This move could aid our profession by potentially reducing the number of new foreclosures coming onto the market, although I would be surprised if people were willing to continue to keep paying off a loan on a house that may only be worth half of what is still owed simply because the terms of the loan were modified. I think for this to truly work some of the balance of the loan principal would need to forgiven.
Citigroup agrees to allow judges to help modify some mortgages
The move is viewed as a step toward easing foreclosures. More banks are expected to sign on.
The Associated Press - Idaho Statesman
Edition Date: 01/09/09
WASHINGTON - Democratic lawmakers have reached a deal with Citigroup Inc. on a plan to let bankruptcy judges alter home loans in an effort to prevent foreclosures and have urged other lenders to follow suit.
The lawmakers aim to attach the plan to President-elect Barack Obama’s economic stimulus legislation, and said Thursday the change in bankruptcy law could ease the foreclosure crisis that has dragged the economy into the worst recession in decades.
The compromise between Citigroup and Sens. Richard Durbin of Illinois, Charles Schumer and Christopher Dodd of Connecticut, would be limited to loans made before the bill is signed. Obama says he backs the idea.
Schumer said he received calls Thursday from several banks - which he did not name - indicating their potential interest in supporting the idea.
“This is a breakthrough day,” the senior senator from New York said in a news conference on Capitol Hill.
The so-called “cramdown” proposal has been backed by Democrats over the past year as a potential solution to the foreclosure crisis. Consumer advocates and Democrats say it would prod the lending industry to be more aggressive about modifying loans because of the looming threat of having a bankruptcy judge involved.
But the lending industry has battled fiercely against the idea, arguing it would force lenders to hike mortgage rates because they would have to charge more for loans that could be altered later by a judge.
To qualify, borrowers would need to demonstrate that they have asked their lender for a loan modification before filing for bankruptcy