By Renae Merle
Washington Post Staff Writer
Wednesday, March 4, 2009
House Democrats have reached an agreement to narrow the impact of legislation allowing bankruptcy judges to modify troubled mortgages.
Under the current version of the legislation, a bankruptcy judge could cut the principal balance of a homeowner's mortgage, lower the interest rate and extend the terms.
But after moderate Democrats raised objections last week, delaying a vote, Democratic leaders agreed to insert some restrictions, according to a letter circulated by some moderate Democrats in support of the legislation yesterday.
The compromise version, for example, requires that a homeowner share with the lender any profit from the eventual sale of the home if a bankruptcy judge lowers the principal balance. It also gives preference to lowering a homeowner's interest rate over cutting the principal balance.
The compromise also limits homeowners' ability to ask a bankruptcy judge for help if they have already received or been offered a loan modification that lowered their payments to 31 percent of their income.
The financial services industry, which has lobbied against the bill, fought for all those provisions. The House could take up the bill as soon as tomorrow, according to congressional aides.
"I think essentially the concern is that we want to ensure that those people who get relief have tried the other avenues," said Rep. Steny H. Hoyer (D-Md.), the House majority leader.
The measure is a key part of a housing plan unveiled by President Obama last month, which includes programs to refinance and modify the mortgages of up to 9 million homeowners. The administration is scheduled to launch that program today when it unveils details.
The moves come as mortgage delinquency rates continue to increase, according to data from TransUnion, which tracks credit information about consumers. Mortgage delinquency rates -- borrowers who have missed at least two mortgage payments -- averaged 4.58 percent during the fourth quarter of 2008, up from 2.99 percent during the same period a year earlier, according to TransUnion data released yesterday.
The delinquency rate was worst in Florida and Nevada, which both topped 9 percent, while North Dakota and Alaska had the lowest rates. "Unfortunately, the mortgage sector continues to experience increases in the delinquency rate due to worsening economic conditions in both the labor and financial markets," said Keith Carson, a senior consultant in TransUnion's financial services group.
TransUnion forecast that mortgage delinquency rates could reach 8 percent or more this year before possibly beginning to stabilize in 2010.
Citigroup, the struggling New York bank, announced a new loan modification program yesterday that would lower payments for homeowners delinquent on their loan after losing a job. Payments would be lowered to an average of $500 for three months, the company said in a statement. Citigroup said it expected the program to help "thousands" of homeowners.