Bankruptcy Reform And Mortgage Foreclosure in Maine

Facing foreclosure in Maine?  Having trouible communicating with your lender?  Having trouble navigating the maze of foreclosure prevention programs in Maine?  If so, you are part of a growing club both in Maine and around the country.  Meanwhile you've watched as private company after private company has reneged on its obligations, avoided or emerged from bankruptcy.

The classic situation is the one where the home value is underwater, but the borrower could pay a mortgage with a principal equal or great than the value with a reasonable market interest rate and long term amortization.  The alternative is that the lender gets no payments for 6-18 months during the foreclosure process, pays the real estate taxes and sells the house for 10-30% less than its fair market value.   

But the Lender "can't" do it.  There are complex and simple reason why.  In the simplest terms the Lender is really a Trustee that is bound by all sorts of limitation on what it can do with the mortgages it hold.  Those limitation come from the complex web of slices (Trances) that were made in the morgage securitization process.  When GM's creditors were intransignent, GM heading over to the bankruptcy court and crammed them down.   The jury is out on GM, but it looks like it may well be on it way to recovery. 

If GM could do that why is it so difficult for Mr. and Ms. Homeowner?  What can we do to fix it? 

Change the bankruptcy code to allow Judges to modify home mortgages.  The mortgage lending industry obtained provisions in the bankruptcy code making mortgages inviolate even through this foreclosure crisis,  but the pressure has been building.  Today's New York Times has an editorial supporting reform.  The bankers claim that allowing modificaion of home loans will lead to severe credit tighening and general catastrophe. 

So, do you believe that?  In Chapter 11 cases we modify loans all the time and lender still make commercial loans.  Would they really stop making home loans or would they just be a little more careful making them and a little more responsible when they go bad.