Bankruptcy Laws: Mortgage Crisis Solutions Stir Heated Debate in Washington
President Bush has threatened to veto Senator Dick Durbin's previously reported controversial bankruptcy bill that would allow bankruptcy judges to modify interest rates on adjustable, subprime and other non-conventional loans for homeowners staring at the threat of foreclosure.
Basically, the bill would allow the judges to cut the interest rates of these nontraditional loans to the prime rate plus a "reasonable" premium for homeowners in trouble. Faced with being required to lower rates, it is hoped lenders would voluntarily renegotiate the terms of failing loans prior to a homeowner being forced to filing bankruptcy, according to Durbin.
Changing the current Chapter 13 bankruptcy law would extend the same protection to homeowners that they receive on other property such as family farms and vacation condos. The measure has received wide backing from AARP, credit unions and labor and civil rights groups.
The President is at odds with Durbin and other Democrats over how to solve the nation's mortgage crisis. According to the Washington Post, the White House plan would ask the banking industry to "voluntarily work out new loans with homeowners" and opposes using tax dollars to solve the crisis.
Meanwhile, Senate Majority Leader Harry Reid is sure that no agreement will be reached with the White House and plans to defy the threatened veto.
In his remarks regarding the Foreclosure Prevention Act of 2008, he said, "It will help families keep their homes by increasing pre-foreclosure counseling funds, expanding refinancing opportunities, and amending the bankruptcy code to allow home loans on primary residences to be modified. This legislation will help communities impacted by foreclosures by allowing parts of the county with high foreclosure rates to access federal funds to purchase foreclosed properties for rehabilitation, rent or re-sale."
In the House of Representatives, Democrat Barney Frank is working on a five-year plan for owner-occupied homes involving the Federal Housing Administration and government purchases of distressed mortgages. Another plan would provide $20 billion in loans and grants to buy abandoned or foreclosed homes at or below market value.
Mortgage foreclosures have soared around the U.S. and 10 percent of all homeowners have greater mortgage debt than what their homes are actually worth. Many others are struggling with huge increases in their adjustable rate mortgages.
Many consumers do not realize that filing bankruptcy may be able to help you save your home in the face of a possible foreclosure.
Chapter 13 bankruptcy is a great tool if you have insurmountable bills and have fallen behind on your mortgage payments. For homeowners with significant equity, who are not more than 90 days past due, there may be other options.
Talk to a sponsoring bankruptcy attorney for free by filling out the below form: