Troubled Mortgage Lenders Can Get Bankruptcy Relief - Why Can't Troubled Homeowners? Cosponsor H.R. 3609
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
Center for Responsible Lending
Consumer Federation of America
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
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