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Bankruptcy Laws Contributing to Foreclosure Epidemic

Consumer Groups Press Congress to Amend Bankruptcy Code

April 13, 2007

Living in a Bubble? Mortgage Crisis? Act Now to Avoid Foreclosure • Avoiding Foreclosure Takes More Than Hope --- • Consumer Delinquencies Rise in First Quarter • Existing Home Sales Rose in May • California Sues Countrywide For Mortgage Deception • Metro Home Values Drop Again in April • Mortgage Group To Step Up Homeowner Aid • May Foreclosure Filing Rate Highest Ever • Pending Home Sales Rise Unexpectedly • Mortgage Delinquencies Still On The Rise • Another Survey Reveals Depth Of Consumers' Blues • Did Wall Street Wreck The Economy? • Home Values Plunge; New Home Sales Pick Up • Realtors Complain Lending Limits Hurting Recovery • Federal Home Price Index Drops at Record Pace • Mortgage Fraud Up 176%, FBI Reports • Most Mortgage Rates Drift Lower • Government Says Inflation Eased in April • Big Drop in Home Prices • Foreclosure Filings Up a Record 65% in April • White House Threatens To Veto Anti-Foreclosure Bill • Fed Chief Seeks Greater Effort To Stem Foreclosures • Sen. Kerry Seeks Increase In Small Business Loans • Realtors Frustrated by Banks' Lack of Interest In Short Sales --- • More ...

Bankruptcy law changes are needed if hundreds of thousands of American families struggling with abusive subprime mortgages are going to escape foreclosure and the loss of up to $164 billion in home-based wealth, according to a joint call for Congressional action issued by the National Association of Consumer Bankruptcy Attorneys (NACBA), the Consumer Federation of America (CFA) and the Center for Responsible Lending (CRL).

The three consumer groups warned that -- while primarily low-income subprime mortgage borrowers face often insurmountable bankruptcy hurdles to hold onto their homes -- high-income individuals in bankruptcy court get preferential treatment when they seek to save second and third homes.

"The only chance many of these (subprime) borrowers have is through declaring bankruptcy," the groups said. "The problem is that as currently enacted, the Bankruptcy Code favors home mortgage lenders over virtually all other secured and unsecured creditors."

Philadelphia bankruptcy attorney and NACBA President Henry Sommer said help is urgently needed for hundreds of thousands of American families at risk of losing their homes due to abusive home loans.

"For most of these families, bankruptcy is the only viable option to save their home, and this option will be available only if the Bankruptcy Code is revised to eliminate or limit the provisions that exclude home loans from bankruptcy protection," Sommer said. "This current exclusion is contrary to sound policy, and operates to disadvantage low-wealth and middle-income borrowers as compared to debtors with the wealth to own more than one home."

Allen Fishbein, director of housing and credit policy of the Consumer Federation of America, said two million or more homeowners face foreclosure over the next few years, with many of these resulting from negligent and reckless lending practices by mortgage originators.

Foreclosure Epidemic

Foreclosure • Buying a Home in Foreclosure: What You Need to Know • Mortgage Crisis? Act Now to Avoid Foreclosure • Foreclosure Not Inevitable, Fast Action Needed • Avoiding Foreclosure Takes More Than Hope --- News • Fighting Foreclosure: One Family's Story • Mortgage Group To Step Up Homeowner Aid • Florida Governor Signs Foreclosure Rescue Law • California Busts 'Land Grant' Foreclosure Scam Artists • Foreclosure Filings Up a Record 65% in April • White House Threatens To Veto Anti-Foreclosure Bill • Fed Chief Seeks Greater Effort To Stem Foreclosures • Realtors Frustrated by Banks' Lack of Interest In Short Sales • Bank Of America Tries To Stem Rising Foreclosures • Foreclosure Efforts Lacking, States Find • California Foreclosures Surge 327% • March Foreclosures Up 57% • Homeowners Raiding Retirement Accounts to Avoid Foreclosure • 'House Stealing' Scam Combines Identity Theft, Mortgage Fraud • Foreclosure Filings Up 57 Percent In February • Senate Will Try To Override Veto Of Foreclosure Bill • Foreclosures Up In Most Urban Metros Last Year • ACORN, Countrywide Tweak Subprime Relief Plan • Foreclosure Prevention Efforts Falling Flat • States Fight Foreclosure Rescue Scams • Mayors Warn Homes Could Lose $1.2 Trillion In Value • Foreclosures Spike in More Metro Areas • Searching For Foreclosure Bargains Can Be Costly • September Foreclosures Double Year-Ago Levels • August Foreclosures Up 115% Over Last Year • Foreclosures Continue at Record Levels • Feds Urge Lenders To Help Stave Off Foreclosures • Foreclosures Surge 93 Percent In One Year • New Jersey Man Cited For Exploiting Foreclosure Victims • North Carolina Shutters “We Buy Homes” Scheme • Predatory Lending Bill Back in Congress • Groups Seek To Roll Back Foreclosures • Seniors Bear Brunt Of Predatory Lending • U.S. Foreclosure Rate Surges 47 Percent • Regulators Urge Mortgage Lenders to be Flexible with Homeowners • California Foreclosure Notices at 10-Year High • Bankruptcy Laws Contributing to Foreclosure Epidemic • Realtors: Home Prices May Dip This Year • Civil Rights Groups Want Foreclosure Moratorium

"The purpose of bankruptcy is to give troubled families a chance for a fresh start," said Eric Stein, chief operating officer of Self-Help and senior vice president of the Center for Responsible Lending.

"Today we have an epidemic of homeowners who are in serious financial trouble, and whose houses are worth less than the balance due on their loans because of the irresponsible lending practices of subprime lenders," he said. "To make matters worse, bankruptcy laws will actually prevent these families from recovering. Subprime loans have pushed millions of households under water; unless Congress makes some common-sense changes, our current laws will ensure that they drown."

As 2006 drew to a close, 2.2 million households in the subprime market had either lost their homes to foreclosure or held subprime mortgages that likely will fail over the next several years absent intervention, the groups said.

These foreclosures will cost these families their homes, along with up to $164 billion in lost wealth. For increasing numbers of borrowers, foreclosure is the only option available. Lehman Brothers has estimated that 30 percent of subprime loans originated in 2006 will end in foreclosure.

The joint statement recommends a wide range of specific bankruptcy law changes, including the following:

• End the Bankruptcy Code's special treatment of home mortgage loans.
• Remove time-consuming credit counseling requirements.
• Curb excessive fees during bankruptcy.
• End mandatory arbitration in bankruptcy.
• Create a minimum homestead exemption for the elderly.
• Amend chapter 7 of the Bankruptcy Code.

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