Finally A Fix For Foreclosures?

The Treasury Department’s working on a plan to reduce mortgage rates on home loans to 4 ½%. The plan would involve the government buying more mortgage-backed securities, according to a recent Reuters report. Since Fannie Mae and Freddie Mac, the two mortgage giants which finance or guarantee more than half our nation’s mortgages, were taken over by the government in September, the Federal Reserve has begun buying assets and debt from the two companies. U.S. Treasury Secretary Henry Paulson is working with Congress to develop new plans to help homeowners.

Meanwhile, Senate Banking Committee Chairman Chris Dodd is pursuing legislation to allow homeowners facing foreclosure to seek protection in bankruptcy court. There are some in Congress who believe that bankruptcy judges should be given the authority to modify mortgages by restructuring the interest and principal for existing loans for only the next few years. The way the law reads now, bankruptcy can include vacation homes, boats, and cars, but not the homeowner’s primary residence. In fact, this was an idea that was discussed back in March, and I wrote about it in Mortgage Modification Bill May Help Bankruptcy Filers In Indiana, but the effort to pass this bill failed. With the change in the political landscape, the idea has one more been brought up for consideration.

In one of my earliest bankruptcy blogs, Dis Or Dat? Foreclosure Or Bankruptcy? I explained that, as a consumer bankruptcy specialist, I very often find myself dealing with foreclosure issues. “It depends!” is always my answer to the question of whether it is better to allow a foreclosure or to file bankruptcy, because individual situations are so different. Finding a compromise solution with mortgage lenders is definitely one of the things I work on with clients. If a solution cannot be found to keep the client in the home, we consider a “short sale” or even a “deed in lieu of foreclosure” to avoid having a foreclosure on the credit record. During all the twenty-plus years I’ve been practicing as a bankruptcy attorney in Indiana, the foreclosure and bankruptcy were two different, albeit related, aspects of clients’ financial concerns. Now, it seems a possibility exists that I would be dealing with both these aspects through the bankruptcy court system.

According to Martin Eakes, CEO of the Center For Responsible Lending, “If Congress were to pick one thing to do in the near future to help fix the foreclosure problem, it would be to pass the bankruptcy provision.”