House Empowers Judges to Prevent Foreclosures

Finally, the U.S. House has approved the bankruptcy judge empowerment proposal, one of the most significant proposals in President Barack Obama’s program to avert foreclosures. By a vote of 234 to 191, the lawmakers gave bankruptcy judges the power to reduce the mortgage loans of Americans in bankruptcy to save them from foreclosures. But the bill has to be first approved by the Senate and signed by the president before homeowners hoping for the approval of this option can rejoice.

The Democrats who supported the bill said the legislation would help stop the flood of foreclosures flooding the market and help stabilize the housing sector. The bill also includes provisions intended to help so-called underwater borrowers, homeowners whose homes have lost so much value because home prices have fallen to the lowest levels.

Under current bankruptcy laws, judges in bankruptcy courts can only modify the terms of consumer loans for cars, boats, family farms and vacation homes, but not primary homes. The approval of the bill has now given hope to extremely distressed homeowners hoping for rescue from foreclosures.

Meanwhile, Republicans and bankers are still fiercely opposed to the bill, saying the bill would increase the costs of mortgages because investors would shy away from the mortgage sector.

John Boehner, House Minority Leader from Ohio, bitterly criticized the proposal. He said American taxpayers are angry that Obama’s administration is throwing their hard-earned money to pay for the mistakes of irresponsible and foolish homebuyers just to be seen as doing something to solve the crisis brought about by foreclosures.

But housing advocates like Michael Calhoun praised the bill. Calhoun, head of the homeowner advocacy association Center for Responsible Lending, said the legislation would help stabilize home prices and rejuvenate the housing market. More importantly, the bill would help large numbers of American families save their homes from foreclosures.

The legislation would also improve the Hope for Homeowners program, which attracted only a few homeowners and mortgage lenders in 2008 because it was deemed unaffordable and too complex to help homeowners avoid foreclosures.

Moreover, the bill approved by the lawmakers also includes the permanent increase of the deposit insurance coverage from $100,000 to $250,000. The credit line of the Federal Deposit Insurance Corp. with the Department of the Treasury was also increased from $30 billion to $100 billion.