Published in The Gazette on January 30, 2009.

By Congresswoman Donna F. Edwards (D-MD)

It’s time to stem the tide of home foreclosures and get this economy back on track.  Home foreclosures remain a leading contributor to the current economic crisis with no end in sight.  RealtyTrac reports that in December of 2008, Prince George’s and Montgomery Counties suffered record high rates of foreclosures, with 1,741 and 667, respectively.   While some progress has been made, too few options enable struggling homeowners to keep their homes.  Sadly, high foreclosure rates are expected to continue into the foreseeable future.  The Center for Responsible Lending estimates that in 2009, over 49,000 foreclosures will take place in Maryland.  At recent housing forums that I sponsored in Germantown and Largo, Maryland, homeowners expressed their frustration with current housing assistance programs.  Some homeowners told stories of being transferred several times during calls for help; many never received any assistance or were unable to speak directly to a person.  Current options for assistance usually require that homeowners be “virtually” in foreclosure before they can receive assistance and are limited to modifying the interest rate or extending the length of the mortgage.  These options may provide short-term relief in some cases, but do not keep the majority of homeowners in their homes.  In most instances, it’s too little too late.

Due to high mortgages and fees, combined with ever increasing daily costs of living such as childcare, food, and utilities, many homeowners facing foreclosure have no other option than filing for bankruptcy.  The American Bankruptcy Institute reports that the number of people filing for bankruptcy nationwide rose to 263,756 in the first nine months of 2008, up from 234,375 in the same period in 2007.  The Wall Street Journal reports that under current bankruptcy law, about half of Chapter 13 filers are not able to keep paying their mortgages, and they ultimately lose their homes; this is due in part to the fact that many bankruptcy filers end up with higher payments because they must pay for payments already missed.  When homes are foreclosed, no one wins: communities deteriorate, home values decline, crime rates rise, and families are displaced and often left homeless.  Providing homeowners with a viable option to remain in their homes and pay a mortgage they can afford is simply good policy.

That is why I support legislation approved recently by the Judiciary Committee in the House of Representatives that will allow bankruptcy judges to modify mortgages on residential real estate for Chapter 13 bankruptcy filers, which is currently prohibited under the Bankruptcy Code. No one wants to file bankruptcy, but it’s an important last resort for some.  Homeowners would have a practical solution to get back on track with their mortgage payments by allowing bankruptcy courts to be a forum where borrowers can work with lenders to renegotiate primary mortgage loan amounts, including subprime mortgages.  While opponents of this bill argue that it would trigger a flood of bankruptcy litigation, the reality is this bill encourages voluntary arrangements between borrowers and lenders, which would foster out-of-court resolutions.    Furthermore, this legislation would not cost taxpayers a cent.

The impact of this legislation would be significant.  According to Moody’s Economy.com, proposed changes to bankruptcy rules could help as many as 800,000 troubled debtors keep their homes across the United States, with over 14,000 families being helped right here in Maryland.  It would be a significant step towards stabilizing property values and the housing market, and helping our stagnant economy recover.

This legislation marks a long-overdue shift in focus from helping lenders to helping borrowers.  Under current law, individuals can only reduce the principal on auto loans and second-home mortgages through bankruptcy.  Conversely, we often see corporations seek bankruptcy protection as they work to restructure all their debt.  Individual homeowners deserve a comparable opportunity to restart.  With high numbers of foreclosures continuing in Maryland and across the country, it is critical that we provide a life-line to working families who are struggling by allowing judges to renegotiate primary mortgages in bankruptcy court, helping families stay in their homes, preserving communities, and rebuilding equity for all homeowners.