Extent of Bankruptcy Reform Hinges on Details
|
| TOOLBOX   Resize  Save/Share + COMMENT |
Why Do I Have to Log In Again?
Saturday, February 21, 2009; Page D01
When President Obama touted reform of the bankruptcy code while unveiling his foreclosure prevention program earlier this week, it wasn't much of a surprise. He had advocated allowing judges to modify troubled loans several times before, including during the presidential campaign.
Extent of Bankruptcy Reform Hinges on Details
|
| TOOLBOX Resize Save/Share + COMMENT |
"It will curb the number of people who can use [the bankruptcy court] -- and probably not in a sensible way," said Porter. "The people who are still in homes they bought in '04 really fought hard to stay," she said. "We should be giving them help." Many subprime and other loans now burdening homeowners were taken out at least four years ago, she noted.
The proposal would also cap the value of the loans eligible for bankruptcy modification to limits set by mortgage finance firms Fannie Mae and Freddie Mac, which could be difficult in parts of the country that saw the biggest run-up in prices.
(The conforming loan limit is currently $417,000 in most parts of the country and $625,000 in high-price areas, including the Washington region, though the limit in these areas will soon rise to $729,750.)
"At certain points during the bubble, 60 percent of the homes purchased in California were above the conforming loan limit," Sommer said.
Obama's plan mimics a provision included in the House version of the legislation requiring homeowners to contact their lender before filing for bankruptcy. But the White House version also requires the homeowner to certify that they have complied with requests for information from their lender. Industry officials said that would help weed out homeowners that received their mortgage fraudulently.
But the provision could also allow lenders to disrupt the bankruptcy process by contending they did not receive all requested information, Sommer said. That would be frustrating to homeowners who complain that lenders ignore their pleas for help even after submitting and resubmitting information, he said.
"What we don't want is where someone would think they had provided reasonable information, and the lender comes into bankruptcy court and says, 'You can't do this, we wanted to ask you for more information,' " Sommer said. "We don't want to create a potential gotcha situation where they can try to trip people up."
View All Comments »