October 29, 2008

Whitehouse to Treasury, Fed Leaders: Struggling Homeowners Should Be Able to Modify Mortgage Terms

Rhode Island Senator Urges Administration to Allow Bankruptcy Courts to Intervene

Washington, D.C. – As the federal government considers proposals to stem the tide of home foreclosures – including nearly 1,600 filings in Rhode Island in the third quarter of this year, up 33 percent from last year – U.S. Senator Sheldon Whitehouse (D-RI) is pushing the Administration to adopt straightforward, commonsense reform that would assist homeowners at no cost to taxpayers. Whitehouse wrote today to the leaders of the Treasury, Federal Reserve, and Federal Deposit Insurance Corporation (FDIC) urging them to allow bankruptcy courts to modify mortgage terms for homeowners facing bankruptcy.

“The financial recovery plan passed by Congress and signed into law on October 3, while critical to address the stability of our financial markets, was clearly only a beginning,” Whitehouse wrote Treasury Secretary Henry M. Paulson, Federal Reserve Chairman Ben Bernanke, and FDIC Chairman Sheila C. Bair. “Citizens who were trapped by the housing bubble in over-priced homes and mortgages need to believe that our government is not only concerned with assisting the big banks, but is also dedicated to helping homeowners.”

Whitehouse expressed concern at reports that the government is considering spending as much as $40 million to offer banks a financial incentive to adjust troubled mortgages. “The taxpayers have already paid to shore up our banking system,” Whitehouse wrote. “Must every way to address the foreclosure problem involve paying the banks with taxpayer dollars?”

The most straightforward way to help homeowners would be to give bankruptcy courts the power to modify mortgage terms on principal residences, Whitehouse said, noting that bankruptcy courts can already modify most other kinds of contracts, including mortgages on second and third homes. “It strikes me as absurd that a bankruptcy judge can modify the terms of a mortgage on a ski chalet or beach bungalow, but not on a principal residence,” Whitehouse argued in the letter.

Whitehouse is a cosponsor of Senator Dick Durbin’s (D-IL) Helping Families Save Their Homes in Bankruptcy Act of 2007 (S. 2136), which would address this loophole in the Bankruptcy Code and allow principal residence mortgages to be adjusted in bankruptcy proceedings. The non-partisan Congressional Budget Office has estimated that the bill would have no cost to taxpayers and would help keep 638,000 Americans stay in their homes.


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