WASHINGTON, D.C. - The White House promised to veto a housing bill that key industry groups believe would create even more havoc in an already troubled industry.
S. 2636, the Foreclosure Prevention Act of 2008, was intended to help ease the foreclosure crisis. The bill would actually change bankruptcy laws by giving judges the latitude to reduce interest rates and the amount that is owed on the mortgages of at-risk homeowners. In addition, the bill would allot $4 billion to communities for the purchase and rehabilitation of foreclosed homes. The bill would also provide for new-and-improved disclosures of subprime loans to properly educate and set realistic borrower expectations.
However, the Mortgage Bankers Association believes a larger problem would be created if the bill passes.
"We appreciate the Senators' efforts to try to help stabilize the mortgage market and help those Americans who are at risk of facing foreclosure. That is why we were so supportive of efforts to temporarily increase the FHA and GSE loan limits,” said David G. Kittle, CMB, Chairman-elect of the Mortgage Bankers Association in a recent statement.
“However, by including language to reform bankruptcy and allow judges to modify mortgage contracts, the bill threatens to hurt those it is designed to help,” continued Kittle. “Bankruptcy reform will increase the cost of mortgage credit for all borrowers at a time when we ought to be making it easier, not harder, to get credit. As long as this consumer-unfriendly provision is included, we cannot support the package as a whole."
The White House appeared to agree with the MBA’s position that giving judges power to rewrite mortgage contracts would lead to stricter lending standards and higher interest rates to account for the new financial risks lenders would face.
The White House also said the $4 billion funds proposed in the bill “"would constitute a bailout for lenders and speculators, while doing little to help struggling homeowners."
