The nation is at a crossroads, 6 million Americans have already lost their homes and another 3.5 million are in the foreclosure pipeline. Currently programs are failing homeowners abysmally and as the housing market continues to suffer from devaluation, more Americans fall underwater on their mortgages. In 2009, legislation to reform bankruptcy laws making it possible for bankruptcy judges to cram down the principal of a debtor's primary mortgage to market values was derailed by bank lobbyists. But nearly 3 years later, we are still facing another wave of foreclosures that could create a double dip recession and put more Americans on the street.
HAMP and HARP Have Failed
According to a report issued by a Congressional Oversight Panel, nearly 95 percent of permanent loan modifications resulted in homeowners owing more debt on their homes than they did before getting the modification. This is bad news for the future. How many of these homeowners will succumb to foreclosure or need to file bankruptcy because of this failed program? If we don't act now we could see a massive number of these modification victims in our bankruptcy and foreclosure courts.
Home Values Won't Return Soon
Unless we indulge in magical thinking, we must admit that it isn't likely that housing values will return to pre-2008 values anytime soon. This means that unless we are willing to allow bankruptcy courts to cram down these mortgages so that they reflect the homes' true value, many more homeowners will strategically default and file bankruptcy despite the government's efforts. By giving bankruptcy courts the power to cram down the principal mortgage on a debtor's home we can prevent foreclosure and keep more Americans in their home.