CHICAGO, IL – March 03, 2009 – (RealEstateRama) — U.S. Senator Dick Durbin (D-IL) today called for passage of his Helping Families Save Their Homes in Bankruptcy Act, a bill he re-introduced in early January and named one of his top legislative priorities of the year. Durbin’s bill could help millions of at-risk homeowners prevent foreclosures by allowing them to modify the terms of their mortgages in bankruptcy proceedings. This change to an outdated bankruptcy code would help stabilize the flagging economy by addressing the root cause of its continued downturn: the nearly two-year-old housing crisis.
The House of Representatives is likely to vote on the housing bill, which includes the Durbin proposal, in the next several weeks, possibly as early as this Thursday. Senate action on the bill is also expected this month.
Durbin first introduced this bill in the fall of 2007, when experts estimated that nearly 2 million homeowners were at risk of losing their homes to foreclosure. Over the last fourteen months, that number has quadrupled. Today nearly 8.1 million homeowners – 16 percent of all homeowners – are at risk of foreclosure.
In that time, Durbin has held three hearings on his bill and tried on three occasions to pass it, each time facing opposition from mortgage bankers and Republicans. All the while the housing crisis worsened and we entered the worst economic crisis since the Great Depression.
In addition, recent voluntary efforts to modify mortgages have failed woefully. According to a recently-published study, almost half of these so-called foreclosure prevention efforts actually increased the monthly payments of homeowners. “How does that help families save their homes?” Durbin asked.
“For nearly two years, we’ve heard dire predictions about the housing crisis and its effects on the economy. Sadly, they have not only come true, but have been far worse than anyone imagined,” Durbin said. “The question that faces us now is this: after committing over one trillion dollars in taxpayer money to address the financial crisis, why don’t we take a step that would indisputably reduce foreclosures and that would cost taxpayers nothing?” Durbin asked.
Durbin’s bill costs taxpayers nothing and would help families save their homes by:
- Eliminating a provision of the bankruptcy law that prohibits modifications to mortgage loans on a debtor’s principal residence, so that primary mortgages are treated the same as vacation homes and family farms.
- Extending the time frame debtors are allowed for repayment, in order to reduce monthly payments to make the mortgage more affordable.
- Permitting bankruptcy judges to replace escalating variable interest rates with a new interest rate that will keep the mortgage affordable over the long term while also compensating creditors appropriately for risk.
- Waiving the bankruptcy counseling requirement for families for whom foreclosure will soon commence, so that precious time is not lost as families fight to save their homes.
- Ensuring lenders provide proper notice when assessing fees and allow judges to waive prepayment penalties.
- Maintaining debtors’ legal claims against predatory lenders while in bankruptcy.
Today, virtually every type of personal debt, including vacation homes and family farms, can be restructured in bankruptcy with the exception of mortgages on a primary residence. This exception dates to the 1970’s, when most mortgages were fixed rate, long term agreements between local bankers and their neighborhood customers. The mortgage market has changed considerably since the 1970’s, and mortgages on primary residences are often now the primary cause of financial distress. This bill would help the bankruptcy code catch up with these changes in the mortgage market.
A companion bill has been introduced in the House of Representatives by Rep. Conyers (D-MI).