Wall Street Bailout Won’t Stop Home Foreclosures

24 Sep Wall Street Bailout Won’t Stop Home Foreclosures

The U.S. government will not have the right to modify distressed home mortgage loans if the government acquires mortgage-backed securities as part of a $700 billion Wall Street bailout, the Center for Responsible Lending (CRL) said today. Only court-ordered loan modification in chapter 13 bankruptcy will prevent home foreclosures in CRL’s view.

Why? The holders of the securities do not control how individual mortgages are managed. The CRL explains:

  1. The government would not acquire individual mortgages, just securities issued by the trusts that own the mortgages.
  2. The government would be one of many owners of the securities, none of whom can tell the loan servicers how to manage the mortgage loans.
  3. Servicers, who manage the mortgage loans, cannot or won’t modify loans for many reasons.
  4. 50% of distressed borrowers have second mortgages preventing loan modification.

The CRL says restructuring distressed home mortgage loans through the courts overcomes obtacles and allows for large-scale foreclosure prevention. The trusts that own the mortgages can be required to participate and second mortgages can be dealt with in court proceedings. The existence of an court-ordered remedy for borrowers will make trusts more willing to approve voluntary loan modifications, the CRL predicts.

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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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