Legislators are promising to revive legislation that would allow homeowners to modify their mortgages during bankruptcy. President Obama’s voluntary foreclosure prevention program has failed to deliver and many homeowners and legislators are ready to get more aggressive with mortgage lenders. Last year it seemed almost certain that legislation would pass allowing homeowners to modify their toxic mortgages during bankruptcy; but the measure fell 15 votes short of passage in the Senate.
The bankruptcy bill had strong support amongst ordinary Americans; but banking giants and their supporters strongly opposed the measure claiming that it would lead to high interest rates. But now that bankers have failed to stem the rise in foreclosures, legislators such as Senator Durban are looking to put the measure (along with a few tweaks) back on the table for another vote.
Senator Durban said that if the foreclosure crisis does not begin to improve by this fall, he will present a revised version of the bankruptcy modification bill. Those changes would include giving homeowners additional time to remain in their homes while paying only the fair-market value of the home during foreclosure proceedings and requiring mandatory mediation for foreclosure.
These changes could be quite beneficial to homeowners who are upside down on their mortgages and to those who are succumbing to foreclosure while their mortgage servicer ignores their calls and letters asking for help. But what we really need right now is strong leadership in government.
We need leadership that will simply step forward and demand that mortgage lenders take responsibility for their part in this foreclosure crisis. Part of taking responsibility for their part in this crisis should include mandatory modification of mortgages that are clearly toxic and this could be effectively and efficiently done using bankruptcy to stop the foreclosure .