Bills Would Let Judges Remake Mortgages

Washington Post (11/20/07) P. D1; ElBoghdady, DinaBankruptcy court judges would be able to amend the loan terms of borrowers at risk of foreclosure, according to a new bill that has been the subject of two House hearings; similar legislation that has been introduced in the Senate. Supporters say loan modification is needed because it could keep half a million people from losing their homes; but lenders say it would increase risks as judges reduce the principal balance of loans to homes' "fair market value," with the rest being treated as unsecured debt that borrowers pay little or none of. According to Kurt Pfotenhauer of the Mortgage Bankers Association, lenders would be forced to require larger down payments, charge higher interest rates and become more selective about borrowers. Republicans plan to address the concerns of the mortgage banking industry by sponsoring bills that would limit modifications to borrowers whose loans were made in a certain period.