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New House Legislation Will Help Homeowners When Lenders Won't
A new measure that is set for a vote on Thursday will allow bankruptcy judges to rewrite loan terms should the loan servicer be unwilling to help. On Wednesday, the Obama administration announced details of a housing plan totaling $ 75 billion. That plan already includes tax breaks for lenders who agree to re-structure mortgages to aid financially strapped homeowners.
The financing industry, in recent months, has lobbied arduously to defeat the House bill, which has created rifts between liberal democrats who support the bill, and moderates who believe we should give the tax break legislation time to work before handing judges the new authority. The same divisiveness is showing up in the Senate, where similar legislation is currently in the development stage. The financial industry lobbyists are working hard to convince Senators to limit how many homeowners could benefit from the bill.
The lobby has been successful to an extent, their influence has brought out a few limitations in the House bill, dubbed H.R. 1106. The bill will only impact existing loans where the homeowner has sought aid from their lender before filing a bankruptcy claim and can no longer afford their mortgage payments. The plan stalled at one time as moderates expressed concern that the bill was too general. The 2 sides ended up meeting halfway by requiring judges to take into account any action a lender has taken to alter loans before stepping in to rewrite the loan.
Loan servicers would also have a burden to prove any attempts they have made to restructure loan terms when seeking aid in their behalf in bankruptcy court. Judges will decide whether the loan companies efforts amount to a "qualified" rewrite, meaning that the end result leaves monthly mortgage payments at 1/3 of the homeowner's income or less. Republicans have voiced concern about all the new housing legislation saying it does not do enough to help people not in immediate jeopardy of foreclosure, however high their mortgage payments may be.
The mortgage industry has argued that rampant restructuring of loans would cause its companies to incur financial woes which they would then have to pass down to borrowers in the form of increased fees and interest rates. Many supporters have said that the primary benefit of the bill is as a negotiating toll for cash-strapped homeowners, explaining that lenders would go further in offering an acceptable rewrite of its' loans to avoid having them imposed by a bankruptcy court. The bill is a portion of a larger housing aid package that would increase the borrowing power of the Federal Deposit Insurance Corporation (FDIC) and reward lenders who restructure their loans to help homeowners avoid foreclosure. It accounts for about $2 billion of the $700 billion bailout package.
Marin Real Estate Blog
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