Bankruptcy Clause May Help Foreclosure Victims

The bankruptcy clause may help foreclosure victims but banks are going all out to pull strings and evade it. The jumbo banks are desperately trying to stop the Obama government from compelling them to rewrite mortgage terms for the battling borrowers. They are using the clout of their lobbying to put pressure on the government and the Congress to pull back the most important key measure that will give the hapless foreclosure victims a chance to be rescued.

The law if passed, will permit bankruptcy judges to bring down the amount of the principal together with rate of interest on home loans. It would in effect reduce the monthly amount that borrowers pay towards mortgage commitments on their primary residences.

Obama said in the previous week that this was part of his foreclosure rescue plans. The Democrats as well as the consumer advocates think it is vital to speedily plug the onrush of foreclosure numbers. But the mortgage group argues that this will cause them to face huge losses. In turn they will be compelled to increase fees and interest rates to make up for the damage. The mortgage industry has so far used up millions of dollars in 2008 to destroy the bill. Most of the Republicans are against it and have named it ‘cram-down’.

But this year the scene has changed. With Obama entrenched in the White House with a comfortable majority things are looking up. A rift has surfaced within the ranks of the banking group with Citigroup playing a lead role. It has stood up to face the reality and take the lead in negotiating matters.

In January Citgroup came to an understanding with the Democrats to support the plan with some conditions. It would apply only to the current loans that had been made prior to the passing of the law and it would be applied only to those borrowers who are trying to adjust their loans before seeking a way out via bankruptcy route.

Many other banks have not changed their position but they are trying to alter their strategy. They have not given up efforts to kill the bill but simultaneously they are working on the key conditions and qualifications. They want the size of the home loan to be a factor and they are also insisting that that the step can be proceeded with, only with the green signal from the loan servicer.