In response to the credit crisis, The Center for Responsible Lending is urging citizens to ask their elected officials in Washington to support support legislation aimed at giving homeowners with predatory loans a fair chance to avoid foreclosure.
Rep. Brad Miller (D-NC), a member of the House Financial Services Committee and Rep. Linda Sánchez (D-CA), Judiciary Subcommittee Chairwoman on Commercial and Administrative Law have introduced HR 3609-Emergency Home Ownership and Mortgage Equity Protection Act to prevent hundreds of thousands of Americans from losing their homes by allowing them access to bankruptcy relief.
Currently, when a homeowner enters bankruptcy, the bankruptcy judge can allow them to restructure and catch up on delinquent mortgage payments. But the judge cannot order modification of the terms of the mortgage itself to keep the homeowner in their home, even if the loan was a predatory one with a huge jump in the interest rate or payments. No one wins, though, when lenders must foreclose.
Other types of debts can be restructured or reduced in bankruptcy, and in the past restructuring of mortgage debt was allowed.
According to the Center for Responsible Lending, the benefits of this legislation are:
* No cost to the US Treasury. This is not a bailout program.
* Narrowly targets families who would otherwise lose their homes but can repay at least some of their debt in a Chapter 13 program.
* Saves American families not facing foreclosure $72.5 billion in wealth by avoiding 600,000 foreclosures by their neighbors.
* No negative effect on home credit. When bankruptcy laws permitted loan modifications on a family’s primary residence between 1978 and 1993, there was no evidence of market impact. Similarly, loan modifications permitted from 1978 through the present for loans secured by family farms, commercial real estate, investment properties and vacation homes have produced no negative effects. All these types of secured debt, plus credit card receivables and car loans, are readily securitizable, notwithstanding the ability of judges to modify loans in chapter 13.
* This solution is better for lenders. Guarantees lenders at least the value they would obtain through foreclosure, since a foreclosure sale can only recover the market value of the home. In addition, saves lenders the high cost and significant delays of foreclosures.
My personal view is there is an urgent need to pass this kind of legislation. What do you think?
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