Many experts have suggested, even demanded, that bankruptcy courts be given the power to modify toxic mortgages so that homeowners in bankruptcy will have the opportunity at a fair fresh start. But of course many mortgage industry players have fought this cause because they see it as a venture that will make them lose profits. But the reality is that they are already losing profits and getting stuck with housing inventory that is moving incredibly slow. With mortgage modification in bankruptcy we can give the mortgage lender a chance to be repaid at a fair value and give the homeowner an opportunity to stay in their home. This would have the twin benefit of giving the homeowner a fresh start and keeping excess housing inventory off the market.
Many analysts are expecting foreclosures to continue with an estimated 12 million additional foreclosures by 2012. If we had implemented mortgage modification in bankruptcy when this crisis first began we could have saved millions of homeowners and their neighbors from the troubles we’re facing today. At this rate it will take a decade or more to see housing values increase. How can our neighbors enjoy appreciation on their housing investment when they are surrounded by foreclosures?