A New Law Gives Judges Power Of Mortgages

Federal legislators are trying to pass a law that would give judges power over mortgage terms. The law was passed by the House Judiciary Committee on December 12th but still has to pass through the House of Representatives, the Senate and the President.

If passed, the new law would allow bankruptcy judges to lower the interest rate or extend the duration of a mortgage for up to 30 years, allowing borrowers to have a more affordable mortgage. Many believe the law, dubbed the Homeowners Mortgage and Equity Saving Act, could help more than 500,000 borrowers already in default to avoid foreclosure.

Many banks and lending institutions believe that such a loss for them would eliminate credit for sub-prim borrowers completely. The method of a third party reducing a homeowners interest rate or extending their mortgage, also known as “crammed-down” by bankers, could severely reduce the amount of money returned to the banks that they lent legitimately to homeowners.

“it’s a short-term benefit. Banks are not going to forget how they got burned by this and they’re not going to make these loans anymore,” said Jeff Wurst, partner and chair of the financial service at Ruskin Moscou Faltischek.

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