According to an article in the Star-Telegram , Congressman Barney Frank threatened to revive legislation that would allow bankruptcy judges to write down a person’s monthly mortgage payment if the number of loan modifications remain low.
The article said:
“People in the servicing industry and in the broader financial industry must understand that if this last effort to produce significant modifications fails, the argument for reviving the bankruptcy option will be extremely strong, and I think there is a substantial chance that the outcome will be different,” Frank said.
Frank’s strong statement was designed to beef up a verbal agreement by lenders to increase loan modifications to 500,000 by November 1st. Despite foreclosure prevention programs backed by the President and Congress, mortgage lenders have thus far failed dismally to decrease the number of foreclosures swamping homeowners nationwide. But mortgage lenders claim that they are simply overwhelmed by the sheer volume of homeowners facing foreclosure who are seeking loan modifications. This past spring, legislators tried to pass a law that would give bankruptcy judges the power to modify toxic mortgages; but the measure was defeated by a powerful lobby of bankers. Since then, foreclosures have steadily risen to the dismay of homeowners and legislators alike. If we want to get serious about stopping foreclosure we need to create an objective set of criteria to determine which loans are toxic and which homeowners facing foreclosure are facing it due to toxic mortgages. Mortgage lenders need to be forced to modify mortgages that are clearly toxic. And homeowners who file bankruptcy should have the opportunity to modify their toxic mortgages as part of the bankruptcy process. That is only fair.