Bankruptcy Changes May Force Mortgage Companies To Play Fair
For a long time, the mortgage game has been skewed in favor of the lenders with homeowners taking more than their fair share of risks. For the past ten years mortgage companies have made profits off of "new" and "creative" lending schemes that have left many homeowners "holding the bag" and teetering on the edge of foreclosure.
But now that foreclosures are rising dramatically, the foreclosures of ordinary Americans is becoming a national crisis, even infecting the health of lending institutions and those borrowers who are successfully paying their mortgage.
But even with this changed dynamic, our legislators have moved too slowly to lift the unfair burden for risk from homeowners facing foreclosure and have instead left it up to the "good nature" of mortgage lenders to modify the toxic mortgage products that they sold millions of homeowners who are now facing foreclosure.
Up until now, most homeowners facing foreclosure had no way to force the hand of mortgage lenders when they became victim to a toxic loan, job loss or other catastrophic financial crisis that pushed them towards foreclosure.
If the homeowners could no longer pay, he/she could file bankruptcy but would not always be unable to save his/her home especially if he/she has fallen behind on payments. The mortgage companies know that struggling homeowners have limited options and therefore they have very little incentive to play fair by properly modifying toxic mortgages.
With the proposed bankruptcy changes, mortgage lenders would be put on notice that a bankruptcy court could forcibly modify toxic mortgages. This changed power dynamic would give a true incentive to mortgage lenders to modify toxic mortgages before they head to bankruptcy.