August 26th, 2009 by Reed Allmand 
According to an article from the Associated Press, Congress sent legislation to the President earlier this week that would encourage lenders to save homeowners from foreclosure. The lending industry helped block an earlier, tougher measure that would have required lenders to reduce monthly payments for those homeowners going through bankruptcy. Support for the new legislation was widespread in both House and Senate, with the House voting 367-54 in favor and the Senate voting 91-5 in favor—and then approving the final bill unanimously.
One way this bill could help is by reducing the strict eligibility requirements for participation in an existing $300 billion program, which encourages lenders to lower borrower’s mortgages if the homeowner agrees to pay an insurance premium. Originally estimated to help over 400,000 homeowners, it has fallen far short of that goal considering that only 50-some homeowners are actually currently refinancing their homes through the program. One example of how the new bill would expand the program is by narrowing the prohibition against participants who intentionally defaulted on their mortgages or other substantial debt to include only defaults within the past five years.
Not included in the final bill is that measure introduced by Senator Dick Durbin, D-Ill., that would have allowed bankruptcy judges to decrease homeowner’s mortgage payments. Lawmakers gave in to fierce opposition from banks, apparently worried that the measure would encourage more homeowners to file for bankruptcy and spike insurance rates. The Senate voted down the measure, 45-51.
The bill also potentially lowers the fees banks pay to the Federal Deposit Insurance Corporation insuring consumer deposits: raising FDIC borrowing limits from $30 billion to $100 billion, which would have the added benefit of reducing premiums. Finally, the bill would extend through 2013 an increase in FDIC deposit insurance from $100,000 to $250,000.
Senate Majority Leader Harry Reid, D-Nev., had this to say about Congress’s work to protect consumers. “In the last few weeks, we have cracked down on corporate and mortgage scams and helped more struggling homeowners keep their homes. And in the coming weeks, we will continue to protect people … who keep our economy moving, and we will restore their confidence.” Of course, a lot more could be done to help those struggling during this rough economy.
Perhaps President Barack Obama, who promised to push Senator Durbin’s tougher measure through Congress, will have better luck next time. After all, holding back legislation to help struggling homeowners stabilize their finances (not to mention the economy as a whole) is no more likely to push inordinate amounts of people to declare bankruptcy than, say, allowing millions of homeowners with no other choice to default on their mortgages and then be forced to declare bankruptcy anyway.
About Reed Allmand
Allmand's vision is rooted in his own financially precarious childhood in Abilene "My father always had difficulty holding a job and supporting our family, so after my parents divorced when I was 12, my sister and I got jobs to help make ends meet," he recalls. "I remember what it felt like as a child to worry that our car would be repossessed or home foreclosed on."
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