Demand for Changes in Bankruptcy Law to Protect Homeowners

Washington, D.C., May 1 (EIRNS) - With subprime and Alt-A mortgages, now re-setting at higher ballooned interest rates for over two million homeowners who risk loss of their homes, a group of bankruptcy law attorneys and consumer organizations have called on Congress to amend the bankruptcy laws. Bankruptcy laws were designed to protect individuals from financial ruin. But today, due to predatory lending practices instigated by then Federal Reserve chairman Alan Greenspan, combined with draconian measures further favoring mortgage lenders adopted in the 2005 U.S. bankruptcy laws, "We have an epidemic of homeowners who are in serious financial trouble, and whose houses are worth less than the balance due on their loans because of the irresponsible lending practices of subprime lenders," said Eric Stein, of the Center for Responsible Lending.

The Center, joined by the National Association of Consumer Bankruptcy Attorneys (NACBA) and Consumer Federation of America (CFA), on April 12 presented draft legislation to amend the bankruptcy laws to ensure people are protected, not the mortgage lenders. "Help is urgently needed for hundreds of thousands of American families at risk of losing their homes due to abusive home loan" practices said Henry Sommer, president of the NACBA. Allen Fishbein director of housing for CFA added, "Two million or more homeowners face foreclosure over the next few years, with many of these resulting from negligent and reckless lending practices by mortgage originators."

Since 1978 a bankruptcy law provision favored mortgage lenders over all other creditors. But since then the Greenspan-housing bubble with the predatory lending practices that followed have hooked people into mortgage loans they can't really afford. "Subprime lending practices of the last six years, which relied on property appreciation, and in many cases appraisal fraud, have left many borrowers with mortgages larger than the value of their homes," the coalition reported.

The coalition drafted legislation to amend the bankruptcy code, as of May 1, has not yet been introduced by any member of Congress.

Lyndon LaRouche says that mass evictions must be prevented by Federal "freezing" of mortgage obligations and the whole chain of financial instruments built upon them, pending eventual settlement, while keeping mortgage borrowers in their homes.