As many as 12-million more homes could be in jeopardy of foreclosure in the nation’s growing foreclosure epidemic, which accounts for nearly 1 out of 12 homes. The rise in homeowners at risk has resulted from the senate’s failure to pass a bill forcing “cram downs” in bankruptcy courts.
The senate’s decision came on a 45-51 vote defeating the bill, which would have called on bankruptcy judges to adjust mortgages in federal court. Despite promises of pressuring lawmakers when he was running for office to pass the legislation as part of his housing plan, President Barack Obama did little to pressure Congressional members to approve the measure.
The defeat sparks cries of outrage from millions of American homeowners who have been misled by mortgage companies and bankers, and many others who were told they would simply be able to refinance their mortgages at a later date. A series of class action lawsuits in more than two dozen states against bankers represents the growing magnitude of the foreclosure epidemic.
In Hawthorne, California John Caruthers hoped for the best before he learned of the bill’s defeat. “It looks like I’ll lose the house now then,” said Caruthers after hearing of the bill’s failure. Caruthers was turned down for a mortgage modification after his wife lost her job and the couple was unable to qualify for a modification, despite keeping up with monthly payments. “They’re all crooks in Washington anyway,” said Caruthers. “They really just don’t give a damn about the little guy.”
As bitterness over the nation’s financial crisis rises, millions of more homeowners are expected to suffer from foreclosure as a result of the bills failure. The Democratic-controlled senate could do little else to help homeowners.
Assistant Senate Majority Leader Dick Durbin (D-IL) authored the bill to allow millions of at-risk homeowners prevent foreclosures by modifying the terms of their mortgages in bankruptcy proceedings. Despite the bill’s failure, Durbin said he will persevere. “I’ll continue to bring this issue to the floor until the senate decides to put the interests of homeowners above the interests of bankers.”
Banking industry lobbyists pushed senators to defeat the bill’s passage working hard on Capitol Hill. Officials from many of the nation’s largest banks worked to persuade senate members in close conversations, including representatives from JP Morgan Chase & Co., Bank of America Corp. and Wells Fargo & Company.
Lobbyists used scare tactics to urge lawmakers to vote against the measure, telling them how mortgage rates would have to be increased on new mortgages to help pay for larger losses banks would sustain forced by bankruptcy mortgage reductions. However, there is no economic evidence to prove that would be the case.
“We’ve given bankers who got us into this crisis every opportunity to responsibly address this crisis and they have failed,” Durbin said after the bill’s defeat. “I’ll keep working to give homeowners every legal means to save their homes.”
Obama’s rescue plan encouraged bankers, but does not require lenders to cut homeowners’ monthly payments and refinance loans for those whose home values have dropped. All except ten of more than 250 markets regularly monitored by Housing Predictor have seen housing deflation, and all had home values drop at least 20% from market highs. Some areas of the country have witnessed housing deflation as high as 75%, making it impossible for homeowners to meet strict banking re-qualification standards to refinance mortgages.