House Builders and Mortgage Associations Wake Up To the Benefits of Empowering Judges to Modify Loans to Avoid Foreclosures

April 13th, 2009

Despite initial strong lobbying and opposition the National Association of Home Builders and Mortgage Bankers Association have woken up to the benefits of empowering judges to modify loans so as to avoid foreclosures. It is the increasing number of foreclosures continuing to flood the real estate market that has made them change their views and see which side the bread is buttered. Builders are no longer seeing any point in opposing modifications initiated by the court because this way foreclosure will be avoided and more people will continue to stay in their houses. With fewer foreclosed houses to compete with the builders will have a better chance to sell their extra houses.

The revised edition of the bankruptcy bill was introduced by Rep. John Conyers Jr. (Democrat). With the anti lobby having publicly withdrawn their opposition it seems that the bill will see the light of day.

The bill would permit judges dealing with bankruptcy cases to order reduction of principal, interest rate and prepayment penalties on ARM’s. Judges will also have the power to extend the mortgage terms to as long as 40 years. These steps will apply only to those borrowers who live in their primary residences. The final effect will not be till the next month in all probability.

Democrat Brad Miller who had sponsored a previous bill on reform said the change of stand by the builders was important. He said, “They matter economically and politically in every (congressional) district, much more so than Wall Street. Morgan Stanley is not my district, home builders are.” Miller added that what is of grave consequence is the unabated flood of foreclosures in many of the districts. As yet none of the voluntary programmes have been able to stem the tide. Miller opined that bankruptcy filings would not increase with the passing of the law but it will be of help because lenders will be more anxious to come to some agreement with the borrowers rather than face court terms.

Ginna Greek spoke on behalf of Responsible Lending – an organization that has been advocating reform in bankruptcy, said that the prospects for passing of the legislation has become better especially so far none of the solutions being implemented has borne any fruit.Credit Suisse released a survey report that showed 16% of the mortgages counted to 8.1 million houses would be foreclosed upon in the forthcoming years as fallout from falling property value and the recession.