Helping Families Save Their Homes Act

Source: AARP Advocacy

What’s at Stake?

The nation’s foreclosure crisis is crippling our economy and is especially burdening older Americans, with nearly 700,000 facing default or foreclosure.

Unfortunately, one common-sense step—allowing borrowers facing foreclosure to negotiate loan modifications with their mortgage brokers, so they can keep their homes while paying off their debt—is being blocked by special interests.

Why? Two major reasons are that loan servicers may get higher rates of compensation if loans go into foreclosure, and that servicers may fear lawsuits by investors for engaging in loan modifications. For these and many other reasons, voluntary loan-modification efforts are not working.

That’s why it is critical for Congress to intervene to help protect struggling home owners. One common-sense approach would be to allow a neutral third party, a bankruptcy judge, to engage in loan modifications. This would be an effective way to address the mortgage crisis for three reasons:

1) The threat of having a judge intervene to modify a broker’s loan would provide an incentive for the industry to engage in loan modifications with home owners earlier in the process to avoid having to go to court.
2) Loan modification would be mutually beneficial: Struggling home owners would be able to say in their homes longer, and investors would yield greater revenue than they would with foreclosures.
3) Judicial modification of home loans would provide struggling home owners the same chance to modify their loans as owners of investment properties, yachts, and vacation homes.

Legislative Summary

H.R. 1106/S. 61, the "Helping Families Save Their Homes Act," was introduced in January 2009 by John Conyers (D-N.C.) in the House and by Richard Durbin (D-Ill.) in the Senate. This legislation would give bankruptcy judges the discretion to modify primary-mortgage debt, just as they can currently do for vacation homes, investment properties, yachts, and other forms of securitized debt. The bill would also help stabilize the market by helping people remain in their homes while they pay off their debt. And it would enable loan modifications, for example, in situations where borrowers could not pay back their existing mortgages but could pay back more than the investors would receive in the case of foreclosure.AARP Position

AARP supports this bill, because the foreclosure crisis has profoundly hurt older Americans, who have been vulnerable to predatory-lending practices. Cash-poor but equity-rich, older home owners were sold risky, predatory loans. In some cases, the borrowers were told that the loans were fixed-rate, even though they included high rate adjustments after only a few years. Older Americans who face foreclosure or whose property values have decreased as a result of foreclosures in their neighborhoods also have less time to recover financially than younger families, so decreasing foreclosures is particularly important to them. Allowing bankruptcy judges to modify primary mortgage debt is critical to stemming the tide of foreclosures, helping communities, and stabilizing our economy.