Responsible Borrowers Not Spared the Effects of Foreclosure Problems

March 19th, 2009 | Tags: Foreclosure Market

Even responsible borrowers are not spared the effects of foreclosure problems. Recently President Obama initiated a comprehensive plan for mitigating the housing crisis. It aimed to bring down the number of foreclosures that were not only evicting families but also causing blight on the entire neighbourhood in Hawaii and the rest of the country. The numbers were staggering – 46,000 per week.

According to the estimates of Center for Responsible Lending over 2 million residential houses are at danger from foreclosures in the coming five years. There is a daily procession of families evicted by foreclosures in Hawaii, as their own homes are now too costly for them. They had been tricked into taking toxic loans with increasing rates of interest that continued to adjust upwards.

The good news is that Congress is mulling over 2 bills 9S.61 and H.R. 1106) that would help these people to save their homes without the taxpayer bearing any cost. By these bills the bankruptcy judges would be empowered to alter terms of the mortgages.

With few exceptions the lending industry as a whole is opposing this realistic and sensible piece of legislation. The arguments they have put forward to justify their stand is ridiculous. They are referring to the sanctity of contracts. The truth is that corporate America including many jumbo financial bodies have led the country to this debacle. They do not hesitate to seek shelter in bankruptcy courts or to run to the Treasury with hats in their hands. They are taxing thousands of dollars – taxpayer’s money to alter terms of their own contracts. Money is being given to them so that they allow for flow of loans once more but they are now not abiding by the rules and are sitting tight and silent with the money they have already taken during the Bush regime.

The lenders are saying that by empowering judges to modify loans in bankruptcy in the long run the interest rates would shoot up because the lenders would have to cover the costs of taking more risks. Due to their hectic parleying they have managed to water down the bills to a large extent. It would apply only to existing mortgages and not future ones. If so the risk factor in future does not arise either. Secondly there has been no precedence of modification leading to increase of interest rates.