The House Judiciary Committee approved legislation aimed at helping Americans keep their homes through bankruptcy. The Helping Families Save Their Homes In Bankruptcy Act of 2009 to give courts the power to make mortgage loan modification to bring mortgages in line with underlying home values. For families in distress, this is a much-needed addition to government loan modification. And considering the realistic alternatives, it is fair to all concerned. Federal Loan modification Program help is the lifeline many are depending on.
This bill represents one of the most tangible and productive steps we can take to limit the fallout from the real-estate depression that has been sweeping the nation. While it is not the entire answer to the economic crisis, it is a common-sense and practical approach to stopping a downward spiral where foreclosures also depress nearby home values and thereby hurt other homeowners. It offers loan modification when it is most needed. This spiral is not helping anyone.
Some argue that we are acting too quickly in providing the loan modification requirements to bankruptcy, and that we should delay my legislation to give homeowners and lenders more time to accomplish mortgage loan modification on a voluntary basis outside of bankruptcy.
But the evidence shows that such loan modification doesn’t work. For one thing, many of the servicers who control the mortgage loans claim they are not legally permitted to agree to voluntary mortgage loan modification.. And even when they are legally permitted to agree, their financial incentives are stacked in the direction of foreclosure.
For more than three decades, the bankruptcy code has permitted the very kind of court modification we are considering today, for every other form of secured debt, including loans secured by second homes, investment properties, luxury yachts, and jets. For over 20 years, this very kind of modification has been available for home mortgages already — if the home is a family farm. There is no indication that this has in any way increased the cost of credit for any of these kinds of loans.