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| The Bush administration is threatening to veto a bill that would enable bankruptcy judges to modify mortgages.
The Foreclosure Prevention Act of 2008, introduced into the U.S. Senate by Sen. Harry Reid (D-Nev.) earlier this month, seeks to eliminate a provision in the U.S. bankruptcy code that prohibits Chapter 13 bankruptcy judges from modifying mortgages on a borrower’s primary residence, as can be done on personal loans and mortgages secured by investment or vacation properties, according to an announcement from Reid. Such a change would reportedly help 600,000 borrowers avoid foreclosure. “Today the Senate is proposing small changes to an outdated bankruptcy code which could help hundreds of thousands of families keep their homes,” Sen. Richard Durbin (D-Ill.) said in a Senate statement today. “We need to focus on preventing these families from drowning in financial difficulties instead of worrying about keeping the banking lobby afloat.” A House version of the legislation passed by the House Judiciary Committee in December, H.R. 3609, indicated affected loans included subprime and non-traditional mortgages originated after Jan. 1, 2000. But mortgage bankers warn against passage of such legislation — which they said would raise overall mortgage rates by 1.5 percent to 2 percent. “The provisions in the bill to amend the bankruptcy code and allow judges to rewrite mortgage contracts will only add to the existing market uncertainty and increase costs on all consumers at a time when exactly the opposite is needed,” David G. Kittle, Chairman-elect of the Mortgage Bankers Association, said in a statement today. And President Bush said such a law would likely prolong the amount of time before a market recovery. “The administration strongly opposes providing bankruptcy judges with power to modify the terms of mortgages for debtors in bankruptcy proceedings,” the White House stated in an administrative policy statement today. “Amending the bankruptcy code in this manner would undermine existing contracts, leading to contraction in mortgage credit availability and affordability. These and other bankruptcy-related provisions in the bill would rewrite long-standing tenets of bankruptcy law in ways that would fundamentally alter the expectations of parties to hundreds of thousands of home purchases after the fact.” In a press conference today, Bush Press Secretary Dana Perino noted the main concern is that it would lead to a contraction in the amount of mortgages. “That’s the last thing you need in a housing downturn,” Perino said. “We fully concur with the Administration’s analysis that this bill would very likely prolong the amount of time it would take for the housing market to recover from the current downturn,” MBA’s Kittle said. “Simply put, this provision is bad public policy and should not be brought to the Senate floor. Instead, the Senate and House should sit down and hammer out an agreement on FHA reform, which is something that could provide a real benefit to a significant number of at risk borrowers.” Assistant Treasury Secretary for Economic Policy Phillip Swagel weighed in on the bill. “Proposals that would greatly restrict the terms on which credit can be offered to borrowers with imperfect credit or that would retroactively change contracts on existing loans … would make it difficult for future subprime borrowers to get into a house in the first place,” Swagel told The Euromoney Bond Investors Congress in London today, according to prepared text of his speech. Bush also opposes a provision of the bill that would appropriate $4 billion for assistance to state and local governments for the redevelopment of abandoned and foreclosed homes and another provision that would triple funding for the Neighborhood Reinvestment Corp. Related: Modification Bill Passes Committee |
