Congress Urged to Adopt Bankruptcy Change to Save Homes

01 Nov Congress Urged to Adopt Bankruptcy Change to Save Homes

H.R. 3609 would allow a debtor to modify a home mortgage by reducing the amount of the debt to the fair market value of the property, if the property is worth less than the amount of the debt, and to pay that debt at reasonable rates in accordance with existing Supreme Court precedent, according to Raleigh, N.C., bankruptcy attorney William E. Brewer, Jr.

Current bankruptcy law prohibits the modification of mortgage debt secured by the debtor’s principal residence.

Testifying today before the U.S. House Judiciary Committee Subcommittee on Commercial and Administrative Law on behalf of the National Association of Consumer Bankruptcy Attorneys, Brewer said both homeowners and mortgage lenders will benefit from a newly-created right to modify home mortgages in chapter 13 bankruptcy. Borrowers will gain an enhanced opportunity to retain their homes and mortgage lenders will receive a stream of payments at reasonable market rates for the entire debt or the value of the property, whichever is less instead of substantial losses from foreclosures, he said.

Voluntary loan modifications are unrealistic and designed not to prevent, but only delay, the inevitable foreclosure, Brewer testified. These voluntary modifications will reach only a small percentage of defaulting homeowners, he said.

The mortgage industry created this financial Titanic via the fragmentation of the industry and the securitization of the home loans which allowed each segment to make profits and pass the risk up the line, Brewer said. Now that the ship has hit the iceberg, I submit that Congress should view with skepticism the industry’s contention that it has enough lifeboats to save the passengers, Brewer told the House Subcommittee.

Read the complete text of Billy Brewer’s testimony.

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Jill Michaux has helped Kansas consumers with debt problems for three decades. She and her partner, Mark Neis, are Topeka's only bankruptcy specialists, board certified in consumer bankruptcy law by the American Board of Certification. She help start the National Association of Consumer Bankruptcy Attorneys.

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