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Published: September 2008

Support court-supervised loan modifications in bailout

Coalition: Mortgage

Consumer Action joined in a letter urging Congress to include provisions in financial rescue legislation that allows homeowners to restructure and modify their mortgage loans through Chapter 13 bankruptcy courts.

Below is a summarized excerpt from the letter:

The undersigned organizations strongly urge you to include court-supervised mortgage restructuring for American homeowners to allow them to save their homes in any legislation that would use our tax dollars to bail out the financial services industry from its self-imposed crisis. Purchasing subprime and Alt A private securities will not provide the government with any legal ability to modify loans and keep families in their homes, which is necessary to stop the crisis.

Today, as foreclosures continue to dwarf the number of voluntary loan modifications, threatening our entire economy in the process, the industry is arguing that a limited solution (without Chapter 13 relief for homeowners) will take care of the problem.  It must be recognized that, even if a government entity buys the debts of financially distressed companies, the structure of most of the troubled loans will still often prevent foreclosure relief.  Why? 

First, most troubled mortgages have been sold into highly-complex securities, which have themselves been carved up and sold to thousands of investors around the world.  The government would have to, in essence, put all the pieces of the carved-up loans back together in order to modify them.  Second, many borrowers have “piggyback” loans or second mortgages, and the government would have to buy those loans as well in order to prevent foreclosure.  In short, it is an illusion to assume that bailing out financial institutions is the same thing as providing relief to foreclosure-plagued American homeowners.  The only way to make sure that relief is achieved is to give Main Street Americans what they need:  Chapter 13 bankruptcy relief.

Lead Organization

Leadership Conference on Civil Rights

Other Organizations

National Housing Law Project | National Housing Trust Community Development Fund | National Low Income Housing Coalition | National Policy and Advocacy Council on Homelessness | National Training and Information Center | Opportunity Finance Network | Rainbow Push Coalition | Service Employees International Union | U.S. PIRG | Appalachian Community Enterprises, Cleveland GA | Arise Citizens' Policy Project, AL | Association for Enterprise Opportunity, Arlington VA | Boston Community Capital, Boston MA | Capital District Community Loan Fund, Albany NY | CEDA | Community Development Fund, Chicago IL | Chattanooga Neighborhood Enterprise, Inc., Chattanooga TN | Citizen Potawatomi CDC, Shawnee OK | Coastal Enterprises, Inc., Wiscasset ME | Community Capital Works, Philadelphia PA | Community Capital of Maryland, Baltimore MD | Community Concepts, Inc., South Paris ME | Community Development Venture Capital Alliance, New York NY | Community Housing Fund, Beaverton OR | Credit Builders Alliance, St. Louis MO | Delta Foundation, Inc., Greenville MS | Federation of Appalachian Housing Enterprises, Inc., Berea KY Fitness and Praise Youth Development, Inc., | Forward Community Investments, Madison WI | Greater New Orleans Fair Housing Center, New Orleans LA | HSHCRC Homes CDC, Houston TX Idaho Nevada CDFI, Pocatello ID | IFF, Chicago IL | Impact Seven, Inc., Almena WI | Association of Community Organizations for Reform Now (ACORN) | American Federation of Labor – Congress of Industrial Organizations (AFL-CIO) | Black Leadership Forum | CDFI Coalition | Center for Responsible Lending | Consumer Federation of America | Consumers Union | Kirwan Institute for the Study of Race and Ethnicity | Lawyers' Committee for Civil Rights Under Law | Leadership Conference on Civil Rights | Low Income Investment Fund | National Association for the Advancement of Colored People (NAACP) | National Association of Consumer Advocates | National Association of Consumer Bankruptcy Attorneys | National Community Reinvestment Coalition | National Consumer Law Center (on behalf of its low income clients) | National Council of La Raza | National Fair Housing Alliance | National Federation of Community Development Credit Unions | Iowa Citizens for Community Improvement. Des Moines IA | Legal Assistance Resource Center of Connecticut, Inc., Hartford CT | Michigan Legal Services, Detroit MI | MaineStream Finance, Bangor ME | Mile High Community Loan Fund, Denver CO | New Jersey Community Capital, Trenton NJ | North Carolina NAACP Housing Committee, Durham NC | Northside Community Development Fund, Pittsburgh PA Ohio Capital Corporation for Housing, Columbus OH | PeopleFund, Austin TX | Raven Associates, LLC, Bellingham WA | Rural Community Assistance Corporation, West Sacramento CA | San Luis Obispo County Housing Trust Fund, San Luis Obispo CA | Seattle Economic Development Fund, Seattle WA | SJF Ventures, Durham NC | Southern Coalition for Social Justice, Durham NC | The Housing Fund, Nashville TN | United Community Housing Council, Detroit MI | Warm Springs Community Action Team, Warm Springs OR | Women’s Opportunities Resource Center, Philadelphia PA

More Information

"The Problem with the Paulson Bailout Plan" from the Center for Responsible Lending

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