Center For Responsible Lending Says - Solution to Housing Crisis Requires Adjusting Loans to Fair Market Value through Court-Supervised Modifications

According to the Center for Responsible Lending: "No matter where you live, the subprime crisis is causing unnecessary foreclosures and draining resources in your community.  By lifting the ban on court-supervised loan modifications for qualified homeowners, Congress can help nearly 600,000 families nationwide keep their homes and help communities retain an estimated $89 million in tax revenues.   To find out the impact Senate bill S. 2636 could have on a particular state, click here.

Download court_supervised_modifications_would_make_large_scale_foreclosure_prevention_possible.pdf

Why aren’t more mortgages modified?

The fact that most loans are “securitized” – i.e., packaged as investments – has resulted in conflicting financial interests among the different players involved:

• Loan servicers frequently fear that modifications will trigger lawsuits by particular tranches, or classes, of investors;
• Loan servicers often have stronger financial incentives to foreclose than to work with the loan. (Servicers are reimbursed for foreclosing, but must generally cover the cost of loan modification, on average $750-1,000 per loan, out of their own pockets.);
• The common presence of “piggy back second mortgages” often precludes the modification of both mortgages because the second mortgage holder has no incentive to cooperate.

Click here to continue reading . . . .

Court-supervised modifications would make large-scale foreclosure prevention possible.

Increasing loan modifications would be the most effective way to curb the foreclosure epidemic and reduce economic damage. Given the obstacles to voluntary modifications, the only way to achieve meaningful loan modifications on a larger scale is to permit courts to restructure mortgages on family’s homes under chapter 13 of the bankruptcy code. Once this process is in place, it is likely that most loan modifications will occur voluntarily outside of court.

Bills in the House (as reflected in the Chairman Conyers/Rep. Chabot compromise (HR 3609)) and Senate (Sen. Durbin’s bill, included as Title IV of the Foreclosure Prevention Act (S.2636)) would provide judges the authority to modify harmful mortgages marketed by subprime lenders in recent years, in order to provide families with one last chance to save their homes before foreclosure.

Download court_supervised_modifications_would_make_large_scale_foreclosure_prevention_possible.pdf