Bankruptcy courts’ help sought on mortgages
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bankruptcy courts, mortgages February 25th, 2008Proposed bill would let courts modify loans, not force borrowers to rely only on lenders
With tens of thousands of Americans facing foreclosure unless their mortgage payments are reduced, support is growing to let bankruptcy courts modify mortgage loans.
Mortgage companies “are not doing it on their own,” said U.S. Rep. Brad Miller, an N.C. Democrat who has proposed legislation allowing courts to modify mortgage loans. “I think that borrowers should have some rights and not just have to rely on the benevolence of lenders.”
Bankruptcy courts are empowered to reduce debts to manageable proportions for people who file under Chapter 13 of the U.S. Bankruptcy Code. But there is one debt the courts can’t touch: The mortgage loan on the home where you live. Bankruptcy courts are better equipped to save your car than to save your home.
The bill is strongly opposed by the mortgage industry, which warns that interest rates would rise for all borrowers. The industry says the mortgage exception protects lenders against a potential loss of revenue, which lets them offer lower interest rates. The legislation would apply solely to existing loans, but the industry says it still would undermine investor confidence that future mortgages won’t again be modified.
Tags: bankruptcy courts, mortgages
