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New Legislation to Reduce Number of Foreclosures

November 8, 2007

A bill is making its way through Congress that would give bankruptcy judges the authority to adjust mortgage terms, possibly reducing the size of home loans for those people at risk of going into foreclosure. The number of homeowners expected to foreclose is 2 million, but this bill would reduce that number by about 500,000.

A mark up of the bill by the House Judiciary Committee was not completed on Wednesday, Nov. 7, but it is expected to resume next Wednesday, Nov. 14. Once the mark up is finished the bill will go to the House and the voting process will begin.

While some say this will lead to a flood of bankruptcy filings, Rep. Linda Sanchez (D-Calif.), who championed the bill with Rep. Brad Miller (D-N.C.), says that it will reduce the amount of foreclosures in the mortgage industry, which would benefit the struggling economy.

“Many individuals will face the possibility of losing their homes due to a substantial portion of subprime mortgages resetting their interest rates in the coming months,” stated Sanchez in a press release. “Falling real estate prices and the inability to refinance or sell homes force many homeowners into foreclosure. That’s a major hit to our economy, which has ramifications for everyone, borrowers and lenders alike. This measure simply makes some modest, prudent changes to bankruptcy law that would help alleviate some of the worst effects of the mortgage crisis.”

Some mortgage lenders, however, fear this move would lead to increased interest rates to make up for the reduced balance on the unpaid loans.

George Cecala, press secretary for Rep. Steve Chabot (R-Ohio), declined to comment on how the passing of this legislation would affect the economy and consumer confidence as a whole, stating, “We're still in negotiations for a compromise to help homeowners keep their homes, and I don't want to say anything that would jeopardize a positive outcome for these talks.”

A representative of the American Bankruptcy Institute expressed doubt that the bill’s supporters have thought through the consequences that may result, specifically a spike in bankruptcy filings that courts may or may not be prepared to accommodate.

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