Lenders Are Fighting Against Help For Homeowners In Bankruptcy

22 Feb Lenders Are Fighting Against Help For Homeowners In Bankruptcy

Congress is considering much needed help for homeowners by allowing court supervised modification of home mortgages in bankruptcy court, but the lenders are fighting to stop them. This legislation is important because it gives homeowners facing foreclosure a chance to save their homes by repaying the loans on more favorable terms.

The lenders win because they are paid for the loan rather than acquiring another home by foreclosure. They are paid with interest, although maybe not at the high profits they had hoped for. Neighbors win because their property rates aren’t pushed further down by low prices of resale of foreclosed properties, and they aren’t facing trying to sell their own homes in a market flooded with below value listings. Cities benefit by retaining their tax basis and having families remain in their homes, paying for the use of utilities and their taxes, and preventing a glut of vacant and abandoned houses.

Many say that the Unites States Bankruptcy Courts are the best place to deal with this crisis. Bankruptcy Judges are used to modifying loans, in fact home mortgages are about the only loans that the current laws prevent them from restructuring. The bankruptcy courts would be able to work with these loans now, giving immediate relief without having to train anyone or start any new agency to oversee the process.

The President has floated numerous suggestions of help, but nothing that has been proposed will provide the the help needed now, nor do the suggestions reach everyone.

The lenders are working hard to stop these laws, so it is important that people supporting the laws speak up. Please take a moment to call, email, write or fax your Senators telling them that you support Bill S. 2636. Here is a link to find the email address and other contact information for your Senator. The House is also looking at legislation. Please contact your Representatives a letter urging them to support HR 3609.

Read about it in the Washington Post article:

Lenders Fighting Mortgage Rewrite

Measure Targets Bankrupt Homeowners

  Sen. Richard J. Durbin's bill would allow bankruptcy judges to alter the terms of first mortgages for primary residences. Sen. Richard J. Durbin’s bill would allow bankruptcy judges to alter the terms of first mortgages for primary residences. (By Alex Wong — Associated Press)

By Jeffrey H. Birnbaum

Washington Post Staff Writer
Friday, February 22, 2008; Page D01

The nation’s largest lending institutions are lobbying hard to block a proposal in Congress that would give bankruptcy judges greater latitude to rewrite mortgages held by financially strapped homeowners.

The proposal, which could come to a vote in the Senate as early as next week, is being pushed by Democratic congressional leaders and a large coalition of groups that includes labor unions, consumer advocates, civil rights organizations and AARP, the powerful senior citizens’ lobby.

The legislation would allow bankruptcy judges for the first time to alter the terms of mortgages for primary residences. Under the proposal, borrowers could declare bankruptcy, and a judge would be able to reduce the amount they owe as part of resolving their debts.

Currently, bankruptcy judges cannot rewrite first mortgages for primary homes. This restriction was adopted in the 1970s to encourage banks to provide mortgages to new home buyers.

The Democrats and their allies see the plan as an antidote to the recent mortgage crisis, especially among low-income borrowers with subprime loans. The legislation would prevent as many as 600,000 homeowners from being thrown into foreclosure, its advocates say.

“We should be giving families every reasonable tool to ensure they can keep a roof over their heads,” said Sen. Richard J. Durbin (Ill.), the Senate’s second-ranking Democrat and author of a leading version of the legislation.

But the banks argue that any help the proposal might provide to troubled homeowners in the short run would be offset by the higher costs that borrowers would have to pay to get mortgages in the future. The reason, banks say, is that they would pass along the added risk to borrowers in the form of higher interest rates, larger down payments or increased closing costs.

If banks were unable to pass on the entire cost, they could be forced to trim their profits.

“This provision is incredibly counterproductive,” said Edward L. Yingling, president of the America Bankers Association. “We will lobby very, very strongly against it.”

The Durbin measure is part of a larger housing assistance bill being pushed by Democrats in the Senate. A separate version of the measure was approved late last year, mostly along party lines, by the House Judiciary Committee. The Bush administration has said that it opposes both provisions as overly coercive and potentially detrimental to the already strained mortgage market.

Lobbyists for major banks have made the proposal’s defeat a top priority. They have been meeting at least weekly to coordinate their efforts and have fanned out on Capitol Hill to meet with lawmakers and their staffs.

At least a dozen industry associations have banded together to fight the proposed legislation. They include the American Bankers Association, the Financial Services Roundtable, the Consumer Bankers Association and the Mortgage Bankers Association. These groups and others have signed joint letters to lawmakers on the issue.

In one of their letters, sent to Senate leaders last week, the groups wrote that the legislation would “have a very negative impact in the financial markets, which are struggling in part because of difficulties in valuing the mortgages that underlay securities [and] would greatly increase the uncertainty that already exists.”

Bank lobbyists have also gone online to make their case. The mortgage bankers have set up a Web site, http://www.mortgagebankers.org/StopTheCramDown, that can calculate how much mortgage costs might increase by state and by county if the Durbin measure were to become law. “Cram down” is the industry term for a forced easing of mortgage terms.

Supporters of the measure are also sending letters and meeting with lawmakers. A letter urging a quick vote on the proposal was delivered to Senate Majority Leader Harry M. Reid (Nev.) last week. It was signed by 19 organizations, including the Consumer Federation of America, the AFL-CIO, the National Council of La Raza, the U.S. Conference of Mayors and AARP.

The letter said, “The court-supervised modification provision is a commonsense solution that will help families save their homes without any cost to the U.S. Treasury, while ensuring that lenders recover at least what they would in a foreclosure.”

The Center for Responsible Lending, a pro-consumer watchdog group that backs Durbin’s effort, is trying to instigate voter e-mails to lawmakers on the subject. The group’s Web site includes a page that allows people to send electronic notes supporting the measure to their elected representatives with just a few clicks of a mouse.

AARP spokesman Jim Dau said his group will also ramp up its efforts. It may soon ask its activists to urge lawmakers to back the mortgage-redrafting legislation. AARP, which is the nation’s largest lobby group, has a list of 1.5 million volunteers whom it says it can call upon to contact lawmakers on legislative matters.

See also Kent Anderson‘s article: Congress Could Save Your Home From Foreclosure;

Wendell Sherk‘s article on the Senate bill: Mortgage Modification Bill: Mortgage Lenders Don’t Get It;

Susanne Robicsek‘s articles on the House bill: Bill To Protect Homes Via Change To Bankruptcy Laws; and Emergency Home Ownership and Mortgage Equity Protection Act: North Carolina Representatives Miller, Butterfield And Watt Sponsor / Co-sponsor HR 3609;

NYT Article Rescues for Homeowners in Debt Weighed ;

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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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