Foreclosure Preventions with Bankruptcy Judges Given Authority to Modify Home Loans?

House Financial Services Committee Chairman Barney Frank on Monday said that if home foreclosures are not on the decline early next year he expects lawmakers to revive efforts to change bankruptcy law and let judges adjust the terms of mortgages. “If we come back in February and there is frustration that efforts at reducing foreclosure are not working, we can do bankruptcy law changes to get at the problem,” Frank told participants in an Office of Thrift Supervision conference. “Bankruptcy cuts through that.” In September, many Democrats sought unsuccessfully to include bankruptcy law modification as part of the larger $700 billion bank bailout package that passed October 3rd. Should lawmakers consider the measure again, it would give judges the authority to modify mortgage loans such as principal reductions or renegotiated mortgage rates or lengthen the amount of time to pay back the mortgage loan.

Many homeowners from the “Golden State” would welcome California bankruptcy law revisions that gave judges the ability to provide home loan modifications when needed.  California short sales and mortgage foreclosures have become all too common. The foreclosure crisis brings down property values throughout the neighborhoods and has a lasting negative effect for the community.

Frank Says Mortgage Renegotiations ‘a Must’ if Treasury Wants More Bailout Money. Rep. Barney Frank told CNN News Monday that if the Treasury Department wants a second $350 billion installment of financial bailout money, it will have to come up with a foreclosure modification plan; one that must include “principal write-downs” — or reductions in the original amount of the home loans. “I have been insisting that they do a loan work-out plan, but I have not heard yet what they plan to do,” Frank said.

Barney, who is chairman of the House Financial Services Committee, said he would not give a cost estimate for such a plan, but did say it would need to be included if Treasury wants any more bailout money. “They’re not going to get the $350 (billion) unless they get very serious about foreclosure modification and show us that we’re going to get some lending out of the banks,” he added. “They (Treasury) would have to make clear that they are going to do substantial mortgage loan relief and that they have a plan to make the banks lend out money that they’ve already been given through the Capital Purchase (Program).”

Frank also called for principal reductions as part of any foreclosure prevention effort, telling reporters that they would be an essential part of any federal plan. “The more the better,” Frank said. “Principle reduction is a big part of it. When you reduce the principle, you give people an incentive not to re-default, that’s why I think that’s important.” 

Franks also commented that Congress will wait for the Obama administration to be sworn in before taking on any legislation forcing mortgage loan modifications. “How long will I wait, I’ll tell you that that’s a very simple answer – January 21st,” Frank said.  Frank blamed the housing crisis and the lack of foreclosure relief on President Bush.  “I don’t think you need legislation,” Frank said. “There is plenty of legal authority to do loan modifications that could stem foreclosures. — Paulson and Bush won’t use it. There is no need to legislate that.” Get more Foreclosure News as it happens.

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