Proposed Law Would Let Bankruptcy Courts Rewrite Predatory Mortgages

Several Democrats proposed a bill last week in the House of Representatives that would allow bankruptcy courts to alter mortgages written by so-called “predatory lenders.” The bill would save around 600,000 Americans from foreclosure, says its author, Representative Brad Miller from North Carolina.

Some 5 million adjustable-rate mortgages are slated to reset over the next 18 months, and loan modifications are still “few and far between,” Miller said in an interview. “Everyone will know what will happen in bankruptcy, so the fact that bankruptcy is an option would lead to negotations” between the borrower and lender ahead of that event, he said.

Countrywide Financial Corp says it has modified terms on 17,000 mortgages this year. But throughout the industry, a Moody’s Investors Services “found that lenders eased borrowing terms on just 1 percent of subprime mortgages with interest rates that reset in January, April and July.”

“House bill would let courts alter mortgages” [Reuters]
(Photo: Getty)

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  1. King of the Wild Frontier says:

    Well, good luck with that one, Brad. These people will squeeze blood out of a stone until it’s reduced to powder.

  2. Ickypoopy says:

    Remind me again, why are we bailing out people that are too stupid to read papers before they sign them?

  3. txinfo says:

    I live in the DFW area. Everyday I see thousands and thousands of these enormous monstrosities going up all over the place. And I know damn good and well that there is no way these people can afford these places.

    These people get a mortgage for hundreds of thousands to buy these homes. My only question is why? A typical home in this area, in a high property value area, would list for around $200g – $300g. Tack on to that the cost for the property(another $100g for 1/4 of an acre), the homeowners association fees(5-10g) and whatever other costs they incur(interest, etc…) and they could end up owing well over $500,000.

    Rather than spend all of this cash of this home where your neighbors are 10 feet away from you, why not move into the country. I live about 45 minutes from downtown Dallas, but I live in the country. A typical lot with home costs about 100 to 150 thousand with 5 to 10 acres. And it is usually a lot bigger than some of these suburban lots. And beyond that, there are many places that are still unincorporated, which means you don’t have to pay city taxes…. And you usually don’t have to pay homeowners association fees. And you can do what you want without worrying about pissing off your neighbors.

  4. doormat says:

    I assume that if the terms of the mortgage are rewritten in favor of the borrower, then thats forgiven debt and needs to have taxes paid on it, right?

    Though I agree, its bad precedent. I’m going to go to my lender and ask them to rewrite the terms of my mortgage because I don’t want to pay as much.

  5. howie_in_az says:

    @Ickypoopy: Because in Merika it’s the government’s policy (no, duty!) to look out for stupid people.

    Also forclosures help the terrorists and iRan is behind it all.

  6. Nytmare says:

    @doormat: Are you in bankruptcy? Were your loan terms outrageous?

  7. not_seth_brundle says:

    @Ickypoopy: How is this a bailout? The only person who loses out here is the lender, and even that’s arguable, if the alternative is foreclosure.

  8. Esquire99 says:

    This is absolutely absurd. Again, what happened to personal responsibility in this country? Why is Congress getting involved in a legal private business? There is no reason these people should be bailed out. They made a choice, they entered a contract, they should deal with the consequences. This is why you don’t sign papers you don’t understand and you don’t buy things you cannot afford.

  9. Mojosan says:

    Umm…I’d like to get my mortgage paid off too.

    Where do I sign?

  10. eirrom says:

    Could not agree more. I’m so sick of people always blaming others for their mistake.

    When I purchased my condo, I could have gone with an ARM mortgage and saved a bunch of money right away but I knew that at some point the rate was going to go higher. I also could have purchased more home than I could afford, but again knew what my limits were and stayed within them.

    It is just so much easier to blame the “evil” mortgage companies who “forced” the people in to ARM mortgages and “allowed” them to by too expensive a home for their budget.

  11. Pfluffy says:

    People do more research on buying a car than they do when buying a loan. I wondered, why is that?

    Lenders don’t seem to really want to spend time educating the consumer. A consumer really has to invest a lot into researching different loan products, and actually READ THE CONTRACT and ask questions before signing up for a whacked out, exotic loan. Yes, it may take 2 days to read the loan documents. It’s not easy reading. But for what the consumer pays in closing costs and the repercussions of getting stuck with an unbelievably stringent, predatory loan, the time and discomfort in delaying (or declining) the loan closing is worth everything! The worst that can happen is the consumer saying, “no,” to the American dream for a little while.

    I almost walked away from my home loan. The closing attorney told me, in an intimidating way, “Don’t go reading the loan documents. We’ll be here all day!” Yes, he was there with me all day — and much of the evening too. But I’m not the norm.

    I worked in a real estate law firm before. The law office generally had 5 days to generate all the necessary documents, and the mortgage company will only lock in a rate for so many days. The law office may schedule a loan closing at the last possible moment because termite certificates, surveys, abstracts, and other documents take time to obtain. This puts the consumer in a very delicate position when the consumer needs housing for his or her family quickly or if there are many bids on the same property.

    There is a time and place and use for these “exotic loans.” But one size does not fit most. The bank or mortgage company is not your friend, particularly if you don’t have stellar credit.

    I’d rather not have the dream if it can easily turn into a life-long nightmare.

  12. EmptyK says:

    The idea of a bailout bugs me, yes. But if it’s going to happen (and I can’t see how the politicos are going to avoid it at this point,) I’d prefer the bailees have to explain themselves to a bankruptcy judge. I’d like to think that would contain the re-writes and minimize the cost to the taxpayer.

    Then again my faith in the judiciary may be entirely misplaced.

  13. renilyn says:

    @bradg33: Though I agree… it is not always the case. In our situation, our broker, as well as our lender and title company covered up a LOT of what the current ‘complaint’ is.

    For instance…we were told (and initialed)a paper saying that there would be absolutely no pre-payment fees or penalties if we were to win the lottery (ok its a stretch) or if we were to refinance in the first three years. We found out about this time last year, that is NOT the case.

    If we were to have refinanced before the 30th of this month, there were close to $20k of hidden fees that we would have had to pay. No where that we can locate on our paperwork (trust me-we aren’t stupid, we went through with a fine toothed comb) anything about these mystery fees. Nor, could our lender tell us where any verbage about these fees could be located-either in our original paperwork or any ‘by mail’ updates that had been sent in the past couple of years.

    So you see-though I agree its not the governments job to wipe our consumer behinds… it goes to show even the most savvy business people can have the wool pulled over their eyes.

  14. psm321 says:

    @renilyn: So then why do you think you would have had to pay 20k? If the lender can’t point out anywhere that you agreed to these fees, and on top of that you have a paper saying that there are no fees, where do they get the legal authority to charge said fees?

  15. Brad2723 says:

    Lowerving interest rates, forgiving principle… sounds like a bail out to me. They want to reward people for making a bad decision…Meanwhile, those of us who have worked hard to achieve a high FICO, who have never had a late mortgage payment don’t get any assistance.

    When will the financially responsible have their turn to be rewarded?

  16. Cowboys_fan says:

    @Ickypoopy: Its called helping your fellow citizens in need, unless you are against!

  17. Esquire99 says:

    @psm321: I agree. Just because they “say” there are these fee’s, if they can’t back them up with ANYTHING, you don’t have to pay them. I’d like to see them take you to court and try to prove you owe them the fee’s. Just because they verbally said “if you pay it off early, you owe us” doesn’t make it so.

  18. Geekybiker says:

    I agree. Let them forclose. I dont need to pay for their stupidity. Lenders need to have this be painful for them so they’ll learn not to lend like that.

  19. burbed says:

    @txinfo: “A typical home in this area, in a high property value area, would list for around $200g – $300g.”

    The national median is about $2xx – so that’s not exactly high property value area.

    A high property value area would be this house in San Jose:

    [www.burbed.com]

    $460k for a 74 year old 900 sqft. Why is it so expensive? Well… the windows are all boarded up for you already! You can’t put a value on time saved or anti-terrorism preparedness!

  20. CumaeanSibyl says:

    Oh boy, all I have to do is declare myself financially ruined, have the courts take away all my money, and carry a giant black mark on my credit report for seven years, and I can have — LOWER HOUSE PAYMENTS!

    I tell you what, it’s totally unfair that us responsible citizens can’t take advantage of this sweet sweet deal. Am I missing something here, or are we seriously complaining about a “bailout” that happens during bankruptcy?

  21. julienne says:

    @doormat: You only have to pay taxes on a forgiven or settled debt if you do it WITHOUT a bankruptcy. IRS statute provides that debts discharged in bankruptcy are not taxed as “cancellation of indebtedness income.”

    As for the Miller-Sanchez bill passing, fat chance. We’re not in a bankruptcy-friendly administration. Plus, it doesn’t look like it would help at all. Guess I’m with Geekybiker on this one.

  22. olderbudwizer says:

    Yeah – I took one of those 2 year ARMs a few years ago, finding myself in a much improved scenario to finally work my way out of credit hell. Of course, I didn’t anticipate the unexpected medical trauma that was about to fall upon us. At one point, I was begging my lender for a loan modification. They even said “yep, looks like that would be a good thing for you – we’ll let you know” and never did respond after that. Thankfully, that lender is now belly-up. Wish this could have been forced upon them then, the heartless bastartds. So yes, I went thru bankruptcy to save myself and can only wish I’d done it sooner.

  23. tklawsonpharmtech says:

    Do not look for the Gov to act anytime soon. In my case a HUD home W/ no $ down, turned into a fiasco. I ended up in arears till May ’08 and sort of just paid rent. They can have the Pontiac.

  24. IRSistherootofallevil says:

    If they even have the audacity to suggest an ARM, say “fixed or I’m walking.” And HIRE A LAWYER!!!