22 February 2008

Lenders Oppose Mortgage Bankruptcy Reform

If I own a rental property, or a vacation home, and I declare chapter 11 bankruptcy, the courts can modify the terms, though not the principal, or the loan, but for my primary home, they cannot.

It does not make sense to me either, so I support the bills Emergency Home Ownership and Mortgage Equity Protection Act of 2007 and the Foreclosure Prevention Act of 2008, which allow courts to modify mortgage terms in bankruptcy.

They don't go far enough, they only apply to the more exotic mortgages, and they should apply to all, particularly in terms of prepayment penalties and other fees.

The mortgage industry says it's bad for consumers, because it will drive up interest rates.

The truth is that it makes the more exotic mortgages less attractive, but the old style fixed rate mortgages should be about the same.

Even if it did bump up rates, average mortgages payments would still stay the same, because people do not buy homes on price, but on monthly payments, and prices would adjust.

That's what happens when one makes such a highly leveraged purchase.


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