Reining in Home Mortgage Creditors

Thanks to everyone at Credit Slips for this opportunity to share a few thoughts about consumer credit and bankruptcy.  True to my earlier promise, in my last post I want to come back to the topic of proposed legislative changes to chapter 13. 

Four bills are pending in Congress which seek in different ways to limit the special protection mortgage lenders have in chapter 13 cases, so that home mortgages may be modified like other secured debts.  A comparison of the four bills prepared by Mark Scarberry is available on the ABI website.  An earlier post by Bob Lawless refers to a position paper, or “call to action”, on the subject prepared by four consumer organizations (National Association of Consumer Bankruptcy Attorneys, National Consumer Law Center, Center for Responsible Lending and Consumer Federation of America).  My testimony at a House subcommittee hearing last month (and the testimony of Eric Stein of CRL) discusses reasons why the law should be changed.  In this post, however, I put forth a different justification for doing away with the anti-modification provision in section 1322(b)(2) of the Bankruptcy Code.

Prebankruptcy Waivers: The Price to Pay for Workouts?

A call came into my office this week from a legal services attorney who asked if her client’s forbearance agreement with a subprime mortgage lender would prevent her from filing bankruptcy.  As part of a workout which gave the client 6 months to catch up on arrears, the one-page agreement included the following:

“The debtor does not intend to file a bankruptcy after the agreement is executed.  In the event a bankruptcy is filed, the debtor agrees to allow the lender to obtain Relief from the Automatic Stay in order to foreclose on the mortgage.”

Delegation of Authority

Did Congress intend for an administrative agency in the executive branch to have the power to determine whether a debtor can receive a discharge in a chapter 7 case?  Or whether a debtor can save a home in a chapter 13 case or should be committed to making payments in a chapter 13 plan for a five year rather than three year period?  Or whether an unsecured creditor should get paid in a chapter 13 case?  Did Congress intend that this power should be exercised from time to time by that agency without notice to the bankruptcy community or an opportunity for comment?  And did Congress intend that this unbridled power should be held by an agency that has never been delegated any rulemaking authority under the Bankruptcy Code or any other statute in regard to bankruptcy? 

Missed Opportunity: Education Courses Not Targeted to Bankruptcy Filers

While many have appropriately questioned the value of the pre-filing bankruptcy counseling mandated by BAPCPA, including the GAO in its report to Congress, few have passed judgment on the post-filing debtor education courses.  For those not familiar with these requirements, an individual filing bankruptcy must receive a briefing from an approved credit counseling agency within 180 days before the bankruptcy case is filed and must also take an approved education course after the case is filed.  The education courses, it seems, have been considered helpful to consumer debtors, at least as much as any two-hour course can be expected to improve a consumer’s financial well-being.  But could these courses be designed to provide a more meaningful educational experience for their intended audience?

Loan Modifications . . . Where is the Decider?

Thanks to Bob Lawless and the crew at Credit Slips for this opportunity for the guest blogger spot for the next week. I'll begin with a something on the mortgage foreclosure crisis. Don't worry, I will touch on other subjects as well.   

Finger-pointing among mortgage industry players in the current foreclosure crisis has really gotten quite interesting. Some of this has helped to validate what consumer advocates have been saying for years. A fine example is the letter recently sent by the Consumer Mortgage Coalition, a trade association of large national mortgage lenders and servicers, to Chairwoman Sheila Bair of the Federal Deposit Insurance Corporation. The letter describes problems in the securitization structure which prevent loan modifications from being made.