Senators Urged to Help Fight Foreclosed Homes

by Donald Hanz on Foreclosure Help

Senators are being called upon by housing advocates, economists and journalists to help save their constituents from being forced out of foreclosed homes by approving the bankruptcy reform proposal. The proposal would allow judges to force lenders to restructure the mortgage loans of homeowners in danger of foreclosure.

The senators are being exhorted to look at the real role of the financial industry in the current crisis, the same industry sector lobbying most fiercely against the bankruptcy reform proposal.

Housing analysts argue that if large financial institutions and mortgage lenders only implemented standard loan screening procedures, they would have not extended loans to most of those whose houses are now foreclosed homes. Financial service businesses are also to be blamed, according to community advocates, because they enticed low-income borrowers with adjustable mortgage loans that they know the borrowers would not be able to pay after just a few months.

Community advocates argue that these large banks which received billions of bailout money from taxpayers should help taxpayers in return by helping qualified Americans save their houses from becoming foreclosed homes.

House legislators have already approved the proposal to empower judges with the authority to order loan restructuring for homeowners in bankruptcy, but they included conditions burdensome to borrowers. Certainly, the pressure from groups lobbying for the influential financial services industry is too great for them to resist.

There are at least two reasons why the Senators need to pass the bankruptcy reform, according to housing advocates. One is the failure of voluntary loan modification programs under the Bush administration. In August 2008, only a little over 3 percent of subprime loans in default were modified, according to reports from Credit Suisse. In many cases also, the restructured loans even increased the monthly payments instead of reducing them. A foreclosure prevention network of banking commissioners and state attorneys found that about 8 of 10 homeowners in default were not given any chance to modify their loans and save their houses from becoming foreclosed homes.

Another is the nationwide economic impact of foreclosures. Most everyone now knows the adverse effects of foreclosures on everyone. The mass layoffs, business closures and the soaring unemployment rates all started when the waves of bank foreclosed houses became unstoppable.

Legislators should not listen to arguments that the bankruptcy proposal would help irresponsible and reckless borrowers or wealthy but underwater borrowers. The proposal has requirements in place so only Americans who deserved to be saved from being forced out of foreclosed homes would be saved.

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