Senate Bill 2636 (Harry Reid, D, NV), which contains a provision that would allow for the modification of home mortgage loans in bankruptcy, will be up for a vote by the full Senate next week.

I urge anyone out there to contact your Senators and urge them to pass this legislation and specifically to keep this provision in the legislation. 

According to NACBA, the National Association of Consumer Bankruptcy Attorneys this is our best chance at getting real mortgage relief this year!  Please ask your fellow attorneys, family members, and clients to do the same. 

Obviously, this piece of legislation is strongly opposed by mortgage bankers and their allies.  We need strong support from you to get this done!

This week, the House Judiciary Committee passed legislation sponsored by John Conyers (D-MI) and Steve Chabot (R-OH) that would allow bankruptcy judges to modify some mortgages in chapter 13 bankruptcies.  The highlight of the legislation which will now go to the full House for a vote is that chapter 13 would allow the debtor to lower both the principal balance on a mortgage and possibly the interest rate based on the value of the property.  Thus, if a debtor’s mortgage exceeds the value of the property, by filing for bankruptcy, the debtor could reduce mortgage payments.

 The House Judiciary Committee approved the legislation after making some limitations on the legislations scope.  First, the legislation only applies to loans made after 1/1/00 and already existing as of the enactment of this legislation, so this legislation won’t help those who get loans after the date of the legislation.  Second, the legislation only applies to nontraditional, subprime loans, not all mortgages.  Third, the legislation will only apply to loans where the mortgage company has already served a Notice of Foreclosure.  Finally, the legislation limits judicial discretion so that the judge can not lower the mortgage below market value and can not lower the interest rate below conventional mortgage rates.

 The legislation is expected to be considered in the full House in January or February of 2008 and the Senate Judiciary Committee is expected to take up similar legislation in January or February of 2008.  Lobby your Congressmen and Congresswomen to pass this legislation!  Despite its limitations, there are thousands of people who could benefit and keep a roof over their head if Congress enacts and the President signs this legislation.   

According to RealtyTrac, on online marketplace for foreclosed properties, a total of 925,986 houses were at some point in the foreclosure process during the first six months of 2007.  This was a 55% increase compared to the same time period in 2006.  That equates to one foreclosure for every 134 households during the first half of the year.

James J. Saccacio, CEO of RealtyTrac predicts that at this rate, foreclosures could easily surpass 2 million filings by the end of the year!  This would be a 65% increase over 2006.  The states with the largest foreclosure rates are Nevada, Colorado, Michigan, Florida, Ohio, Georgia, Arizona, Connecticut and Indiana.

Recently, an associate professor of law at the University of Iowa, Katherine Porter wrote that “credit solicitations of recent bankruptcy debtors is rampant.”  She studied data collected by the Consumer Bankruptcy Project and found that nearly every debtor receives credit offers shortly after bankruptcy.  Most offers are for credit cards, however, some are for mortgages and car loans. 

It is interesting because this phenomenon contrasts with the picture painted by the credit industry and things most of us read and hear about from credit counseling agencies and debt settlement negotiators.  We’ve all heard proclamations throughout society that “bankruptcy ruins your credit” or “you will never be able to finance a house” or other similar doomsday forecasts (I’ve discussed before about how bankruptcy is a first step in the rebuilding of credit since most who need bankruptcy already have bad credit or are about to without bankruptcy).

The data collected by the Consumer Bankruptcy Project support what I and many others have been saying for years.  It is not only possible to obtain credit after bankruptcy, it might actually be easier to obtain credit after bankruptcy than after other non-bankruptcy options are attempted (usually unsuccessfully). 

 As Professor Porter says in her article, “Bankruptcy Profits:  The Credit Industry’s Business Model for Postbankruptcy Lending,” “despite debtors’ trepidations and creditors’ warnings before bankruptcy, borrowing after bankruptcy is not only possible after bankruptcy, such activity is actively encouraged by the credit industry.  These data suggest that creditors’ threats to refuse credit after bankruptcy are hollow.  The credit industry may tell consumers that they will not lend after bankruptcy and that paying the debt is the only option to maintain their credit access, but such statements are largely untrue.  Rather than resulting from a marketing mistake, the widespread availability of postbankruptcy credit more likely reflects a careful calculus about the profits of lending to consumers vulnerable to financial distress.  The bankruptcy system shapes creditors’ ability to profit from former bankrupts, and law can play a critical role in defining the appropriate boundaries of credit solicitation.”