Solve the Housing Crisis: Change Mortgages

One of the ideas for solving this real estate crisis is to force banks to get real. To lower the amount of many home mortgages.

And how? Attorney Jeffrey Tromberg of the Florida Debt Relief Center in Fort Lauderdale wants to see the bankruptcy law changed. So that judges can force banks to lower the mortgage loan amount.

They can't do that now. Bankruptcy judges can force a change in the mortgage on a vacation home. But the judge can't do anything about the mortgage on a primary residence.

The lenders pretend this "loss" hasn't happened. But South Florida home prices are down, on average, by 45 percent from the 2005 peak. If you borrowed back then, your home is not nearly worth what you paid for it.

"Would someone who bought a stock at $100 and reads the papers today seeing the stock is now at $40 pretend that he still has a $100 asset?" Tromberg asked.

The $60 is gone, whether the investor sells the stock or not.

The Obama administration favors the idea of changing the bankruptcy law, too.

Guess who doesn't like it?

Banks and mortgage lenders.

So tell me what you think? Should banks be forced to lower loan amounts -- to reflect the real value of home mortgages?

Comments

bought my house in July 2007 with 20% down. Judging by the sale of similar houses in my neighborhood, my home is now worth appx. 15K less than my mortgage balance. Will I get my mortgage cut by 15K? Or, to be fair, more than 15K to even me out with all of those lucky folk who bought in 2005 with 0% down.

How about those people who refinanced in 2005 to take money out to buy a huge flatscreen tv/swimming pool/etc.- will their mortgage be cut, too?

If not, will the banks take the time to weed out the 'undeserving'?

Yeah, that's realistic.

Posted by: jillian | March 30, 2009 2:47 PM

Each one would be individually handled by a federal bankruptcy court judge. I think the judge could decide who is deserving.

Posted by: Harriet Johnson Brackey | March 30, 2009 2:52 PM

Thanks, Harriet. I posted in haste.

Given the breadth of the mortgage crisis, I think this would place a huge burden on the bankruptcy courts, but lets see what happens.

Posted by: jillian | March 30, 2009 4:02 PM

No problem. But come on now, what do you think would solve the crisis? I'd like to know...

Posted by: Harriet Johnson Brackey H | March 30, 2009 4:30 PM

Actually, I think it would be in the best interest of everyone, including the banks, if lenders took a more proactive role in loan modifications - whether that be extending loan terms, allowing interest only payments for a few years (real estate prices will most likely inch up, eventually) or, interest rate modifications.

I just can't stomach people having part of their loan "forgiven" just because the house is not worth what they borrowed(and that includes my situation).

Granted, any "solution" will be time consuming on the lenders part, but that's life. God knows it's both expensive and time consuming enough for them to go through the foreclosure process with their disgruntled lendees, who may not be of the mind to leave the property in good condition.

Posted by: jillian | March 30, 2009 5:33 PM

I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

Miriam

http://www.craigslistdecoded.info

Posted by: Miriam | March 31, 2009 6:15 AM