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StumbleForeclosure option on rocky turf in Senate
Bankruptcy court provision in Obama’s plan would let judges mandate loan rewrites
Tuesday, March 17, 2009 | 2 a.m.
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Sen. Harry Reid "strongly supports" the provision, his spokesman said.
John Ensign
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Homeowner Relief?
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del.icio.usLegislation that could provide a last-ditch option for Nevada homeowners facing foreclosure has passed the House but is facing a tougher time in the Senate.
The bill, an element of President Barack Obama’s housing recovery plan, would give bankruptcy courts the authority to reduce mortgages as part of an intense court-monitored plan to restructure homeowner debt. Even families who don’t declare bankruptcy could benefit because the law would add pressure on lenders to rewrite loans before homeowners turn to bankruptcy court.
Nevada’s two Democratic Reps. Shelley Berkley and Dina Titus helped approve the measure in the House this month.
But the proposal faces a steeper climb in the Senate, where Republican opponents hold greater sway because of the chamber’s procedural rules, and nearly a dozen Democratic senators expressed dissatisfaction over a similar bill last year.
Judges have authority to rework the terms of loans on second homes or vacation properties — even yachts. Supporters say homeowners in distress should enjoy the same option.
Senate Majority Leader Harry Reid of Nevada said recently if ever there was an issue based on fairness, it is this one. Reid “strongly supports” the proposal, his spokesman said.
Mortgage bankers and financial services firms oppose the proposal. They believe giving judges the authority to rework mortgage contracts between lenders and borrowers will drive up homeownership costs nationwide as banks recoup losses by increasing interest rates, down payments and fees.
“We’re seriously concerned about that proposal in Obama’s plan because it would make buying a home more expensive for responsible consumers,” said a spokesman for Nevada Republican Sen. John Ensign, the chairman of his party’s policy committee. Republican Rep. Dean Heller voted against the bill in the House.
When Obama introduced the measure as part of his housing recovery plan, it was widely seen as providing the muscle needed to encourage mortgage lenders to work with homeowners to rewrite distressed loans.
Even though the financial services industry says it has reworked 4 million loans during the housing crisis, lenders have also been criticized as slow to write down more mortgages, by either reducing the principal or interest rate.
As the housing crisis intensified, most major lenders temporarily halted new foreclosure proceedings early this year as the new president’s housing proposal was being unveiled.
Still, Nevada had a record 8,400 foreclosures in February — raising the total this year to more than 14,000.
Jeremy Aguero, a principal analyst with Applied Analysis, an economic consulting firm in Las Vegas, said for many homeowners in Nevada, the bankruptcy provision “may well be the linchpin” to keeping their homes.
In Nevada, home prices have nose-dived from their peak in 2006, and houses statewide are now valued at half their top value. Without equity, many homeowners have difficulty refinancing at today’s lower interest rates.
It’s difficult to say how many homeowners would seek to save their homes through bankruptcy. The process is cumbersome and puts an invasive microscope on household finances. The Congressional Budget Office estimated of the 1 million homeowners nationwide who could qualify, 350,000 would undertake the option. Others estimate as many as 1.5 million homeowners may choose the option.
Mortgage bankers complain that the bankruptcy provision will encourage homeowners to seek court protection rather than work with their lenders to construct new payment schedules. The financial services industry says half of those in foreclosure never contacted their lender to rework the loan.
Scott Talbott, vice president of government affairs for the Financial Services Roundtable, which represents the nation’s leading banks and investment houses, said interest rates could rise by 1.5 percent as banks compensate for the additional risk.
“The whole purpose for not allowing the judge to change the mortgage in bankruptcy is to keep the cost of borrowing low so you can buy into the American dream,” he said.
How it came to be that owners of vacation homes can have their mortgages rewritten in bankruptcy court, but owners of primary residences cannot, is a matter for debate.
Bankruptcy law was substantially altered by Congress in 1978, and although lenders say primary residences were excluded to maintain the sanctity of the mortgage contract, others contend it was a last-minute deal between the House and Senate to secure passage of the bill 30 years ago.
Indiana Sen. Evan Bayh, a politically moderate Democrat, is working with Republican Sen. Arlen Specter of Pennsylvania on alternative provisions he hopes could forge a compromise in the Senate.
Bayh said the proposal perhaps could be scaled back so only those homeowners with subprime loans or who have experienced job loss could be eligible. He also suggested the possibility of ending the bankruptcy option once the recession has lifted.
The debate in the Senate is expected to unfold in coming weeks.
Ellen Harnick at the Center for Responsible Lending said reports show as many as 10 million homes nationwide are expected to go into foreclosure by 2012. The nation is on track to have 2.4 million foreclosures in 2009.
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I would like to know if anyone has any information on help for people already in chapter 13 for other debt.Being one of them,i have contacted my mortgage holders several times to ask for help only to be told that they are not allowed to help me.They say,because i am already in chapter 13,the law says they can not do a mortgage modification for me.One of these banks[Citigroup]has already recieved bailout money and claimed to be helping modify peoples mortgages.I would like to know who's mortgages they are modifying?It certainly isn't mine.
When you take the collateral for a loan away from the lender as an option to collect his contracted amount, it will make getting a loan in the future more expensive and more difficult.
Who is going to lend when the rules can just take his contract and change its terms. The risk of that happening will hit us all and we all will pay for it from now on...but heck, if you saves your bacon and looks good to ACORN it must be a good ida, no matter who pays later.
Most of the opposition to this bill stems from a misunderstanding of how secured debts actually work. Obviously, a "secured" creditor cannot have a "secure" claim in excess of the total market value of the asset--and given the drop in the local real estate market, it's fair to say that most of the first trust deed holders are partially or completely unsecured already due to market forces. HELOC creditors--who are usually in the second position when it comes to priorities--are mostly completely unsecured. All the senate bill would do is recognize this reality by judicially adjusting the amount of the secured claim to the value of the asset, allowing both lenders and borrowers to move forward. For those who claim that this would somehow make borrowing more expensive, I would point out that it's not as if all the banks who received TARP and other federal assistance are falling over themselves to make loans to homeowners and homebuyers at present, so it's difficult to see how the bill would make things worse.
I'd just like to know what the banks are REALLY doing with the bail-out money??? I haven't heard of a single instance where they're helping out a homeowner and I work in an area where there are many homeowners on the verge of losing their homes.
The only people that the banks will help are people whose mortgage payment is more than 30% of their income.
So that is two groups of people.
People where one spouse lost their job.
People who lied on their mortgage application about their income.
If you are middle class then you are screwed.
Obama is not going to you one inch. In fact, he trying to raise your taxes. He is going to tax the power that runs your A/C and house.
Obama is no friend of the middle class.
azsk8fan, you have to remember that Reid rushed this $700 BILLION through at Bush's bidding with a "no questions asked" provision and NO accountability later.
Only now are we starting to see how foolish Reid acted in giving away $700 BILLION with NO STRINGS ATTACHED.
You can't put spilled milk back in the cow....
and Nance, your solution to the problem is?
What a fantastic idea! I'm sure the prospect of having some random federal judge rewrite the mortgage contract will have banks RACING to give loans and for sure, it will keep those interest rates being offered low, low, low!!
Haha, all you dummies that voted for the Communist in Chief can now look forward to paying the mortgages of people who LIED on their applications, who are here illegally, not to mention the various other dummies who can't understand why they're unable to swing a $500,000 mortgage on a $42,000 a year salary.
It has always been my schadenfreude hope to see those middle class, glass-eyed idiots who voted for this clown get screwed royally; this latest up and coming fiasco is exactly the sort of thing that 57 million plus realistic, sane Americans knew would happen when they voted against him, and, frankly, it's what you all deserve, but this man has exceeded my wildest expectations with THIS screw the middle class bill!
Isn't hope and change just so wonderful?!
The bankruptcy process reviews your entire financial picture, with the court placing you in Chapter 13 reorganization if there is any ability to repay. So all other creditors are subject to steep markdowns on the total balance owed them, folding mortgages into that should have always been possible -- found a cool site; Balkingpoints.com -- incredible satellite camera view of earth
It appears the banking industry is getting its money's worth for those 23 lobbyists it unleashed on Congress just for this issue.
In other words, for this Congress, business as usual.
My solution.....if we are going to borrow trillions of dollars on the backs of our children and hand over tons of cash to people....we should awarding the people who made work hard and play by the rules and make solid decisions and not the people who make lie, cheat or play on the edge of the life's game.
Nance, I pay my morgage on time, never late on bills and work 90+ hours a week. No bailout for me. I'm not asking for one and I'm not complaining.
Folks on here are quick to point fingers and belly ache. I have yet to hear of a solution to the problem. You have not given one, nor has anyone else.