Bills could let judges rework mortgages
Two bills making their way through the House and Senate would empower federal bankruptcy court judges to rework the terms of mortgages headed into foreclosure. Lenders have opposed such bills. But these two are gaining momentum. Steve Henn reports.
Bankruptcy court building. (iStockPhoto)
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TESS VIGELAND: If banks won't modify mortgages, maybe judges will. That's the idea behind two nearly identical bills making their way through the House and Senate. They'd give federal bankruptcy court judges the power to rework the terms of mortgages headed into foreclosure. They could adjust interest rates or even reduce the principal on loans.
Lenders have opposed bills like these for years. But as Marketplace's Steve Henn tells us, the idea is gaining momentum on the Hill.
STEVE HENN: The bills allow federal bankruptcy court judges to slash interest rates and principal for homeowners who file for bankruptcy. Backers say this could keep millions of Americans from losing their homes. But similar bills stalled in the House and Senate last year.
And opponents like Scott Talbott at the Financial Services roundtable say allowing judges to reduce mortgage payments will cost banks a lot of cash. Those banks will have no choice but to pass on their losses.
SCOTT TALBOTT: Through higher interest rates, higher down payments, high closing costs, so all three.
But some academics say foreclosures actually cost banks even more.
Adam Levitin: Losses in foreclosure are going to be much greater than losses in modification.
Adam Levitin is a bankruptcy professor at Georgetown University Law School. He says right now mortgage servicers that collect payments for banks often fail to renegotiate home loans even when that would ultimately save lenders money. Why? Because it doesn't pay.
LEVITIN: But if they foreclose, the servicer is able to collect any fees that it can levy. And this gives servicers a great incentive to lard on all the fees they can. These fees get paid off the top in a foreclosure.
Levitin says the bill would let bankruptcy judges cut mortgage servicers out of the equation entirely, keep more Americans in their homes, and could even save banks billions. Many bankruptcy judges say they like that idea.
And with President-elect Obama about to assume office, even the bill's opponents say it's likely to become law.
In Washington, I'm Steve Henn for Marketplace.
Comments
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From Bellerose, NY, 06/26/2009
did this bill pass?
From Bend, OR, 02/13/2009
I have been calling WAMU since June when I missed my first payment. Calling and faxing and writing all the time until I got name of person assigned to case in Loss Mitigation.You have to hound them.If you are adept at searching their web sites, they have so-called home preservation departments with forms to apply for Home Borrower assistance.It took 5 mths for them to make me an offer followed by a 4mth forbearance (Which I didnt ask for)I think they were buying time and waiting for Obama to take office. Now the forbearance is up and they want to give me other terms (higher payment) and lying about what they did offer me before(it was verbal).They want to tack on the higher interest rate on the delinquent payments and attorney foreclosure fees when it isnt even in foreclosure(Yet).Do everything in writing (registered mail) and follow up in writing after conversations on the phone.I have filed complaints with FTC, Office of the Thrift, and now Comptroller of the Currency and cc'd my legislative representatives. Well see if its effective at all. Personally, I think they would rather take a 100K loss (Im upside down) on top of the costs of foreclosure rather than compromise with me in any way.I will lose 100K of my own if I walk. They are taking advantage of desperate people whom want to stay in their homes.I see no middle ground with them.Business as usual, profit as much as you can while you can is their motto.None of it makes sense.BK judges are the way to go since the servicers dont want to play fair.
From campbell, 01/27/2009
aurora home loan service won't redo are loan, they say they will but won't send any paperwork related to what they want to do forcosure feb 10 2009 hope this new law passes (gods speed on this) we are not the only couple out there this is happening to. we really a judge to help on this.
From caldwell, ID, 01/12/2009
I've been trying modify our loan with Citi Group,but they just refuse to call us back this has been going on for more than 9 months. Now our house is up for foreclosure Feb 2 2009. We've faxed all the bank has requested we've called then several times, is there any suggestions you can give us?
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