WASHINGTON, D.C. - The U.S. Senate announced it was moving forward on a controversial housing bill that industry groups believe would lead to stricter lending standards and higher interest rates.
S. 2636, the Foreclosure Prevention Act of 2008, was intended to help ease the foreclosure crisis. The most controversial aspect of the bill is that it 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.
Industry groups like the Mortgage Bankers Association oppose the bill in its current form.
"We appreciate the Senators' efforts to try to help stabilize the mortgage market and help those Americans who are at risk of facing foreclosure,” said David G. Kittle, CMB, Chairman-elect of the Mortgage Bankers Association.
“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 echo 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. Just last month, the White House hinted it would veto the democratic-sponsored bill.
Republicans, for the most part, support a proposal by Republican Senators Kit Bond of Missouri and Johnny Isakson of Georgia that would provide a $15,000 tax credit for people who buy and live in a foreclosed home.
A compromise may be in the works as discussion on the previously stalled Foreclosure Prevention Act of 2008 is now moving forward.
"The time has come for us to legislate, not continue our bickering," said Senate Majority Leader Harry Reid (D-Nevada). “Every day Congress and the president do nothing is another day closer to another American family losing their home."
