Bankruptcy, a Way Out of Foreclosure for Some Borrowers

by on Bankruptcy

The House of Representatives has passed a bill supported by President Barack Obama aimed at reducing the number of foreclosure homes and stabilizing the housing market.

The bill would authorize bankruptcy judges to modify loans by reducing mortgage payments for owners of foreclosure homes. It is currently in the Senate for consideration.

Last February 18, Obama unveiled the Homeowner Affordability and Stability Plan as part of his $275 billion anti-foreclosure homes program. The $75 billion plan is designed to help more than 9 million distressed owners of foreclosure homes.

However, not all owners of foreclosure homes would be eligible for assistance under the plan. The revised bankruptcy measure is an added option for distressed homeowners who want to save their properties from foreclosure.

The number of foreclosure homes and pre-foreclosure filings in January of this year showed some improvement with nationwide figures of foreclosures dropping by 25.7 percent to 72,694 from 97,841 the previous month.

Pre-foreclosure filings in January dropped by 12 percent to 166,860 from 190,467 the previous month.

The decline in the number of repossessed homes in January 2009 was noticeably evident in Arizona, California, Florida and Texas. California foreclosures dropped to 14,351 from 20,952 the previous month. Florida foreclosures declined to 10,007, 5,367 in Texas and 5,250 in Arizona.

Meanwhile, pre-foreclosure filings in Florida dropped to 43,070 while California slide to 33,008 from 41,710.

However, despite some improvements in foreclosure figures, the decline barely made a dent on the foreclosure crisis as more and more homeowners are starting to feel the impact of the recession.

Lionel Ouelette of the advocacy group CHANGER pointed out that the measure, which would authorize bankruptcy judges to modify loans if mortgage servicers failed to come up with affordable terms for distressed homeowners, would be a great help to some homeowners.

The mortgage industry opposed the revised bankruptcy law and has lobbied against its enactment. The industry argued that the revised law could reward homeowners who borrowed irresponsibly and may lead to higher interest rates and fees.

It also pointed out that there is no way to determine how much is the cost involved in implementing the law to help troubled owners of distressed properties.

Some distressed homeowners are willing to consider the measure as their last hope to save their properties from foreclosures.