The issue of bankruptcy reform--allowing bankruptcy judges to change the terms of distressed mortgages on primary residences--is set to take a higher profile in next year’s congressional debate over how to fight foreclosures.
With the election putting a Barack Obama in the White House and expanding democratic majorities in Congress, bankruptcy reform’s outlook has brightened. But a tough fight with the industry looms, and enactment isn’t at all certain at this point. The industry argues that such changes to existing law would result in higher mortgage rates--the last thing the downtrodden housing market needs.
Sen. Dick Durbin, a Democrat from Illinois, is leading the charge to implement the change:
U.S. Senator Dick Durbin (D-IL) chaired a Senate Judiciary Committee hearing [Wednesday] on the foreclosure crisis facing American homeowners and its impact on families, communities and the economy. Durbin, one of the first in Congress to warn that the subprime mortgage meltdown could lead to a larger economic crisis, argued that hundreds of thousands of at-risk homeowners could keep their homes if allowed to alter the terms of their mortgages in bankruptcy…
In the fall of 2007, Durbin introduced the Helping Families Save Their Homes in Bankruptcy Act; a bill which would allow mortgages on primary residences to be restructured in bankruptcy – like virtually every type of personal debt, including vacation homes and family farms. This small change to the bankruptcy code could help hundreds of thousands of homeowners avoid foreclosures while continuing to fulfill their new mortgage obligations.
Over the past year, Durbin has tried three times to pass this proposal - as part of Majority Leader Reid’s housing bill in the spring, as part of the Senate Banking Committee’s housing bill in the summer, and as part of the financial rescue bill this fall. Each time, the Mortgage Bankers Association and most of the financial services industry opposed the proposal.
“The question that faces us now is this: after committing over one trillion dollars in taxpayer money to what has largely been an unsuccessful effort to address the foreclosure crisis and save our economy from a devastating recession, why don’t we take a step that would indisputably reduce foreclosures and that would cost taxpayers nothing?” Durbin asked….
A large coalition of groups has voiced their support of Durbin’s Helping Families Save Their Homes in Bankruptcy Act. They include: AARP, AFL-CIO, Leadership Conference on Civil Rights, NAACP, Service Employees International Union, Consumer Federation of America, National Association of Consumer Bankruptcy Attorneys, Center for Responsible Lending, Consumers Union, National Fair Housing Alliance, Opportunity Finance Network, Consumer Action, Association of Community Organizations for Reform Now, Central Illinois Organizing Project, Lawyers’ Committee for Civil Rights Under Law, National Association of Consumer Advocates, National Community Reinvestment Coalition, National Consumer Law Center (on behalf of its low income clients), and U.S. PIRG.