The Foreclosure Prevention Act

Posted on March 4th, 2008 by saman

The Senate is soon to hear the bill known as the Foreclosure Prevention Act. This act is very important but it is also extremely controversial. This provision would let judges reduce the balance of mortgages for homeowners who are at risk of foreclosure. The prices of homes dropped sharply last year and have left home owners owing more than their homes are actually worth.

Under the foreclosure prevention act, a mortgage over a certain amount would be reduced to what the house would actually sell for in the market. If a home had a mortgage of two hundred thousand dollars the home would sell for one hundred and sixty thousand dollars.

The Democrats in the Senate will most likely seek to force a vote on the bill right away. This is according to Janet Seiberg, the senior vice president of the Stanford Group.

The Senate Democrats need about sixty votes to prevail but they will fall short of the sixty votes. This will mean that the senate members will need to come up with a compromise in order to pick up the support of the GOP.

The opposition in the Senate comes primarily from three groups. There is the group of people opposed to giving bankruptcy judges any more power, the group of people who are in favor of individual responsibility and individual rights, and those who have taken up the side of the lenders.

Courts that deal with bankruptcy had more control of the foreclosure process at one time but lenders worked to make it harder for borrowers to get rid of debts. Lenders do not want laws to be created that will make it easier for borrowers and for judges to act to roll back their efforts.

Other lawmakers believe that the issue is one of responsibility. They believe that if a person signs a contract to acquire a loan they are obligated to abide by the terms of the loan.

The majority of the opposition to this act comes from the fear that reforming mortgage bankruptcy laws will make borrowing money for a mortgage more expensive for everyone involved.

The Mortgage Bankers Association believes that if the judiciary is permitted to bring down loan balances and cut into the profits of the lenders, there would be an extra risk to those lenders and this risk would be passed on to those borrowing money to obtain mortgages. The MBA also states that this type of situation could increase interest rates and this would add hundreds of dollars a month to some fixed rate mortgages.

Despite the current opposition, the bill also has supporters because the act would help many borrowers remain in their home without costing the government anything. Janet Seiberg stated that the act is the singular comprehensive solution that will allow borrowers to stay in their homes and it would not require any taxpayers to pay any part of the bill.

The odds of the passing of the Foreclosure Protection Act have been quoted to be about sixty percent. It was also said that Republicans may try to discard the provision in the act about bankruptcy reform.

Ms. Seiberg stated that Democrats would rather have the Republicans destroy the bill than to have a watered down version passed through. She said that it is unclear as the whether or not President Bush would accept a bill that would include bankruptcy reform.

One of the reasons that the mortgage business is in opposition to the bill is because borrowers would use the provision to threaten reluctant venders who do not desire to restructure mortgages. A home owner could do this without going into bankruptcy. Smart borrowers may decide that the stigma of bankruptcy is worthwhile if this means that their mortgage payments will be reduced.

If Senate Democrats fail to establish cloture, the bill will still be open to debate. The Republicans may be able to achieve a filibuster. This would not be the best situation and the bill may get tabled or even canceled.

Borrowers hoping for help with foreclosures will have to wait and see if the Foreclosure Protection Act will become law.