Friday, January 09, 2009

Mortgages Adjusted by Bankruptcy Judges

Citigroup is the first financial institution that will support a plan that allows bankruptcy juges to alter mortgages in an effort to prevent more home foreclosures.  

Most banks have been opposed to the controversial plan which Democrats hope to attach to the new economic stimulus legislation.  This proposal has been supported by Democrats over the past year as a possible solution to the housing crisis.  

The change would allow bankruptcy courts to change the erms of mortgages under certain conditions:

1.  Mortgages obtained prior to the date of enactment of the bill would be eligible for the change.  All loans, not just subprime, are eligible.

2.  Homeowners must show that they made every effort to work with the lender before considering bankruptcy.  Homeowners must prove that bankruptcy was not their first option.

3.  Bankruptcy judges can take away a lender's credit or rights if they violated the Truth in Lending Act or any other state and federal laws.

The announcement of the agreement with Citigroup was made in Washington by Senators Richard Durbin of Illinois, Charles Schumer of New York and Christopher Dodd of Connecticut.  

Durbin tried to pass this proposal last year, but it failed in the face of opposition from lending and housing groups that warned giving bankruptcy judges power to erase mortgage debt would increase costs for future homeowners.  

Since the housing crisis has worsened and foreclosures have increased, opponents of the plan now want to cut a deal with Democrats for more aggressive policies to help homeowners.  

The National Association of Home Builders is now supporting the plan and the National Association of Realtors is considering ending their opposition.