Troubled Mortgage Lenders Can Get Bankruptcy Relief

March 3, 2008

Troubled Mortgage Lenders Can Get Bankruptcy Relief - Why Can't Troubled Homeowners? Cosponsor H.R. 3609

Dear Representative:

We, the undersigned organizations, strongly urge you to cosponsor H.R. 3609, the bipartisan

Chabot-Conyers "Emergency Home Ownership and Mortgage Equity Protection Act of 2007." As modified by the Committee on the Judiciary, H.R. 3609 is a well-targeted, thoughtful

approach that could save hundreds of thousands of homes from foreclosure. It should be included

in any foreclosure prevention legislation that Congress considers this year.

Foreclosure rates are rapidly increasing, due to the proliferation of high-risk loans and lending

practices - including "exploding ARM" loans; poorly underwritten "interest-only," "pay-option,"

and "stated income" mortgages; and steering of creditworthy borrowers into expensive subprime

loans. Despite industry-led efforts to avert foreclosures, such as "Project Lifeline" and the "Hope

Now Alliance," countless families remain destined to lose their homes.

H.R. 3609 would give hundreds of thousands of struggling homeowners a second chance through

the means-tested Chapter 13 bankruptcy process. Bankruptcy courts would be able to 1) reduce

the principal on mortgages to reflect the current value of the home, while providing a vehicle for

lenders to recover the full fair market value; 2) reset interest rates to affordable-but-fair levels;

and 3) eliminate many abusive fees. Taking a pragmatic approach, the Committee-passed version

would only affect existing subprime and nontraditional loans, sunset after seven years, and only

apply if foreclosure is imminent. It would also leave the 2005 bankruptcy reforms intact.

For several reasons, H.R. 3609 represents one of the best responses available to the foreclosure

crisis. One key advantage is its cost. Because the public would not have to pay to save homes, it

would not amount to a "bailout" or raise moral hazard issues. Indeed, bankruptcy relief would

come at a heavy enough private cost to families who file - monetary and otherwise - to

encourage wiser financial decisions in the future.

In addition, H.R. 3609 would benefit other homeowners and our economy at large. Every home

that is saved from foreclosure helps protect the value of surrounding homes, making other

borrowers less likely to get "upside down" on their own loans. It would also reduce the blight,

public safety hazards, and drains on government resources that inevitably result from widespread

foreclosures. In short, H.R. 3609 would help control the "bleeding," ideally for long enough to

allow the economy to recover on its own.

Opponents of H.R. 3609 claim that it would make credit more expensive. We certainly take such

concerns seriously. With respect to H.R. 3609, however, that claim has not been substantiated.

Because the Committee-passed version of H.R. 3609 only applies to existing loans in which

more-expensive foreclosures are imminent, it is difficult - at best - to see how it would lead to

higher interest rates on loans in the future.

While we commend industry-led efforts to reduce foreclosures, we believe that far stronger action is

needed to mitigate the ongoing crisis. Homeowners, and our economy as a whole, simply cannot afford

to have the industry that fueled this epidemic - and the corresponding wave of foreclosures - avoid some measure of responsibility for the resolution.

We strongly urge you to cosponsor H.R. 3609, and we thank you for your consideration. If you have any questions, please feel free to contact Rob Randhava, LCCR Counsel, at 202-466-6058.



American Association of People with Disabilities

American Federation of Labor - Congress of Industrial Organizations (AFL-CIO)

Asian American Justice Center

Association of Community Organizations for Reform Now (ACORN)

Black Leadership Forum

CDFI Coalition

Center for Responsible Lending

Common Cause

Consumer Action

Consumer Federation of America

Consumers Union

Disability Rights Education and Defense Fund

Hmong National Development

International Brotherhood of Teamsters

International Union, United Auto Workers

Japanese American Citizens League

Laborer's International Union of North America

Lawyers' Committee for Civil Rights Under Law

Leadership Conference on Civil Rights

Legal Momentum

NAACP Legal Defense & Educational Fund, Inc.

National Association for the Advancement of Colored People (NAACP)

National Association of Consumer Advocates

National Association of Consumer Bankruptcy Attorneys

National Association of Neighborhoods

National Bar Association

National Community Reinvestment Coalition

National Council of La Raza

National Education Association

National Fair Housing Alliance

National Federation of Filipino American Associations

National Korean American Service & Education Consortium (NAKASEC)

National NeighborWorks Association

National Organization for Women (NOW)

National Urban League

National Women's Law Center

Opportunity Finance Network

Organization of Chinese Americans

Service Employees International Union

Unitarian Universalist Association of Congregations

United Food and Commercial Workers International Union

U.S. Public Interest Research Group

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