House Bill Hopes to Tweak Bankruptcy Law, Fight Foreclosure
For many, the pleasure in fairy tales lies in their happy endings-the villain is always avenged, whether it's a witch who eats children, a woman who treats her stepdaughter cruelly, or a greedy giant who won't share. There's nothing quite as satisfying as a bully learning a lesson.
Apparently, that's just what Representatives Brad Miller and Linda Sanchez hope to do with the bill they're introducing to the House. Except the bullies they're targeting are predatory lenders and the lesson they hope to teach will please adults as well as children.
The bill, a response to the foreclosure crisis sweeping the United States, aims to focus on bankruptcy laws to solve homeowner woes.
Background-Foreclosure Stats and Bankruptcy Law
According to figures quoted by the sponsoring representatives, up to five million adjustable rate mortgages will reset in the next 18 months, meaning that as many as 2.2 million homeowners could face foreclosure in the coming 24 months.
Subprime loans can be blamed for many of these foreclosures. When ARMs reset, families are often unable to make payments and may have no way to save their homes. Even declaring bankruptcy doesn't always work.
That's because under current bankruptcy law, a bankruptcy court cannot change the terms of a home mortgage. The bill proposed would repeal this law and so allow modifications to the terms of a mortgage, as with the terms of any other secured debt.
By allowing the alteration of payment plans to more realistically reflect the capabilities of the borrower, this provision could help many families avoid foreclosure.
Who Would Be Helped
The Center for Responsible Lending estimates that the bill, if passed into law, would allow about 600,000 families to save their homes. But immediate action is needed to stop as many foreclosures as possible.
If the bill succeeds, Miller has reportedly said that predatory lenders will face consequences, and, in some cases, be forced to offer the loans they should have offered from the beginning. Responsible lenders, who offered reasonable, appropriate loans all along, will have "nothing to worry about," according to Miller.
Relief at Last
If successful, the bill could mean relief for hundreds of thousands of American homeowners currently facing foreclosure. Because it would work on the national level, this bill could accomplish more broadly what grassroots movements are attempting locally.
The NAHREP, for example, has drawn up a code of lending ethics for its members. In Cleveland, the Save the American Dream group is demanding a two-year moratorium on increases in ARMs. Around the country, hotlines have been set up to field questions from potential bankruptcy and foreclosure victims.
Whether or not this bill eventually becomes law, it should serve to highlight a need for serious action.