The Role of the Judges in Foreclosure Prevention Gaining Prominence

February 4th, 2009 | Tags: Foreclosure Notice

With each passing day the role of the judges (and the fight over it) in foreclosure prevention is gaining prominence.

A good number of Democrats in the Congress were of the opinion that the best way to prevent many foreclosures is allow judges to alter the terms of mortgages. It sounds easy but the lenders will have to bear the pain and lose all rights over deals. It is but natural that they are shying away from the prospect of being pulled into bankruptcy courts by millions of delinquent borrowers.

The quickest way to stop the collapsing real estate market and the forward march of foreclosures is to make it legal for judges to change mortgage terms. Most of the Democrats in the House and Senate support this plan. It also has the backing of President Obama. The bankruptcy plan would not cost the borrower money, as the funds would come from the bailout package.

But a group of ten belonging to the lending lobby is fighting fiercely against the passage of such a bill. The group has already spent $83 million for lobbying purposes on various issues in the previous year. The staggering amount indicates the power of the group and its supporters. Rep. Maxine Waters (Democrat) bitterly commented that this set of vested interests “has owned this Congress far too long.”

There are many who cannot wait for the bill to be passed. Butler is one of them who has been laid off by General Motors and has sought bankruptcy protection. But the court does not have the right to alter the mortgage terms. The loan amount is now double the value of the house. Butler is living from one day to another having to support his disabled wife and two young children.

Steve O’Connor of Mortgage Bankers Association has another viewpoint. He said that if this bill were passed the new mortgage takers would have to pay higher interest rates as well as increased down payments. This will be because of the added risk lenders will have to bear regarding judges acquiring the right to alter mortgage terms. O’Connor described the move as “bad public policy” – something that the industry would definitely oppose.

The Mortgage Bankers Association’s team dealing with government affairs is attempting to argue lawmakers into killing the bankruptcy bill. The team comprises of lobbyists and policy experts.