Foreclosure prevention a big disappointment so far.

In December (see Will you qualify for a mortgage bail-out under new plan?) the administration announced a new program to help save people from foreclosure on their houses. People were told to call a phone number (1-888-995-HOPE) and roughly 176,000 people did that. From all these calls, only about 10,000 people were recommended for a “workout.” 4,410 were told to “seriously consider” selling their homes, and another 12,113 have been referred for in-person counseling and job placement services.

With more than a million mortgages in trouble (about 1.3 million), this is a drop in the bucket.

But while banks foreclose, Washington plots. There are at least five different ideas being actively considered by the administration and the Congress. One of them would make it easy for almost 600,000 borrowers to convert their loans to Federally backed (FHA) mortgages that reflect the current value of their houses.

Another, which is the one I like, would allow bankruptcy judges to change the terms of mortgage loans as they do now with unsecured loans like credit card debt. So, if you were unable to maintain mortgage payments, you could stop foreclosure proceedings by filing bankruptcy. The bankruptcy judge could then take your whole financial situation into account, wipe out or reduce your credit card debt, and “cram down” the mortgage loan to a level that you could afford.

Ironically, this would even be good for the lenders in my opinion. They are likely to lose much more money if they foreclose, but they are afraid that the holders of the bonds backing the mortgage will sue them if they do anything else. If the judge does it, they are off the hook.

Rep Barney Frank (D-Mass), Chairman of the House Financial Services Committee, says that “we’re looking at all of the plans.”

Time to stop looking and get moving, I think. If your mortgage is in trouble call your Congressional Rep and tell them to do something!!!

For more information on bankruptcy, click here.

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