Congress Eyes New Lifeline For Homeowners

CBS Evening News: Proposed Legislation Would Allow Bankruptcy Judges To Reduce Mortgage Payments For Those Facing Foreclosure

(CBS)  Some relief for homeowners facing foreclosure is in the pipeline. A House committee approved a bill last week that would allow bankruptcy judges to order banks to reduce mortgage payments. That's known as a "cram down." And as CBS News correspondent Bill Whitaker reports, for many homeowners, it's their last hope.

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.

[catlady1412]

This recession started at least 2 years ago for some of us. I have spent the last 2-3 years pulling my house out of foreclosure due to the changes Bush made to the credit card and bankruptcy laws where credit cards could hike rates anytime you made a late payment, even if it was a utility bill or rent and not their own card. I could not declare bankruptcy and I did not want to as I figured I am an adult who made my choices and so should pay them, but we had to take hardship withdrawals from our 401k and sell possessions on ebay to keep paying bills, often late, which kept compounding the problem. Then the gas and food prices went up and we struggled to pay for gas to get to work, let alone pay the usual bills. Now we have saved our house, paid off our last credit card and are coming out of our personal recession but others are facing what we did. We did without, went a little hungry, no vacations, no extras, but we made it. And we did not have a McMansion or a new mortgage with the balloon rates or anything like that. We just got caught in the cycle of debt and rate hikes plus inflation of gas and food and medical care that threatened to take our house. It can happen to anyone. I am in favor of predatory lenders being taken to court and the mortgages revised based on that.

[shanev137]

As far as the slime factor goes, mortgage bankers are no different than used car salesmen or lawyers.

[brianp55]

OKEEDOKE

[ofbyfor3]

"Adjusting the bankruptcy laws to allow people to renegotiate their mortgages does NOT use taxpayer funds"...ofbyfor3

Respectfully, you are very naive.

Posted by brianp55 at 02:02 PM : Feb 02, 2009

Respectfully...since it is between the courts, the lender and the borrower, it has NOTHING to do with the taxpayers in terms of a bailout.

I know that it is very fashionable these days to be grossly cynical. However, cynicism that is not based on facts is just as absurd, if not more so, than naivete.

Please look up the FACTS before you criticize. America is better off with an INFORMED populace than with those who want to make uninformed emotional, knee-jerk responses.

''The Obama administration has said that it plans to use a chunk of the bank bailout money, up to $100 billion, to provide foreclosure relief. That would be welcome, but it is not a substitute for bankruptcy reform. It is unfair to ask taxpayers to pay for foreclosure relief without enacting a bankruptcy fix, which costs them nothing. Besides, any relief effort--and the Obama team has not yet indicated what it has in mind--will attract more participation if lenders know that the alternative is to lose control of the process to a bankruptcy judge.''

http://www.nytimes.com/2009/02/02/opinion/02mon1.html?_r=1&ref=opinion

[brianp55]

"Adjusting the bankruptcy laws to allow people to renegotiate their mortgages does NOT use taxpayer funds"...ofbyfor3

Respectfully, you are very naive.

[ofbyfor3]

Readjusting mortgage terms has NOTHING to do with taxpayers. Please do some research before you spout off just to gratify your spite.

Posted by ofbyfor3 at 12:53 PM : Feb 02, 2009

it odes if the govt'''' steps in and tells a lender they have to lower the amount that was paid for the house. The last homeowner recieved what he asked for, and the lender covered that amount. If the amount of the sale is lowered someone has to make up the difference, and that is the taxpayer. I have my own stuff to pay for, why should I help someone who made a stupid mistake.

Posted by getoffmine1 at 12:58 PM : Feb 02, 2009

It is between that homeowner and the bank via the courts.As a taxpayer, YOU will NOT be charged for anything as a result of it.

Please do some basic research. You will see that I am not lying. Also, see my post at 8:49 AM to see more explanation. Emotionally-driven, knee-jerk uninformed attitudes are NOT the answer to this crisis.

[cusefan21]

This sounds good but no matter what a judge does a bank will have their say. I just don''t understand these mortgage companies that are taking 10''s of millions in losses due to foreclosure and people tearing up homes they are forces out of costing more in the end to a bank to repair instead redoing peoples mortgages so they can make money off of them

[getoffmine1]

Readjusting mortgage terms has NOTHING to do with taxpayers. Please do some research before you spout off just to gratify your spite.

Posted by ofbyfor3 at 12:53 PM : Feb 02, 2009

it odes if the govt'' steps in and tells a lender they have to lower the amount that was paid for the house. The last homeowner recieved what he asked for, and the lender covered that amount. If the amount of the sale is lowered someone has to make up the difference, and that is the taxpayer. I have my own stuff to pay for, why should I help someone who made a stupid mistake.

[ofbyfor3]

Many people who have purchased expensive furniture over their head with the promise from the store that they would not have to pay anything before 2011 may now apply for the Homeowners New Lifeline. It is a good thing that tax payers are there to help the needy.

Posted by gangesdak at 12:50 PM : Feb 02, 2009

Readjusting mortgage terms has NOTHING to do with taxpayers. Please do some research before you spout off just to gratify your spite.

[gangesdak]

Many people who have purchased expensive furniture over their head with the promise from the store that they would not have to pay anything before 2011 may now apply for the Homeowners New Lifeline. It is a good thing that tax payers are there to help the needy.

[susanhelit]

All other loans, including, ridiculously enough, loans on yachts, second vacation homes, etc. can be renegotiated. Only this one type of loan, the one thing we need most, cannot be renegotiated, even if you were mislead, even if anything. It''s ridiculous. Someone with a vacation home in Hawaii - if they get tight on money, they can renegotiate the loan. Someone with a home in Michigan, they get thrown out without any attempt to reset the loan to standard terms.

[cbscrash072]

Well in the case of the old man. The loan brokers name is on record. She lied to him, she defrauded him. Why is she not in jail? How was the man able to refinance a home he could afford into a home he couldn''t afford. I get the feeling that some extra cash was pulled out of the house, which is a big no no. My first reaction is that its wrong to allow a court to restructure a loan arbitrarily but if the bank holding the loan was a predatory lender then stick it to them.

[ofbyfor3]

Well, there you are....he made a MISTAKE. So, what should be done about this? I know, let''''s have Congress enact special rules for people who get in over their heads and can''''t pay their mortgages. Of course, taxpayers will ultimately be saddled with the cost of yet another bailout, but who cares....we don''''t want these people to lose their homes.

Posted by brianp55 at 12:02 PM : Feb 02, 2009

Adjusting the bankruptcy laws to allow people to renegotiate their mortgages does NOT use taxpayer funds.

[ofbyfor3]

Forclosures are probably more with Democrats, duh ?

Posted by HAmiltonGRAD at 11:33 AM : Feb 02, 2009

Gee, could that POSSIBLY be because the vast majority of the population lives on the coasts? If the rankings were adjusted to take into account the percentage of population, I think you might see a very different story.

And then there''s the simple fact that, dollar for dollar, the traditionally blue states pay more in federal taxes than what they receive from the government while the traditionally red states get more than they pay. Thus, the blue states are essentially subsidizing the red states.

''Ironically, most of these high-paying states are the so-called blue states that have generally elected politicians who support a more steeply progressive tax system even though their own constituents bear a greater share of the burden as the code gets more progressive.''

http://www.taxfoundati
on.org/research/show/62.html

Stop being such a partisan fool.

[credibility2]

Let''s continue to help those that were too foolish to know how to make proper decisions about their life and convinced themselves that even if they weren''t qualified, they were still equal. Let''s continue to have the taxpayer bailout these economic lodestones. After all, isn''t that what equality really means - equal, even when not qualified?

[ofbyfor3]

Like the manager at McDonalds in my town makes $38,000 a year and lives in an $600,000 house and complains he''''s going to lose it because, prices on everything went up. And he''''s going to wait to file bancruptcy to see if this new law goes into effect.When you make a big purchase you better make sure, that you factor in layoffs and medical expenses.I''''m not saying all, but a large majority of people over extended themselves, and now their attitude is poor me.

Posted by jsd330 at 11:30 AM : Feb 02, 2009

I agree and people like that get no sympathy from me. All I was saying is that not everyone falls into that category.

[brianp55]

"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."

Well, there you are....he made a MISTAKE. So, what should be done about this? I know, let''s have Congress enact special rules for people who get in over their heads and can''t pay their mortgages. Of course, taxpayers will ultimately be saddled with the cost of yet another bailout, but who cares....we don''t want these people to lose their homes.

[hamiltongrad]

Forclosures are probably more with Democrats, duh ?

[hamiltongrad]

How about lowering the interest rates on credit cards ?
How about cutting by 50 % all alimony payments ?
Why not allow all interest for car and truck loans to be paid by the gov;t or at least have them be tax deductable just like a home loan, and just like any business gets a break, for "doing business?"

[jsd330]

ofbyfor3


Like the manager at McDonalds in my town makes $38,000 a year and lives in an $600,000 house and complains he''s going to lose it because, prices on everything went up. And he''s going to wait to file bancruptcy to see if this new law goes into effect.When you make a big purchase you better make sure, that you factor in layoffs and medical expenses.I''m not saying all, but a large majority of people over extended themselves, and now their attitude is poor me.