US Congress mulls more reliefs for homeowners

Easing bankruptcy rules, giving govt aid to homeowners facing foreclosure among proposals

The US Congress is set to examine another round of possible repairs for consumers and investors threatened by widening cracks in the housing market. Proposals include easing bankruptcy rules, shielding banks from lawsuits and providing government assistance to homeowners facing foreclosure. Lawmakers also plan this week to question several high-profile mortgage and banking executives about industrywide losses and lavish executive-compensation packages.

The housing proposals percolating in Congress, many of them designed by Democrats, are expected to face much tougher resistance than the recently approved economic stimulus package, which touched on the mortgage crisis in a limited way.

Some of these proposals have been kicked around in one form or another for months. Others are considered attempts to address perceived shortcomings in the Bush administration plan to freeze interest rates on a small percentage of loans made to high-risk borrowers.

A bill likely to be debated on the Senate floor today includes a proposed revision to the US bankruptcy code that would allow judges to cut interest rates and reduce what is owed on troubled borrowers' mortgages. Currently, mortgage lenders can foreclose against a homeowner in default on a primary residence 90 days after a bankruptcy filing, and judges have no authority to order changes in mortgage terms.

'This week we have an opportunity to pass a housing bill that will help the economy recover, help American families stay in their homes and change the law so this never happens again,' said Senator Richard Durbin, the Senate's second-ranking Democrat and author of the proposal to ease bankruptcy rules. The bankruptcy measure, a similar version of which has cleared a House committee, is fiercely opposed by lenders and many Republicans.

The Mortgage Bankers Association, which is lobbying against the measure, said it would end up hurting many more borrowers in the long run by requiring 'higher interest rates and larger down payments to offset the risk' of bankruptcy court intervention on behalf of some homeowners. Consumer advocates are pushing senators to approve the change.

Also included in the Senate legislation is a measure mandating US$200 million for foreclosure-prevention counselling services - a near doubling of funds already committed by Congress - and an allowance for states to issue more tax-exempt bonds so that housing agencies could help homeowners refinance high-cost mortgages.

In the House, lawmakers are considering whether the federal government should shield banks from lawsuits brought by investors whose holdings of mortgage securities are negatively affected by changes in loan terms or other measures intended to help at-risk borrowers.

The focus on new housing proposals is not limited to the legislative branch. The federal Office of Thrift Supervision, a division of the Treasury Department, is drafting a plan to help borrowers who owe more on their mortgages than their homes are worth. The plan would allow an estimated 8 million homeowners with 'upside-down' mortgages to refinance into government-backed loans covering the home's current value. To make up the difference, lenders would receive a special certificate equivalent to the remainder of the balance owed that they could redeem if the home were eventually sold at a higher price. - AP

Source : Business Times - 26 Feb 2008