New Report Underscores Need for Durbin Mortgage Foreclosure Bill

Press Release

New Report Underscores Need for Durbin Mortgage Foreclosure Bill

A troubling new housing report, released today by the Center for Responsible Lending forecasts that foreclosures on risky, subprime loans will negatively affect homeowners to the tune of nearly $225 billion in the coming years. Legislation introduced last month by U.S. Senator Dick Durbin (D-IL) would help nearly 638,000 families - a quarter of the 2.2 million people at risk of foreclosure - keep their homes by allowing them to modify the terms of their loan in bankruptcy proceedings.

The Center for Responsible Lending report shows that in Illinois, one of the states hardest hit by the subprime market collapse, foreclosures are expected to affect nearly 3 million neighboring homes, at a cost of $17.5 billion. Cook County, Illinois, is singled out as one of the hardest hit counties in the nation.

The report notes that of the 150,000 Cook County homeowners with subprime mortgages, nearly 20% are expected to lose their homes to foreclosure. Because foreclosures affect property values of nearby homes as well, nearly 2 million other families throughout the county would see their home values decrease by an average of $7,559. Cook County is home to 5.2 million people.

"Today's report shows that millions of Americans need our help to ensure their dream of owning a home. This is especially true in Cook County and other parts of Illinois," Durbin said. "Congress must take action now to keep people in their homes and to maintain property values in at-risk neighborhoods. If we don't act these numbers show that an already bad situation could become catastrophic for homeowners and communities across the country."

Durbin's bill, The Helping Families Save Their Homes in Bankruptcy Act, helps individuals prevent foreclosure, and surrounding homes and neighborhoods won't be negatively impacted to the extent they would if the homes in question were foreclosed upon. Everyone, from lender, to homeowner, to community, would be better off under the terms of this bill than if the homes enter foreclosure.

Today, virtually every type of personal debt, including vacation homes and family farms, can be restructured in bankruptcy with the exception of mortgages on a primary residence. This exception dates to the 1970's, when most mortgages were fixed rate, long term agreements between local bankers and their neighborhood customers. The mortgage market has changed considerably since the 1970's, such that mortgages on primary residences are often now the primary cause of financial distress. This bill would help the bankruptcy code catch up with this shift.
To help families save their homes, the Durbin bill would:

- Eliminate a provision of the bankruptcy law that prohibits modifications to mortgage loans on the debtor's primary residence, so that primary mortgages are treated the same as vacation homes and family farms.

- Extend the time frame debtors are allowed for repayment, to support long-term mortgage restructuring.

- Waive the bankruptcy counseling requirement for families whose houses are already scheduled for foreclosure sale, so that precious time is not lost as families fight to save their homes.

To further help families get back on their feet financially as they go through bankruptcy, the bill would also:

- Combat excessive fees that are sometimes charged to debtors in bankruptcy.

- Maintain debtors' legal claims against predatory lenders while in bankruptcy.

- Reinforce that bankruptcy judges can rule on core issues rather than deferring to arbitration.

- Enact a higher homestead floor for homeowners over the age of 55, to help older homeowners who are fighting to keep their homes as they go through bankruptcy but live in states with low homestead floors.

- Reinforce that consumer protection claims are still available in bankruptcy.

Durbin's bill has received broad support from groups which include: AARP; AFL-CIO; Consumer Federation of America; Consumers Union; NAACP; National Association of Consumer Bankruptcy Attorneys; National Council of La Raza; National Fair Housing Alliance; National Urban League and SEIU.

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