WASHINGTON — As the U.S. recession deepens, two members of Congress pledged Tuesday to make the rising rate of foreclosures their top priority in January.
Sen. Richard Durbin, D-Ill., and Rep. Brad Miller, D-N.C., said they'll renew their push to allow bankruptcy judges to alter the financial terms of unsavory mortgages.
"Millions of middle-class families are now underwater," Miller said at a Capitol news conference. "When they lose their homes to foreclosure, they lose their place in the middle class, probably forever."
A year ago, some 2 million homeowners faced foreclosure.
A new report this week from Credit Suisse said that 8 million U.S. homeowners could face foreclosure in the next four years, representing 16 percent of all mortgages.
"The foreclosure problem continues to get worse," Miller said.
The lawmakers introduced legislation a year ago that would allow bankruptcy judges to modify mortgage terms for families facing the loss of their homes.
Durbin and Miller's legislation was fought aggressively by the mortgage banking industry, and lenders will fight it again next year, said John Mechem, spokesman for the Mortgage Bankers Association of America in Washington.
He said allowing bankruptcy judges to "cram down" the value of a house, as the procedure is known, increases risk for lenders. They, in turn, would pass the costs onto other homebuyers in higher fees or lending rates.
"It's going to raise costs against consumers," Mechem said. "Lenders would price that risk into all new loans moving forward."
Durbin and Miller tried to get their ideas incorporated into the economic stimulus package that passed Congress this fall, but opposition from the White House and some Republicans kept the program out of the bill.
The stimulus bill passed without the bankruptcy provision, but at the same time, many liberal Democrats said they wanted more work done to help homeowners struggling with foreclosure.
Miller and Durbin will try again to get their bill into a stimulus package being considered for January.
Helping those families, Durbin said, helps neighborhoods, too, because foreclosures bring down area property values.
Foreclosures "are going to take the lifeblood out of neighborhoods," he said.
Nancy Zirkin, executive vice president of the Leadership Conference on Civil Rights, which has lobbied to help struggling homeowners, said banks have benefited already this year from the $700 billion bailout approved by Congress.
"After years of denial, it is quite obvious the mortgage crisis is definitely not contained," Zirkin said at the news conference. "The industry has been wrong every step of the way."
Miller said the election of more Democrats in both the House and Senate, along with President-elect Barack Obama, could help the legislation's chances next year.
Durbin said only about a third of families facing foreclosure could be helped directly by bankruptcy judges.
However, he hopes that a new law would encourage mortgage companies to re-negotiate other mortgages as well.
"It creates incentives for banks to sit down and negotiate" with homebuyers, Durbin said.
Mechem, of the Mortgage Bankers Association, said lenders already are voluntarily modifying plans and writing new repayment schedules, though he acknowledged more could be done.
"Lenders are working as fast as they can to help as many borrowers as possible," Mechem said.
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