Loan Modifications and Bankruptcy Judges

It’s time to allow bankruptcy judges to implement loan modifications.  There are estimated to be 8,000,000 plus foreclosures today with more coming.  The mortgage banking lobby is fighting extremely hard to negate the ability of judges to modify loans.  Why?

How can we expect lenders and mortgage service sto tinker around with e borrower in over their head. Voluntary loan modifications by banks are an abysmal failure. Only a fraction of home loan borrowers have been helped.

Chapter 13 bankruptcy, for people who are working and have fallen behind on their debts, allow bankruptcy judges to modify loan terms on cars, boats, second homes, etc.  The only debt a judge cannot modify is a loan on a homeowner’s principal residence.  Homeowners requiring a loan modification have 3 avenues; walk away from their home, attempt to cut a deal with their lender (fat chance), or meet their original obligation to the lender.

This situation is rediculous! You can keep your vacation home or your Bentley but not your home!

Lenders resist bankruptcy mandated homeowner loan modifications bechey’re afraid homeowners by the millions will rush into bankruptcy court. This is unrealistic because of the hell a loan modification seeking homeowner who chooses bankruptcy goes through.  Under Chapter 13 bankruptcies, debtors are grilled under oath by the judge, the bankruptcy trustee and their creditors.  Debtors income and expenses are monitored, they surrender their financial freedom for 5 years and once out of bankruptcy, they still often owe most of their secured debt.

If there’s any way a homeowner can afford to make their mortgage payment and avoid bankruptcy they will!

Ultimately homeowner loan modifications negotiated via bankruptcy court is not the answer for evryone “under water” but it could go a long way in providing confidence for loan servicers that they will not be dragged into a lawsuit by the bond holders who own the mortgages.

Let’s hope Congress gets this right!