Elizabeth Daigneau is GOVERNING's managing editor.E-mail: firstname.lastname@example.org
As Congress debates whether or not to pass a $700 billion bailout proposal, one of the issues that has arisen is how to include a rescue package to do more for homeowners facing foreclosure.
Lawmakers on the Senate Banking Committee Tuesday asked a question that I've been asking for a long time: Why aren't we actively restructuring more mortgages to keep more families in their homes?
Admittedly, I am no financial guru, and am probably naive about a number of issues, but reworking home mortgages seems like common sense. Wouldn't it be better to modify loans where appropriate so that borrowers can keep their homes and lenders can keep collecting something rather than nothing? If people could keep their homes, wouldn't that alone stabilize housing prices?
One of the reasons this question is so controversial goes to how Democrats are proposing we rework home loans. They want to rewrite bankruptcy laws to allow bankruptcy courts to modify home mortgage loans in the same way they modify other debts. Courts require that borrowers show that they can't afford their loan as it's currently structured but could afford if it's modified. However as it stands now, bankruptcy courts cannot modify mortgages for primary residences.
While bankruptcy courts appear to be set up to handle the foreclosure crisis -- they already handle up to one million bankruptcy cases a year -- this proposal is facing fierce opposition from the financial services industry, and isn't likely to garner the support of most Republicans.
Okay, but isn't there a way to rewrite mortgages without rewriting our bankruptcy laws? Once we've bought up these bad loans, couldn't we then outsource the handling of these loans to mortgage companies with marching orders to rewrite mortgages where appropriate?
Or better yet, take advantage of the hundreds of state and local foreclosure programs already in existence to modify these loans?
In Idea Center, I've written a lot about state and local foreclosure programs. There is one in Philadelphiathat suspends the sale of owner-occupied foreclosed properties until lenders meet with an official and the homeowner in an effort to restructure a loan so the borrower can keep the property. Sound familiar?
Obviously, there are some homeowners we can't help, but there are others who have steady jobs that maybe borrowed too much or got lied to about what their mortgage payments would be.
I think something can be done here, and I don't think it has to be complicated. If some states and localities are already restructuring loans, maybe all the federal government has to do is ask them what they need.
Written and compiled by staff writers and editors, GOVERNING View is an on-the-ground, and sometimes behind-the-scenes, look at the topics we're covering in print and online. From notes on what's up in statehouses, county courthouses and city halls, to encounters with people, places and things, GOVERNING View is a window into the side of state and local government you don't always see.