Value-Rite Appraisals Inc Blog

A proposed law to change the current bankruptcy system “will make it harder and more costly for consumers to obtain mortgages, which is exactly the opposite of what the mortgage market needs now,” according to a consortium of banking and related industry groups. In an October 3 letter, they opposed the “Emergency Home Ownership and Mortgage Equity Protection Act of 2007” (H.R. 3609) and urged a vote against it during an October 4 mark-up session by the Commercial and Administrative Law Subcommittee. The plea came in an October 3 letter to subcommittee chair Linda Sanchez (D-Calif.).

H.R. 3609 makes major changes to the U.S. bankruptcy system by allowing bankruptcy judges to modify the terms of a mortgage in a Chapter 13 proceeding. This proposal could involve reducing the value of the loan, extending the terms of the loan, lowering the interest rate, delaying the effective date of an adjustable rate increase, and similar provisions, the group cautioned. “If a mortgage loan can be modified or rendered unsecured during bankruptcy, it will be far more difficult to originate or sell mortgages in the secondary market. Such changes introduce substantial risks that the terms of loans will be changed in unpredictable ways,” they said. Such changes envisioned include the cost of mortgages increasing to reflect this additional risk; reducing liquidity; and making it harder for Americans to obtain a new mortgage or refinance their existing mortgage.

The American Bankers Association was joined by the America’s Community Bankers, American Financial Services Association, Consumer Bankers Association, The Council of Federal Home Loan Banks, The Financial Services Roundtable, The Housing Policy Council, Independent Community Bankers of America, Manufactured Housing Institute, Mortgage Bankers Association, National Association of Home Builders, Securities Industry and Financial Markets Association, and the U.S. Chamber of Commerce.

The groups support proposals to enhance the Federal Housing Administration by allowing the FHA to assist borrowers who are 90-days delinquent in payments and to modernize the FHA to make it a more viable alternative to support lending to low- and moderate-income borrowers. They listed a few practices currently under way that are benefiting consumers and the industry. “Lenders and servicers are taking a variety of actions, individually and in partnership with nonprofits, to reach out to borrowers in difficulty,” they wrote, listing the 1-888-995-HOPE national counseling program, among the successful efforts. Independent, non-profit counseling is available to any consumer who calls that number, 24 hours a day, seven days a week, they said.

Among the other provisions of H.R. 3609 that the group spoke out against were provisions that permit debtors to extend mortgage payments beyond the original amortization date and that eliminate the credit counseling requirements. “Allowing bankruptcy courts to extend the repayment period, regardless of the remaining term on the loan, would introduce tremendous uncertainty into the mortgage and home equity loan marketplace, as well as undermine the stability of mortgage backed securities,” they wrote. Additionally, eliminating the credit counseling requirement – which Congress enacted to ensure that debtors in financial difficulty had the benefit of two independent sources of information: approved non-profit counselors and bankruptcy attorneys – would have adverse effects, they said. “Further, this provision is unnecessary since the Bankruptcy Code already allows judges to waive this requirement for “exigent” circumstances

7. Prioritize your spending.

After healthcare, keeping your house should be your first priority.  Review your finances and see where you can cut spending in order to make your mortgage payment.  Look for optional expenses-cable TV, memberships, entertainment-that you can eliminate. Delay payments on credit cards and other "unsecured" debt until you have paid your mortgage.

8. Use your assets.  

Do you have assets-a second car, jewelry, a whole life insurance policy-that you can sell for cash to help reinstate your loan? Can anyone in your household get an extra job to bring in additional income?  Even if these efforts don't significantly increase your available cash or your income, they demonstrate to your lender that you are willing to make sacrifices to keep your home.  

9. Avoid foreclosure prevention companies.

You don't need to pay fees for foreclosure prevention help-use that money to pay the mortgage instead. Many for-profit companies will contact you promising to negotiate with your lender.  While these may be legitimate businesses, they will charge you a hefty fee (often two or three month's mortgage payment) for information and services your lender or a HUD approved housing counselor will provide free if you contact them.

10. Don't lose your house to foreclosure recovery scams!

If any firm claims they can stop your foreclosure immediately if you sign a document appointing them to act on your behalf, you may well be signing over the title to your property and becoming a renter in your own home!  Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney, a trusted real estate professional, or a HUD approved housing counselor.