78-year-old retiree Albert Tobin thought he'd made a wise move. He refinanced the mortgage on the home he shares with Juliette, his wife of 60 years, on the advice of a smooth-talking lender.
"She said she could get me a loan at 1 percent," Tobin says.
But when the payments mushroomed from $1,000 a month, which he could afford, to more than $3,000, which he couldn't, he knew he'd made a huge mistake.
"I have said, 'How the hell did you ever sign these damn papers?'" Juliette says.
The couple considered bankruptcy, but current laws don't help. Deeply indebted consumers can restructure almost every kind of debt, except for the mortgage on a primary residence. Bankruptcy judge Samuel Bufford says it's one big reason so many people are being pushed into foreclosure.
"The law does not permit us to change the payments, to change the interest rate or change the total amount that's owed on a secured loan in the case where the loan is more than the value of the residence," Bufford says.
There were more than 1.5 million home foreclosures in just the 10 hardest hit states last year. Credit Suisse Bank projects 8.1 million nationwide over the next four years.
So, Congress is considering changing bankruptcy laws to give judges the power to cram down mortgage payments to something homeowners can afford. The idea got a big boost last week when major lender Citigroup did an about face and announced it supports the legislation.
"You could go to the court, prove that the house is worth less than the mortgage," says consumer advocate Ira Rheingold "Then the court would have the power to reduce the house value and give you a plan of 30 years to pay back that mortgage."
Most mortgage bankers call it a bad idea. If they can't count on a secured loan, they say they'll have to cover their risk with higher interest rates.
"We think it's going to be increasing costs across the board going forward," says Kay Brinkmann, of the Mortgage Bankers Association.
But for now, the Tobins are hoping new bankruptcy laws will decrease their costs and allow them to stay in their home.
By Bill Whitaker