Democrats in the U.S. Senate are lobbying for legislation designed to prevent home foreclosures from escalating.
The plan is part of legislation called the Foreclosure Prevention Act. Under the proposal, judges could rewrite the terms of mortgage loans during bankruptcy hearings.
However, lenders argue that the bill would force them to raise mortgage rates in order to make up for the shortfall caused by loans that have not been completely repaid. Republicans are siding with the lenders, pushing for limited changes in mortgage terms.
In a written statement, David Kittle, chairman-elect of the Mortgage Bankers Association, stated, “If this proposal becomes law, it will amount to a new tax on homeowners, costing them hundreds of dollars more per month and thousands of dollars more per year. The last thing potential homeowners, and those looking to refinance into new loans, need in this market is higher mortgage payments.”
Nevertheless, backers of the legislation say that the bill is needed because lenders have failed to alter loan terms to keep homeowners from losing their houses.
Under the bankruptcy code, judges are permitted to reorganize an individual’s debt, but they cannot change a person’s home mortgage terms.
An organization known as Hope Now states that 545,000 borrowers received some kind of help from lenders during the last two quarters of 2007. However, foreclosures continue to be a problem, especially in California, where more than 31,000 foreclosures were recorded in the last quarter of 2007.
The Center for Responsible Lending estimates that more than 600,000 families in danger of losing their homes could be saved from such a fate through minor changes in the bankruptcy code.
The housing crisis has emerged as a major issue in this year’s Presidential campaign. Experts, however, do not expect the housing market to turn around until at least the middle of 2008.
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