Just a couple of weeks ago, the House Financial Services Committee began its formal debate on one of the hot topics of the day – home mortgage loans. The committee is deciding whether to allow the Federal Housing Administration to refinance up to $300 billion in subprime mortgage loans that are at risk for default. Meanwhile, the White House has threatened to veto the legislation as it is currently proposed.
As you know, every important debate about debt is of great interest to me as a consumer bankruptcy lawyer in Indiana who deals with thousands of thousands of debt situations in the course of my work. One of the big topics I discuss with my bankruptcy clients, as you may imagine, is often their biggest debt obligation, their mortgage. As I go over all options with my clients, one important decision is whether to make every effort to keep their home, or whether moving might be a better option.
Here’s what’s being discussed in Congress: The lender (mortgage company or bank) would first make the mortgage more affordable to the homeowner, either by lowering the payments, reducing the amount of the loan outstanding, or lengthening the repayment period. Once the mortgage lender had done that, the FHA would give the lender money to compensate them for the “write-down” of the mortgage. The FHA would retain a lien on the home for the life of the new loan. As amendments added to the proposed legislation, borrowers would be prohibited from obtaining a second mortgage for the next five years, except for home improvement purposes.
As I discuss Indiana personal bankruptcy options with clients, often one of the main goals is to help stop foreclosure. The proposed bill will have as its main purpose to help stop foreclosures through settlements between homeowners and lenders. The bill will be part of the housing stimulus package that will be discussed this very week in the House. I’ll keep you posted on how this story plays out…