Two bills before Congress would give bankruptcy court judges the authority to reduce mortgage debt, which could save thousands of borrowers from foreclosure. But lenders are furious at the prospect of having judges seize control of their mortgage portfolios. Community and consumer advocates argue that such a move makes sense amid the current mortgage crisis.

Both the Emergency Home Ownership and Mortgage Equity Protection Act of 2007 and the Foreclosure Prevention Act of 2008 aim to provide relief for some home owners in bankruptcy. Only borrowers who live in their homes and hold subprime or non-traditional mortgages, like interest-only loans, would be eligible.

"This will help 600,000 households avoid foreclosure this year and next," said Ellen Hornick an attorney for the Center for Responsible Lending. The policy, which in industry parlance is called a cram-down, would reduce mortgage balances and monthly payments based on how much a home's value had decreased.

It is one of many efforts by government and consumer groups to encourage lenders and mortgage servicers to restructure loans to more affordable terms for home owners in danger of default.

"While there are some loans being [voluntarily] modified," Hornick said, "foreclosures are still outstripping modifications by seven to one; subprime ARM foreclosures by 13 to one."

However opponents argue the cram-downs would increase mortgage borrowing costs for everyone. "It would affect a lot of prospective home owners," said Wayne Brough, chief economist for FreedomWorks, a conservative policy advocate, "anyone who applies for a mortgage


Vanessa Arellano Doctor
http://realestatepress.org