Foreclosure relief

November 28, 2007

Cities across America are feeling the sharp pinch of the subprime mortgage crisis: billions in lost tax revenues, a decline in new-housing starts, fewer home sales and - most insidious - a swell of vacant, foreclosed homes.

Mortgage lenders aren't responding fast enough to the crisis, which leaves room for others to step in - and bankruptcy judges are in an excellent position to help. They should be given the power to reset home mortgage rates as an immediate remedy for those seeking bankruptcy protection.

The judges have authority over the terms of a mortgage or debt on vacation homes, farms and investment properties. But a bill pending in the House Judiciary Committee would extend that to primary residences, thereby saving a half-million homes from foreclosure, say supporters of the legislation.

That could make a critical difference. Foreclosures next year are expected to increase by 1.4 million, and the U.S. Conference of Mayors says every foreclosure averted softens the blow from the failings of the subprime mortgage industry.

A conference report released yesterday was filled with gloomy predictions for the nation in 2008: $519 billion in reduced home values, an average 7 percent decline in home prices, 10 percent fewer sales of homes. Though the New York and Los Angeles metro areas were expected to be hit hardest, the report estimated a loss of $1.6 billion in economic growth for the Baltimore-Towson region.

The bankruptcy bill would provide some immediate relief for the minority of homeowners who can't keep up with the rising costs of their mortgages and have filed for Chapter 13 bankruptcy protection.

It's necessary because the logical and easiest way to help at-risk borrowers - renegotiating their rates with mortgage lenders - hasn't produced significant relief. A recent survey by Moody's found that only 1 percent of subprime mortgages had been modified in the first nine months of this year. That's simply unacceptable when thousands are facing the loss of their homes.

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