Banks Against Bankruptcy And Foreclosure Listings Legislation
The legislation to grant judges to modify the loans of homeowners filing for bankruptcy has been approved by the House, but it is facing fierce opposition in the Senate as the powerful banking industry is using all its might to kill or water down the legislation aimed at mitigating the growth of foreclosure listings.
Lobbyists for the influential Mortgage Bankers Association, including chief MBA lobbyist Francis Creighton, argue that mortgage rates would increase by 1.5 percentage points if the legislation is enacted. Creighton cited the effect of higher mortgage rates in several cities, such as Baltimore which he says would make homeowners bear an additional payment of $1,533 per year on a mortgage of $128,218 and would lead to more foreclosure listings.
Banking lobbyists also said the legislation would lead to large numbers of homeowners filing for bankruptcy and would lead to another crisis in the credit markets.
The legislation passed by the House in March requires homeowners troubled by foreclosure listings to first work out a loan modification plan with their lenders before filing for Chapter 13 bankruptcy protection. Under bankruptcy protection, the judge can order the reduction of the loan principal to the home's market value and revise the mortgage rate to equal the rate offered for prime loans.
A mortgage loan amounting to $300,000, for example, on a home that has declined in value to $230,000 would be reduced to $230,000, with the difference of $70,000 considered as unsecured debt to be repaid with disposable income.
The bankruptcy legislation would be applied only to mortgages already existing when the law was enacted, and would not be applied to new loans at risk of being included in foreclosure listings.
Bankruptcy reform seemed to have gained momentum in the first months of the year and seemed to have been favoring troubled homeowners, but when the legislation reached the Senate, reform efforts seemed to have slowed down as bankers pushed on with their anti-reform campaign and as conservatives expressed their intention to limit the legislation to subprime loans in danger of being added to foreclosure listings.
Robert Lawless, a professor of law at the University of Illinois, who is concerned about the effects of Illinois foreclosures and other state foreclosures on families and on the economy, argued against the bankers' contentions, saying the banking group is using scare tactics.
David Leibowitz, a bankruptcy lawyer in Illinois, asserted that the government should offer to ordinary homeowners troubled by foreclosure listings what it has been offering to rich real estate businesspeople like Donald Trump.
Lobbyists for the influential Mortgage Bankers Association, including chief MBA lobbyist Francis Creighton, argue that mortgage rates would increase by 1.5 percentage points if the legislation is enacted. Creighton cited the effect of higher mortgage rates in several cities, such as Baltimore which he says would make homeowners bear an additional payment of $1,533 per year on a mortgage of $128,218 and would lead to more foreclosure listings.
Banking lobbyists also said the legislation would lead to large numbers of homeowners filing for bankruptcy and would lead to another crisis in the credit markets.
The legislation passed by the House in March requires homeowners troubled by foreclosure listings to first work out a loan modification plan with their lenders before filing for Chapter 13 bankruptcy protection. Under bankruptcy protection, the judge can order the reduction of the loan principal to the home's market value and revise the mortgage rate to equal the rate offered for prime loans.
A mortgage loan amounting to $300,000, for example, on a home that has declined in value to $230,000 would be reduced to $230,000, with the difference of $70,000 considered as unsecured debt to be repaid with disposable income.
The bankruptcy legislation would be applied only to mortgages already existing when the law was enacted, and would not be applied to new loans at risk of being included in foreclosure listings.
Bankruptcy reform seemed to have gained momentum in the first months of the year and seemed to have been favoring troubled homeowners, but when the legislation reached the Senate, reform efforts seemed to have slowed down as bankers pushed on with their anti-reform campaign and as conservatives expressed their intention to limit the legislation to subprime loans in danger of being added to foreclosure listings.
Robert Lawless, a professor of law at the University of Illinois, who is concerned about the effects of Illinois foreclosures and other state foreclosures on families and on the economy, argued against the bankers' contentions, saying the banking group is using scare tactics.
David Leibowitz, a bankruptcy lawyer in Illinois, asserted that the government should offer to ordinary homeowners troubled by foreclosure listings what it has been offering to rich real estate businesspeople like Donald Trump.
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