House Bill Allows Bankruptcy Judges to Modify Home Loans
The House on March 5 passed H.R. 1106, legislation that would allow bankruptcy judges to modify mortgages for primary residences. The bill would allow judges to reduce the value of a loan, extend the terms of the loan, lower the interest rate, delay the effective date of an adjustable rate increase and make other similar changes to a mortgage in order to save the home from foreclosure.
NAHB urged Congress to narrow the bill so that it only focuses on those mortgages responsible for today’s surge in defaults and said that any changes to the bankruptcy code must be limited in scope, temporary and apply only to current mortgages.
Moving in this direction, the House limited the measure to existing mortgages and changed the legislation to ensure that it does not have a negative impact on mortgages backed by the Federal Housing Administration and the Department of Veterans Affairs.
The bill would also deny relief to individuals who can afford to repay their mortgages without judicial modification and allow lenders to collect a portion of the profit if a home were sold within five years of modification. The bill also would discourage bankruptcy judges from reducing the value of a mortgage if lowering the interest rate alone would result in affordable payments.
Additional changes to narrow the bankruptcy provisions are likely in the Senate.
The legislation also includes several other housing and financial provisions that would address the nation's foreclosure crisis. For one, it would overhaul the Hope for Homeownership program, which is aimed at helping struggling home owners to refinance into FHA-backed loans and stay in their homes.
The legislation would permanently lock in the current $250,000 insurance limit for the Federal Deposit Insurance Corp. and index the limit to inflation starting in 2015. The limit was temporarily raised from $100,000 to $250,000 after the $700 billion financial bailout legislation was enacted last fall. The FDIC’s borrowing authority would be boosted from $30 billion to $100 billion.
Finally, the legislation is designed to shield lenders from lawsuits by providing mortgage servicers that rework mortgages a “safe harbor” from lawsuits if a home owner defaults on a revised loan or appears likely to default.
To read the legislation, click here and enter H.R. 1106 in the box at the center of the page.
For more information on the legislation’s bankruptcy provisions, contact J.P. Delmore at 800-368-5242 x8412. For information on other provisions in the bill, contact Scott Meyer at x8144.
Attend the 2009 NAHB Legislative Conference on March 24
Builders and housing industry professionals should attend the 2009 NAHB Legislative Conference on Tuesday, March 24 in Washington, D.C. to tell members of Congress that housing deserves 100% of their ongoing attention so housing can once again lead the nation out of this troubled economy.
With policymakers in Washington confronting the most difficult financial crisis since the 1930s, attending this year’s conference could be one of the most important decisions that builders make this year — especially considering the growing downward momentum in housing and the nation’s job market.
This year’s NAHB Legislative Conference on March 24 will take place earlier than the NAHB spring board of directors meeting because of the depth of the downturn and the need for a solution.
For more information and to register for the legislative conference, click here; or e-mail Molly Murray at NAHB or call her at 800-368-5242 x8282.