Allowing Mortgage Modifications In Bankruptcy
HAMP has failed the American homeowner and it’s time that our legislators take aggressive action to stop the foreclosure crisis and keep homeowners in their homes. HAMP promised to help over 6 million Americans facing foreclosure keep their homes; but instead we have seen 1.3 million Americans enter into temporary mortgage modifications only to be denied the permanent modifications they need to avoid foreclosure . And even when homeowners facing foreclosure are given permanent mortgage modifications they often end up facing foreclosure down the road anyway because the modifications are not affordable. Why does this reality exist? Well the truth is that we have a large inventory of homes which are overvalued and overleveraged.
At the height of the housing and credit boom, homes that once could only be sold for $70,000 or $80,000 were being “valued” at hundreds of thousands of dollars. Many homeowners were encouraged to take out home equity loans on the new value of their home. Now it’s time to pay the piper; but mortgage companies are refusing to face the new reality. Mortgage companies want to keep borrowers on the hook for sky-high mortgages while the properties that secure these mortgages are valued at much less. This is extremely unfair. How is it fair that a mortgage company should be able to keep a mortgage for $100,000 on a home only worth $60,000 after a debtor filed bankruptcy?
The $40,000 not secured by the value of the home should not be even considered secured debt. Debtors in Chapter 13 bankruptcy should only be required to pay for the part of the mortgage that is actually secured by the real value of the property. If we did this, we would create a situation where there would be far fewer foreclosures.