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Tell Arlen Specter to Help Save Homes
There is currently a bill in the US Senate dealing with the predatory lending crisis, and there is a small provision in it that is really important to keep. The provision lets judges who preside over bankrupt homeowners modify terms of loans to make them affordable. Back before we started selling homeowners down the river, this was the law. Let's just say the changes have not yielded positive results.
This bill would protect an estimated 600,000 people, and save homeowners surrounding foreclosures an estimated 72 billion dollars in lost home values. And, it costs us nothing. It simply gives judges the latitude in bankruptcies the same latitude they have if you showed up to bankruptcy with other assets- like investment income, a boat, etc.
This is a sensible, win-win measure that could be really, really important to keeping people in their homes. And right now, Arlen Specter is a key vote in getting this out of the Senate. (A companion bill would likely pass the House.)
I just called Arlen Specter's office, and I would strongly encourage you to do the same. All you have to do is say something like this:
I encourage Senator Specter to support the Durbin Bill- Title IV of Senate Bill 2636, to allow modifications to mortgages in the bankruptcy process.
His phone number is (202) 224-4254, and your one minute call can really make a difference.
Below the fold, is a memo from the Center for Responsible Lending about why this bill is so important. One minute can make a difference.
The subprime crisis is severe and will get worse.
Dangerous lending practices and loose underwriting in the subprime mortgage market have put 2.2 million families in danger of losing their homes to foreclosure. These families are trapped in “exploding” adjustable-rate mortgages (ARMs) that are due to increase to unaffordable interest rates. In fact, hundreds of thousands of families face rate increases at the same time that their houses are worth less than the balance on their mortgage.
Very few of these homeowners will be able to sell or refinance. Loan servicers who could modify loans to make them more affordable aren’t doing so: A recent report by Moody’s found that loan servicers had only modified one percent of mortgages that increased to higher rates in January, April and July of this year. Unless Congress takes action, these families lose homeownership, surrounding neighborhoods lose property value, and the entire economy suffers.
Current law excludes home owners from relief available to boat owners.
Today homeowners are denied equal access to bankruptcy protections. People who own investment properties, vacation homes and boats are allowed to get loan modifications as part of debt relief, but the law specifically excludes homeowners from similar protections.
Judicial modification is effective, easy to accomplish, and costs the Treasury nothing.
We urgently need legislation that would allow lenders and loan servicers to modify mortgages to allow families to continue paying on their loans and keep their home. This would provide judges the authority to modify harmful mortgages marketed by subprime lenders in recent years, and would help more than 600,000 financially-troubled families keep their homes. ’a
The specific fix.
The essential solution lies in simply removing the law’s language that denies relief to homeowners. Delete the phrase in section 1322 of the bankruptcy law that excludes, alone, the mortgage on a borrower’s principal residence from the chapter 13 section providing bankruptcy judges the authority to modify secured debts. Add several modest additional conforming changes.
Tweaking Bankruptcy – The Benefits
• No cost to the US Treasury.
• Narrowly targets families who would otherwise lose their homes.
• 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.
About the Center for Responsible Lending
The Center for Responsible Lending (CRL) is a national nonprofit, nonpartisan research and policy organization dedicated to protecting home ownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation’s largest community development financial institutions.
For additional information, please visit our website at www.responsiblelending.org.