are lost to foreclosure, other nearby homes lose value and entire neighborhoods are hurt. The Center for Responsible Lending estimates that by helping as many as 600,000 families stay in their homes, the change in the bankruptcy law would also prevent $72.5 billion of wealth from being lost by families faithfully paying their mortgages but with the misfortune of living within a block of these foreclosures.

Local impacts

Twenty percent of the loans that originated in Western North Carolina’s 11th District during 2005 and 2006 are subprime. More than one in six of those are expected to end in foreclosure or loss of a home, resulting in price declines for more than 13,000 surrounding homes, an overall decrease of $22.8 million in home equity, according to the Center for Responsible Lending.

One would assume that lenders would support the bankruptcy law change. Given the current glut of homes in many markets nationwide, there would appear to be little for them to gain by foreclosing. But that assumption would be wrong.

In testimony before the House Judiciary Committee on Jan. 29, David G. Kittle, chairman-elect of the Mortgage Bankers Association, said, “It’s a myth that the total cost of foreclosure is greater than the risk of bankruptcy. Lenders often have mortgage insurance to protect themselves against losses. The FHA (Federal Housing Administration) program is one kind of credit enhancement.”

Mortgage companies don’t want bankruptcy judges to be able to adjust the value of the loan to the actual value of the underlying property, which may have sold for more than it is currently worth in the falling real estate market.

A credit enhancement (an FHA guarantee to pay the lender if the debtor defaults) would be reduced by the amount of the adjustment. “The lender will have to absorb the increased risk, which it will ultimately pass on to the consumers in the form of higher prices and more restrictive lending terms,” Kittle said.

Lender hypocrisy

This bellyaching is pretty hard to take from the industry that brought us the subprime crisis by making questionable loans, then slicing and dicing them so that it’s virtually impossible to figure out who owns them. In fact, only 2 to 3 percent of FHA loans would qualify for the legislation, but it takes some gall to suggest that taxpayers should bail out an industry that made subprime adjustable rate loans in many cases without any documentation of ability to repay.

It should also be remembered that bankruptcy laws allowed loan modification on a family’s primary residence between 1978 and 1993. During that period there was no evidence of an impact on the credit market, according to the Center for Responsible Lending. Moreover, at present bankruptcy judges can modify loans secured by family farms, commercial real estate, investment properties and vacation homes and there’s no evidence of negative effects.

The loss of homes and home equity in Western North Carolina ought to convince Rep. Shuler to support the bill, titled the Home Ownership and Mortgage Equity Protection Act.

The nationwide impact should convince Congress to pass it and the president to sign it.

Please write your Representatives a letter urging them to support this important legislation.

See also Wendell Sherk‘s Article on Senate Bill 2636 “Mortgage Law Legislation You Should Support.”

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Concentrating in Consumer Bankruptcy Law since 1988; Wake Forest Law School JD 1987 Law Office of Susanne M. Robicsek since 1993, Law Clerk to Judge Rufus Reynolds, US Bankruptcy Judge for Middle District of NC; Burns Price & Arneke, PA, David Badger and Associates, PA.

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