Judges and Home Loan Foreclosures
It may be too little too late for some homeowners but Congress is currently considering legislation that would allow bankruptcy-court judges to redefine home loan terms for people who are at risk of losing their homes. Supporters of this legislation say it could help save half a million homes from foreclosure through early 2009.
If the plan is passed, judges would have the authority to lower the interest rate of a mortgage on a primary home, extend the life of the loan, or even forgive part of the debt. These actions could reduce by one-quarter the 2 million foreclosures expected to take place within the next 18 months.
There are other proposals in the works as well but of those that are aimed at helping at-risk borrowers, this particular proposal is considered by consumer advocates to offer the broadest and most immediate help. Several consumer protection advocates have rallied behind it and are pressing for quick passage.
Already the House has conducted two hearings on a bill introduced by Democratic members, Brad Miller, of North Carolina, and Linda Sanches, of California. Similar mortgage help legislation has been offered in the Senate.
As the number of foreclosures increases, widespread pressure had been applied to lawmakers and lenders alike. Some consumer protection advocates are demanding that the courts step in because lenders are not making any significant movement forward to help curb the problem. Lenders, on the other hand, remark that the legislation would only increase mortgage costs for homeowners and that it would encourage some people to use the courts as an unfair alternative to refinancing. This, they say, would cause bankruptcy filings to soar.
There is little argument that the debate on this issue will be heated and that passage of any type of bill of this nature will have consequences for both borrowers and lenders.