Legislation Could Ease Financial Pain for Borrowers

[Mar 1, 2008.]

Homeowners who are having a tough time making their monthly payments this year could get some relief—courtesy of Congress.

America's legislative body is considering two bills that would provide judges on bankruptcy courts with the authority to ease mortgage debt. The measures are designed to protect homeowners from the possibility of foreclosure.

However, the bills face stiff opposition from lenders, who do not want judges to have the final say on mortgages. The bills are known as the Emergency Home Ownership and Mortgage Equity Protection Act of 2007 and the Foreclosure Prevention Act of 2008. The programs would only be open to those who live in their homes and who have subprime or non-traditional mortgages. It's estimated that the plans could help more than a half million homeowners avoid foreclosure in 2008 and 2009.

Under the proposals, mortgage balances would be reduced and monthly payments would be recalculated to reflect how much a home's value had declined.

The plans come at a time of crisis within the home loan industry. Foreclosures now outnumber loan modifications by a 7 to 1 margin. The housing industry is experiencing its worst slump in some 16 years. Not only are foreclosures up, but home prices and home sales are plummeting. Observers do not expect the housing market to recover until at least the middle of this year. As a result, the home loan crisis and its resulting economic fallout have become key issues in the 2008 Presidential contest.

Meanwhile, bankers say that the proposed plans could make home loans more costly for everyone. In fact, they say that monthly mortgage costs could climb as much as $200 on a $200,000, 30-year, fixed-rate loan.

In the year 2007, 800,000 bankruptcy filings were recorded in the U.S. It's estimated that half of those filings involved homeowners.

Julie Ann Amos
March 1st 2008

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