Mark Winston Griffith

Battle Lines are drawn on bankruptcy bill for homeowners facing foreclosure

The mortgage industry is apoplectic over an attempt by Senate Democrats, led by Dick Durban of Illinois, to allow bankruptcy judges to modify mortgages. The Wall Street Journal has denounced it. Conservative bloggers are tripping over themselves to curse Durbin and the horse he rode in on. The President is threating to veto the bill if Congress passes it.

In other words, it's a great piece of proposed legislation.

One of the intents of Durbin's bill, and its House companion introduced by representative Miller, is to amend the notoriously ugly bankruptcy bill of 2005. Right now the terms of loans for vacation homes, rental properties and most other types of debt can be modified by federal bankruptcy judges, except for primary residences. This bill would extend the power of bankruptcy judges to help keep existing owners of primary residences (not future homeowners) from going into foreclosure.

In fact, the Center for Responsible Lending has estimated that over 600,000 foreclosures would be prevented if this proposed legislation became law. However, in a New York Times article, Stephen O'Connor, a lobbyist for the Mortgage Bankers Association threatened that lenders, in response to this "added risk", would likely "charge a higher interest rate, likely charge more points on the mortgage and likely demand higher down payments."

Bush is also objecting to a plan to provide monies for homeowner counseling programs.

So much for the Bush Administration and the mortgage industry claims that lenders wanted to help homeowners avoid foreclosure.

Mark Winston Griffith: Author Bio | Other Posts
Posted at 8:00 AM, Feb 28, 2008 in Economic Opportunity
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