States want Congress to amend bankruptcy code
OLYMPIA – Washington Attorney General Rob McKenna is joining attorneys general from 21 other states plus the District of Columbia in an effort to convince Congress to loosen bankruptcy rules so judges can modify home loans to help reduce foreclosures.
“Washington state has been a national leader in attacking the wave of predatory lending practices that have been a primary cause of today’s mortgage crisis,” McKenna said. “We’re now working to protect families who were swept up by the mess from losing their homes.
“Current bankruptcy laws were developed when home mortgage defaults were relatively isolated,” he continued. “Global economic conditions now play a much larger role in forcing consumers into foreclosure. Changing bankruptcy laws can help reduce foreclosures and generate new loan terms to help both borrowers and lenders.”
The attorneys general say that despite efforts by state and federal government regulators to engage servicers in voluntary loan modifications to avoid unnecessary foreclosures, further action to spur meaningful modifications must be taken.
In their letter, the attorneys general note that the recently enacted federal “Hope for Homeowners” program has generated little interest from mortgage holders and quote a report that shows that voluntary loan modification measures have fallen short. They also point out that multiple stakeholders may be involved in the decision to modify mortgage loans, causing a continued paralysis.
Under the amendment urged by the Attorneys General, losses and benefits would be shared between homeowners and investors.
“Allowing the bankruptcy courts the ability to order loan modifications is a sensible and workable approach that can provide our housing market with the stability our country so desperately needs. Reasonable and limited reforms of the bankruptcy laws would allow judges to readjust debt owed on primary residences, just as they can for vacation homes and family farms,” the letter states.
The attorneys general don’t anticipate an increase in bankruptcy filings by passing such an amendment. Instead, they believe such a measure will likely motivate mortgage servicers and secondary market investors to achieve sustainable loan modifications.
With approximately 300 judges experienced in valuing property, no new agency, regulations or personnel are needed to implement the amendment. The proposal could take effect immediately at no cost to taxpayers.
Attorneys general from the following states signed the letter: Arizona, California, Connecticut, Delaware, District of Columbia, Illinois, Iowa, Kentucky, Louisiana, Massachusetts, Minnesota, Mississippi, Montana, New Mexico, North Carolina, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Vermont, Washington and West Virginia.
Letter to House Leaders
Letter to Senate Leaders
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