Some big banks are supporting new proposals to rescue homeowners who owe more on their mortgages than their houses are worth, but let’s get one thing straight: the banks haven’t been struck by a sudden urge to help the needy. Rather, by advocating bailouts, the lending industry is trying to head off a possible change in the law that would let troubled borrowers modify their mortgages in bankruptcy court — where lenders, not taxpayers, would be stuck with the losses.
Congress must not kowtow to the lenders. It should insist that borrowers be given a chance to modify their mortgages under bankruptcy court protection before it even thinks of asking taxpayers to pick up the tab for the mortgage mess. Under current law, borrowers cannot rework the mortgages on primary homes in bankruptcy proceedings. Senate Democratic leaders are pushing a bill to let many at-risk homeowners do just that. The House Judiciary Committee has passed a similar measure. Republicans, who are balking, should get on board, or risk leaving their constituents without an effective way to save their homes.
If the bankruptcy provision becomes law, as it should, lenders will have a powerful incentive — which they currently do not have — to modify troubled loans voluntarily. If they can’t or won’t come to new terms with borrowers, then they would run the risk that a bankruptcy court would do the modifying for them.
Read the full article at: The New York Times