More Mortgage Help On The Way?

Congress is considering giving judges the right to modify the terms of mortgages to help mitigate the worst effects of foreclosures.

Congress is considering legislation that would allow bankruptcy court judges to rewrite loan terms for people at risk of losing their homes, a change that supporters say could save half a million borrowers from foreclosure through early 2009.

Under this plan, judges could lower the interest rate of a mortgage on a primary home, extend the life of the loan or forgive part of the debt -- as they currently can for vacation homes, farms and investment properties. Doing so could reduce by a quarter the 2 million foreclosures expected in the next 18 months, according to Moody's Economy.com. - The Washington Post

The fact that judges have the right to adjust the terms of mortgages for investment properties and vacation homes, but not for primary residences, just goes to show how skewed in favor of the wealthiest our system has become. If the courts have the authority to enforce consent decrees on major corporations and regulate the online activities of college students, then certainly they should have the authority to address injustices in the mortgage business.

Private contracts cannot be made that explicitly harm the public interest. In effect, predatory mortgages are a significant detriment to the public interest in that they make people destitute, create properties which are likely to be abandoned or unmaintained, and thus significantly reduce the quality of life and economic activity in our polity.

Of course, there are people for whom no help is possible. One of the most difficult situations to manage is people whose expectations of what they should be able to get, and the reality of what they are able to get are completely out of whack. Some people entered into terrible mortgages willfully ignorant of the fact that they could not afford the homes they were purchasing. This is the fault of both the lender and the borrower (and probably the best case for the Own-to-Rent idea).

And often, that is not even enough.

Lopez, 74, bought a one-bedroom condo in Falls Church in 2004 with no money down. She was a prospering loan officer at the time and could afford her $1,700 monthly payment. But that payment increased by $200 when her loan adjusted in mid-2006, and the loan has kept adjusting every six months thereafter.

As the payments climbed, Lopez's income vanished when the real estate market slowed and commissions dried up, leaving her with just $927 in Social Security payments each month.

Lopez, who was upside down on her loan, could not refinance. So she borrowed from her credit cards to pay her mortgage. Overwhelmed by debt, she filed for bankruptcy in June 2007, liquidated her assets and gave up her home. Lopez now lives with a friend. - The Washington Post

It is the case that some people cannot afford to own their own homes in the places they would prefer to live. It's not nice, but it is true. That is among the reasons that the panhandle of West Virginia is growing so rapidly.

In the late 1980s, the Congress bailed out the Savings and Loan industry. Today, we face a similar crisis, in which a combination of poor oversight and willful misinformation on the part of a strong minority of industry participants, with the tacit cooperation of major industry powerhouses, leading to Congressional efforts to address the problem.

Just another under-appreciated effort by our Democratic Congress to actually help America deal with the mess The Executive will leave behind to his successor.