May. 8, 2009 - Mortgages, Housing Market and Loan Modifications

The housing market continues to experience significant deterioration; declines in new and existing home sales, housing starts and home prices, as well as increases in mortgage delinquencies.

High levels of unemployment indicated by the total number of Americans receiving unemployment benefits increased to the highest levels on record dating back to 1967. The U.S. Bureau of Labor Statistics reported successive increases in the unemployment rate in each month of the first quarter, reaching 8.5% in March. Unemployment rates are much higher in Florida, California, Arizona and Nevada where home foreclosures are that the highest levels.  Coupled with severe declines in home equity and household wealth has resulted in a continued increase in residential mortgage delinquencies.

Congress is moving closer to enacting a law intended to ease a foreclosure but the legislation that came before the Senate did not contain all that President Obama wanted – namely, new authority for bankruptcy courts to rewrite the terms of mortgage loans on individuals’ primary homes.
the immense power of the banking and real estate lobbies was revealed. 

Last week the issue failed 45 to 51 in the Senate last week. All you need to do to look at the 2008 campaign to see the finance, insurance, and real estate sector contributed $463.4 million to candidates for Congress, according to the Center for Responsive Politics in Washington. That’s more than contributions from the healthcare, energy, agriculture, transportation, and defense industries combined.

Senate Republicans were united against the mortgage reform provision. “There are already numbers of agreements under way to help people modify mortgages,” says freshman Sen. Bob Corker (R) of Tennessee. “Should we throw to the courts the ability to change contract law that will penalize vast numbers of Americans because they build in such a risk premium for the future to solve it? No.”  But what is not said is bankruptcy courts change contracts all the time.

Courts are already allowed to write down the terms of loans on secondary homes, yachts, and other big-ticket items involved in bankruptcy proceedings, but not on an individual’s primary residence. As a candidate, Mr. Obama campaigned to change that by allowing bankruptcy judges to rewrite mortgages for primary homes, too.

This week the Senate approved the bill, 91 to 5, that did not include the provision that would have allowed bankruptcy judges to modify the terms of primary mortgages.   The bill, however, does expand federal efforts to prevent mortgage foreclosures, shield mortgage service companies from lawsuits if they participate in federal loan modification programs, and give renters of foreclosed properties at least 90 days’ notice before eviction.

So far, the federal programs to reduce foreclosures have largely fallen flat, particularly the Hope for Homeowners program approved by Congress last summer. Only one mortgage was modified under the program, which lawmakers had hoped would help as many as 400,000 homeowners.

“This bill is principally designed to provide that long sought-for relief for people who are facing foreclosure,” Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the banking committee, said at a news conference after the vote. “The bill does other things, but certainly, a major target is to deal with peoples’ housing issues and try to stem the tide.”  Let’s hope Senator Dodd and his colleagues are correct  and the bill does in fact clear the way for loan modifications.  Home owners in the elections in 2010 have the last say and this vote could become a pivotal issue.