What’s Wrong with the Mortgage Industry’s Objections to the “Helping Families Save Their Homes in Bankruptcy Act of 2009”?

15 Feb What’s Wrong with the Mortgage Industry’s Objections to the “Helping Families Save Their Homes in Bankruptcy Act of 2009”?

The mortgage industry is putting huge amounts of money behind their efforts to defeat the “Helping Families Save Their Homes in Bankruptcy Act of 2009”. The industry (which got us into what has mushroomed into a world-wide financial collapse) and their supporters are warning of dire consequences if the legislation that will allow Chapter 13 Bankruptcy Court Judges to modify home mortgages becomes a law.

The proposed law allows homeowners to lower the principal owed on their mortgages to the actual value of their homes. It also would allow interest rates to be set at the going rate, and become fixed. In addition, it would allow the term of the mortgage to be reset to as much as 40 years less the time the mortgage has been in effect.

The net result for homeowners will be to allow them to afford their mortgages, keep their homes, and hopefully be able to spend money on other areas, which in itself will help to get us out of this financial crisis.

The mortgage industry threatens that this legislation will increase the cost of future mortgage rates by 2 percent. Even George Will mentioned it on “This Week” this morning. As Barney Frank commented, this is a made up number, and the industry has given no explanation as to how they came up with it. The reality is that future mortgages will not be affected at all by the legislation. This is because the bill specifically limits the mortgages that can be modified in Chapter 13 to those already in effect. This threat by the industry reminds me of the claim by those who were promoting the 2005 amendments to the bankruptcy law that if the amendments were passed (which they were) that every American would effectively get a $400 bonus. I am still waiting for my $400, and I suspect that you are also.

The other fear the mortgage industry is spreading is that mortgage servicers will be subject to being sued by the owners of the mortgages if mortgages are modified by judges. This is exactly opposite of the truth. Currently, one of the problems the mortgage servicers face is that if they modify mortgages, the owners of those mortgages can sue them for their loss. The beauty of the proposed legislation is that when the modification is made by the Bankruptcy Court Judge, it has the full effect of the Bankruptcy Law behind it. Bankruptcy allows the cancellation or modification of all sorts of contracts, without the threat of lawsuit.

This law, when enacted, will be a major part of the answer to the mortgage crisis, the housing crisis, and the overall financial crisis that began with the irresponsible and greedy lending practices by the very industry that is now fighting meaningful solutions. Don’t let your representatives in Washington be fooled. Let them know how you feel on this issue.

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Peter Orville is a bankruptcy lawyer in Binghamton, located in the Southern Tier of New York. He is a member and New York co-chair of the National Association of Consumer Bankruptcy Attorneys.
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