Bankruptcy Bill That Would Allow the Courts to Modify Mortgages Moves One Step Closer

  Today,  members of the U.S. House of Representatives Judiciary Committee heard the testimony from bankruptcy lawyers and an economist who hope to influence law makers in passing this bill. They are asking for a few changes to the U.S. bankruptcy code to help save many troubled homeowners from foreclosure as the mortgage crisis takes hold in the next two years.

I feel this is the only way to take the power and incompetency away from loan servicers and lender ran loss mitigation departments and place it in the courts hands where these cases can be evaluated in a court of law, one homeowners at a time.

The members of the U.S. House of Representatives Judiciary Committee who heard the testimony are mulling legislation that would let bankruptcy judges erase billions of dollars in mortgage debt.

It’s really erasing billions in future loan adjustment payments that these lenders would never get anyway. It’s not as if the courts are going to wipe these toxic loans clean. They just need to be restructured and fixed because they are as screwed up and broken as a loan can get. Lenders aren’t fixing them, so let the judges stick it to them.

The proposal, backed by consumer groups but adamantly opposed by the lending industry, would give bankruptcy judges the authority to modify billions of dollars worth of mortgage terms for homeowners that deserve to be helped. It will allow bankruptcy judges extend the term of a loan, change the interest rate or reduce the total amount owed.

“Residential mortgage loan defaults and foreclosures are surging and without significant policy changes will continue to do so through 2008 and into 2009,” said Mark Zandi, chief economist at Moody’s Economy.com, who has given his seal of approval on this new bill.
 
Bankruptcy judges have that broad authority to modify other types of consumer debt, including money owed on credit cards or auto payments, but not home loans.

“You either do this sooner or you do it later,” said William Brewer, Jr., a North Carolina bankruptcy lawyer. “If I am right, you will come back here next spring and this fire I am talking about will be burning out of control.”

Exactly, Mr. Brewer. A wild fire that will engulf the whole nation.

Rep. John Conyers, chairman of the Judiciary Committee, said Tuesday that he hopes to see the legislation pass his panel as early as next week. 

“I’ve got to deliver the bacon on this right away,” the Michigan Democrat said. “There will be no delay or procrastination from our end at all.”

 I smell the bacon Mr. Conyers and it smells mighty good!

The bankruptcy legislation has already passed a subcommittee, but Tuesday’s hearing was meant to encourage more support from lawmakers on the committee, a Conyers spokeswoman said.

However earlier this month, 16 conservative Democrats, asked party leaders to hold off on the planned bankruptcy reform.

 Time will only tell how much influence deep pocketed lenders will have over Congress and this new bill. My guess is that lenders are going to do everything they can to lobby against it.

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