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Published: March 2009

Loan modifications available for all mortgages, not just subprime

Coalition: Mortgage

Consumer Action joined its coalition members in a letter supporting S. 61, which would provide judges with the authority to modify unaffordable loans for all families who are facing foreclosure, not just those with subprime mortgage loans.

Below is a summarized excerpt from the letter:

An essential part of the Obama Administration plan supports congressional action to permit distressed homeowners to seek home loan modifications in bankruptcy court. Legislation to accomplish this critical part of the plan, S. 61 (“Helping Families Save Their Homes in Bankruptcy Act”), will be considered soon by the full Senate.  Just last week, the House of Representatives, in a bipartisan vote, approved a companion measure (H.R. 1106).  A key provision of both measures: allowing for judicial mortgage modification.

We are writing today to reiterate our support for this legislation.  S. 61 represents a valuable tool, at no cost whatsoever to the taxpayer, for stopping foreclosures and stabilizing the economy by providing homeowners access to court-supervised mortgage modifications.  The proposed legislation will not excuse families from paying their mortgage.  Rather, it will give judges the authority to modify unaffordable loans for families who are facing foreclosure and cannot obtain an affordable voluntary modification. Lenders would receive more, not less, than they would receive if foreclosure took place.     

And there is a bigger case to be made for this common-sense reform: We can’t end the financial crisis without stemming the rising tide of foreclosures.  Court-supervised loan modification for all mortgages, and not just subprime loans, is an essential component of an effective and comprehensive plan to meet that challenge.  Clearly, the foreclosure crisis extends beyond the subprime loans where it started and now reaches the homes of millions of mostly middle-class homeowners with traditional, prime mortgages, as well as Alt A loans.

At a time when an estimated 6,600 families are losing their home to foreclosure each and every day, there is no time for delay.  We urge the Senate to act immediately to pass legislation, without weakening amendments, to lift the ban on judicial modification of primary residence mortgages.  It is perhaps the most important thing we can do right now to help arrest the terrible toll that the recession is taking on American families.   

Below is an excerpt from a document that accompanied the letter:

Don’t leave behind millions of homeowners who need help!
Judicial modification should be an option available as a last resort for all families who face foreclosure, including the majority of troubled homeowners who were not placed in subprime mortgages.

1. The foreclosure crisis is no longer just about subprime loans

• Two years ago, when judicial loan modifications were first introduced as a means of averting the foreclosure crisis, subprime mortgages comprised the majority of failing loans.  This is no longer the case. 
• According to Credit Suisse’s estimates, non-subprime loans currently comprise 60% of new foreclosures, and their share will climb to 70% next year, and 80% in three years.  Alt A foreclosures in particular are rapidly increasing.  Excluding homeowners with non-subprime loans will preclude the legislation from having any impact on the vast majority of families facing foreclosure today.

2. Limiting the bill to subprime loans would exclude most families facing foreclosure

• Since the mortgage foreclosure crisis is driving the financial downturn, the crisis that started out in subprime loans now is cascading into prime loan mortgages – a fact that would be ignored by any arbitrary “line drawing” exercise to only provide help for subprime mortgages.
• Limiting the bill to subprime loans would prevent millions of homeowners who did not enter into subprime mortgages from saving their homes through judicial mortgage restructuring.

3. Limiting the bill to subprime will hurt the economy.

• Policy responses have consistently lagged several years behind the problem.  Just as enacting the current proposal two years ago would have substantially mitigated the crisis when subprime loans were at its core, limiting relief to subprime loans now will ensure further economic decline, and rising middle class distress for the years ahead.
• • The foreclosure crisis has now spread far beyond the subprime market and a foreclosure on a conventional mortgage causes just as much harm to the family, the community, the housing market, and the economy as a foreclosure on a subprime mortgage.

Other Organizations

AARP | AFL-CIO | American Federation of State, County and Municipal Employees (AFSCME) | Americans for Fairness in Lending | Association of Community Organizations for Reform Now (ACORN) | Center for Responsible Lending | Central Illinois Organizing Project | Change to Win | Consumers Union | Consumer Federation of America | DEMOS | Greenlining Institute | International Association of Machinists and Aerospace Workers | International Union, United Automobile, Aerospace & Agricultural Implement Workers of America (UAW) | Leadership Conference on Civil Rights | NAACP | National Association of Consumer Advocates | National Association of Consumer Bankruptcy Attorneys | National Association of Neighorhoods | National Coalition of Asian-Pacific Americans for Community Development | National Community Reinvestment Coalition | National Consumer Law Center (on behalf of its low-income clients) | National Fair Housing Alliance | National Low Income Housing Coalition | National NeighborWorks Association | National Policy and Advocacy Council on Homelessness | National Training and Information Center | National Urban League | Opportunity Finance Network | PICO National Network | Rural Advancement Foundation International - USA | Service Employees International Union | U.S. PIRG | Woodstock Institute | ACORN of Western Pennsylvania | ACTION-Housing Inc. | Birmingham Urban League AL | Community Legal Services of Philadelphia PA | Connecticut Fair Housing Center | Empire Justice Center | Fair Housing Law Project, a program of the Law Foundation of Silicon Valley | Florida Legal Services, Tallahassee FL | Greater Hartford Legal Aid CT | Jefferson County Committee for Economic Opportunity AL | Jefferson County Housing Authority AL | Kentucky Equal Justice Center | Lakeshore Legal Aid, Southfield MI | Legal Assistance Resource Center of Connecticut, Inc. | Low Income Housing Coalition of Alabama | Massachusetts Consumers’ Coalition | Miami Valley Fair Housing Center, Inc., Dayton OH | Mid-Minnesota Legal Assistance, Minneapolis MN | New Haven Legal Assistance Association | Northeast Ohio Legal Services, Youngstown OH | Public Justice Center | Virginia Citizens Consumer Council

More Information

S. 61

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