Congressmen push to let bankruptcy judges alter mortgages

12.10.08
By Lewis Green

With millions of Americans facing the possibility of losing their home, two Washington lawmakers are promoting a plan they say will help more families avoid foreclosure.

Senator Richard Durbin and Representative Brad Miller are suggesting that bankruptcy judges should be permitted to change the terms on a home loan if a homeowner is in trouble.

In addition to helping around one-third of those who are facing foreclosure, the measure could prompt mortgage loan providers to reassess the terms for others who are struggling, Durbin said at a news conference.

"Millions of middle-class families are now underwater. When they lose their homes to foreclosure, they lose their place in the middle class - probably forever," Miller stated.

Some mortgage lenders have already introduced programs aimed at renegotiating terms for some of their most at-risk customers.

These initiatives generally help both the borrower and the lender, as they give banks the opportunity to recoup at least a portion of the money they are owed, while the family gets a chance to keep their home.

Meanwhile, the government has also stepped in with a plan to allow homeowners who are at least 90 days late on home loan payments and who meet other criteria to lower their monthly payments - as long as their mortgages are through Fannie Mae or Freddie Mac.

But do these measures really mean you can relax? Durbin and Miller clearly think more needs to be done. And a recent report from Credit Suisse presents the disturbing prediction that as many as 8 million homes could be lost over the next four years unless action is taken.

"The combination of severe weakening in the economy, continued decline in home prices, steady increase in delinquencies - particularly in the prime mortgage space - ensure that foreclosure numbers, absent more dramatic intervention, will march steadily higher," the report states.

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Lawmakers say more needs to be done to help families avoid foreclosure