Greater Ability to Modify Mortgages Soon?
A bill that is gaining steam in the House of Representatives aims to grant greater latitude to bankruptcy judges in modifying home mortgages as part of the bankruptcy process. The House views this is a way to stem the foreclosure crisis and allow more people to stay in their homes. Many people mistakenly think the current loan modification program that Congress passed last year already grants this to judges. But the bill passed last year is a voluntary program that has not worked nearly as well as hoped. Hence, the current bill being proposed.
Tomorrow, the House of Representatives is scheduled to take up the appropriately named Wall Street Reform and Consumer Protection Act (H.B. 4173). Of keen interest to us on Bankruptcy Law Network is a provision allowing for the judicial modification of mortgages in bankruptcy. This provision had previously passed the House (H.B. 1106) but stalled in the Senate.As for the voluntary loan modification programs, from my experience and those of my colleagues, it is not positive. While some modifications are being made, they are often too few and too little to be of any lasting good. Lenders consider modifications but rarely follow through with any meaningful modifications because the debtors lack real leverage. In a business context 18 months ago, Chrysler reached a deal with its largest lenders to reduce its debt from $6.9 billion to $2 billion dollars, a 71% reduction in debt. Why would Chrysler’s lenders do this? Because of the threat of bankruptcy and the prospect of receiving even less than what was being proposed. If consumer debtors do not have that comparable leverage, then the mortgage servicers have little incentive to voluntarily modify mortgages.
Source: Bankruptcy Network
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