The New York Times featured an interesting article regarding proposed changes to bankruptcy laws that might help some homeowners avoid foreclosure. Below are excerpts:
"As the squeeze on homeowners becomes worse, the political debate over how to address the problem will intensify. Earlier this month, Senator Hillary Rodham Clinton, Democrat of New York, called for a crackdown on mortgage brokers who engage in so-called predatory lending, and a $1 billion federal fund to help families avoid foreclosure.
Senators Christopher J. Dodd of Connecticut and Charles E. Schumer of New York, both Democrats, recently urged federal regulators to ease restrictions so that Fannie Mae and Freddie Mac, the two giant mortgage agencies, could buy more mortgages and mortgage-backed securities from lenders to add fresh capital to the home credit markets. The lenders, then, would presumably have to use the new capital to refinance loans for borrowers facing default and foreclosure.
Congress is looking hard at changing the bankruptcy law so courts can restructure home loans as they do other personal loans like credit card debt. The goal, proponents say, would be to update the bankruptcy code in line with realities of the modern mortgage market.
In Chapter 13, a borrower’s mortgage obligation remains intact. The most that a person gets is extra time to catch up on payments in arrears, but every nickel on the mortgage must be paid.
Yet the mortgage often is the financial culprit these days. That is particularly true of lending in the subprime market of zero-down loans with terms fixed for two years and then floating rates, arranged by aggressive national mortgage brokers and bankers who earn lucrative fees.
“The bankruptcy law was written for a different world, and we want to give the bankruptcy courts, and creditors, more flexible tools to work with borrowers to save their homes,” said Senator Richard J. Durbin of Illinois.
In September, Mr. Durbin, the Democratic whip, plans to propose amendments to the bankruptcy code, in a bill called the Helping Families Avoid Foreclosure Act. It would, among other things, permit writing down loans and stretching out payment terms.
Some bankruptcy experts agree that it is time to change the law. “Our bankruptcy laws are not well designed to deal with a massive wave of mortgage foreclosures,” said Elizabeth Warren, a professor at the Harvard Law School. In particular, Ms. Warren said, bankruptcy courts should be able to rewrite mortgages in line with market conditions.
The banking industry, which pushed hard for the tougher bankruptcy law in 2005, wants no easing up now. "
The column also mentions:
"According to an article in About 1.7 million households will lose their homes to foreclosure this year and next, according to estimates by Moody’s Economy.com. That would be nearly double the number of the previous two years.
Looking at foreclosure warning signs like loan delinquency and default rates, which are spiking, Mark Zandi, chief economist of Economy.com, said the outlook was “very dark,” largely because of the current “self-reinforcing downward cycle” of falling house prices, loan defaults and credit tightening that pushes house prices down further."
Bankruptcy Help and Information: Check back with the blog as we continue to monitor this situation.
