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In the first quarter of 09, the financial industry spent over $42 million dollars to defeat  mortgage modification in bankruptcy.  That doesn’t count what was spent in the month of April in an effort to avoid leveling the playing field on home loan modifications.

All of this money to preserve the right to lose a bunch of money foreclosing on houses that become less valuable with each foreclosure.  I’m sure this must make sense to someone….

The Senate bill to allow Chapter 13 plans to modify home mortgages went down to defeat last week.  I am still waiting for those who couldn’t vote for this change in bankruptcy law to propose a solution to underwater homes, adjusting rate mortgages, and neighborhoods full of bank owned homes.

Have we rejected the “good” in quest for the “perfect”?  Have we knuckled to bank lobbying?  Are we just too stuck in old ways of thinking that we can’t explore bolder  alternatives?

I suspect my anger over this defeat will subside, but not soon as I face another week of appointments with people facing the loss of their homes.  My collection of options for them remains limited.

And I’ll wait, not so patiently, for the naysayers to propose their foreclosure fix.

Foreclosure prevention and coping with foreclosure, either as a homeowner or a tenant,  will be the focus of a workshop in Oakland Wednesday April 29th.

The workshop will be held at the West Oakland Teen Center from 3 p.m. to 5 p.m.

More details when I can find them.

Meantime, it appears that the mortgage modification bill may come up in the Senate for a vote next week.  Bank opposition is threatening its defeat.  Be heard.

Foreclosure prevention counseling, credit counseling, and loan modification help will be available at the Santa Clara County Fairgrounds noon to five p.m. April 23rd.

The event is sponsored by the City of San Jose’s housing department and other local housing organizations.  Homeowners are asked to bring their original loan documents, bank statements, mortgage statements, tax returns and paystubs.

More information is available at www.foreclosurehelpsc.org or at 408 794-1242.

The elderly, the unsophisticated, and non English speakers are a significant part of  my clients who need access to mortgage modification in bankruptcy.  The Wall Street Journal reported on a number of victims of unscrupulous mortgage brokers, sold loans by means of false representations.  The facts all rang true to me.

My two lawyer firm has seen in the past year at least three cases of elderly Hispanic couples with limited or no English and fixed incomes being solicited for interest only, adjustable rate loans.  The loan documents signed by the homeowners were all in English, which they couldn’t read if they’d tried.  Absent either a lawsuit or a legislative solution, these folks will lose their homes.

It is clear that these cases are not unique;  they are part of a pattern of exploitation that went on at the height of the easy money, housing bubble. These are not people who “bought more home than they could afford.”  They are victims of crimes that no one seems to care about prosecuting.

So, what do we do as a society about the foreclosure situation?  Given the scope of the problem, we need a low cost, broadly available, routinized approach to modifying  home loans that will stabilize the housing market, encourage home buying by halting waves of foreclosure, and spreading the pain of the solution between borrowers and lenders.

Thus far, all of the approaches to the mortgage mess have thrown money at the banks, the very folks who made this crisis possible.  Evidence is that the tax dollars are not trickling down in any way that keeps families in their homes.

When will the Senate grasp that some new thinking is necessary and  allow use of Chapter 13 to address mortgage modification?

One in eight US homes is at risk of foreclosure, and the mortgage bankers continue to block a remedy that costs the tax payers nothing. I continue to marvel that the very folks who created this crisis by making utterly foolish loans have any credibility on Capitol Hill.  Maybe their money continues to talk persuasively.

Conservatives preach that permitting mortgage modification in bankruptcy violates the sanctity of contract.  Hello?  Bankruptcy is all about the rights of the parties when a contract is breached.  This is nothing new.  Prof. Levitin points out that a contract need not be a suicide pact.

Bankruptcy  doesn’t  create financial failure; imposes rules and structure on the consequences of failed finances (personal or corporate).

Bankruptcy is no one’s preferred choice:  watch the auto industry trying to avoid it.  But rejecting a bankruptcy remedy will not staunch the bleeding  in neightborhoods gutted by foreclosures. Certainly, there is no evidence that the lenders are willing or able to craft a solution in voluntary negotiations with borrowers, even assuming borrowers have any partity at the negotiating table.

The most often repeated reason to reject judicial modification is that “it will increase the cost of future loans.”  That’s what the realtors of Silicon Valley believe.  They cannot have read the bills introduced in Congress which limit modification to loans in place before 2009.  There is nothing in  S. 61 which will have any impact on the pricing of future home loans.

What is the cost of doing nothing?  Judicial mortgage modification allocates the cost of a fix between the borrower and the lender or the lender’s successors.  No taxpayer money involved.

The disputes among economists about the preferred approach to our wider financial debacle seem pretty much confined to just how big the sum of money required to get us back on track, not  whether the government should intervene.  It is a time for new thinking and targeted new approaches to the housing component of the problem.   Just providing money and tax breaks for those who buy foreclosed houses seems a callous and backward approach to waves of foreclosures.

But judicial modification isn’t even that radical;  it exists for every loan but the ones that count in our economy, the home loan.  It’s time to repeal the special interest legislation that protects home lenders from economic realities in bankruptcy court.  Or the banks will own even more real estate than they do now, and families and neighborhoods will lose.

The week the House was debating the judicial mortgage modification, lawyers on the other side of three of my cases volunteered their openess to a modification of the mortgage in question.  Unheard of!

Prior to this point, I had seen only one client who made any headway with a voluntary loan modification, and it eventually crashed when the lender imposed impossible and expensive conditions regarding the junior liens.

All of a sudden, the prospect that a judge might be able to approve a loan modification within the statutory guidelines seemed to have changed the lender’s world view.

Now I know that it may be just the continually worsening housing market that influenced the lenders in my cases.  But it seems to me symbolic of the benefit that leveling the playing field by allowing loan modification in Chapter 13 provides.

My mental image of the current loan mod alignment is that of a playground teter-toter where there is an adult on one end (the bank) and a five year old on the other (the borrower).  Not much parity.  Put a bankruptcy judge on the five year old’s end, and the borrower and the lender can play (or negotiate) effectively.

How long before the doubters in the U.S. Senate see this as a priority?  How many more houses lost to families before some imaginative thinking and real leadership emerges?

Senator Schumer is quoted in Politico as rejecting a proposed compromise to S. 61 that would limit its scope to sub prime mortgages.  Bravo!

The apparent strategy of the bankers is to try to amend the mortgage modification bill into irrelevancy.  Schumer points out that such a limitation would dramatically reduce the positive effect of the bill on declining housing markets.

The clients I’m seeing in the past couple of weeks are looking at declines in housing values of several hundred thousand dollars each.  While there might have been a logic to trying to keep a house with a toxic mortgage when the house’s value equaled the debt, I can’t advise that it makes sense on current values.

Without the option of judicial modification, the lenders have no incentive to offer meaningful modifications.  It was telling that the week HR 1106 was up for a vote, I had three opposing attorneys raise the subject of their clients’ openness to modifying the mortgage principal.  First time in the course of this crisis that lenders expressed any real interest in keeping my clients in the house and paying on a modified mortgage.

Let’s hope that Schumer’s colleagues in the Senate hear from constituents other than bankers on this issue.  Email your Senators at www.nacba.org/TellCongress.

Giving bankruptcy judges the same right to help families with underwater  home mortgages as investors now have will not create a flood of bankruptcy cases. Yet this is one of the arguments that opponents to S. 61 bandy about as a reason to kill the bill.

I see financially struggling families day in and day out about filing bankruptcy.  They would rather be anywhere but in my office.  Too often, they have let pride or irrational optimism keep them from exploring bankruptcy relief.  They are reluctant to even learn about bankruptcy, much less make the decision to file.

I counseled three different  new clients this week to stop paying on their credit cards as we prepared for bankruptcy.  All three were horrified;  two burst into tears at the thought of not paying what they owed.  The instinct and  the desire to pay what they owe is deep rooted in almost all consumers.  Those who predict a flood of casual, opportunistic bankruptcy filers if mortgage modification becomes possible simply haven’t talked to real people in debt lately.

If there is going to be a flood of bankruptcies, it is because families have exhausted every financial source they have to keep their home:   cash from credit cards; loans from 401(k); payday loans.  The list goes on.

The availability of a bankruptcy discharge doesn’t cause bankruptcy;  debt and despair cause bankruptcy.

How much better off would families be if bankruptcy could produce a real solution to the untenable home mortgage?  Right now, the prosperous can cram down the mortgage on the vacation home or the rental properties.  Why is the homeowner the only one barred from this relief?