On March 5, 2009, the U.S. House of Representatives passed the Helping Families Save Their Homes Act of 2009 (H.R. 1106). The vote was 234 to 191, with 7 representatives not voting. Passage of the bill in the House marks progress for President Obama's Homeowner Affordability and Stability Plan, which seeks to help millions of homeowners refinance their mortgages in order to avoid foreclosure. The bill (S. 61) is now under consideration in the Senate, where it is expected to face some challenges.
Under the proposed legislation, federal bankruptcy judges would have the power to modify the terms of mortgage loans by reducing interest rates (to no lower than full market rate) and reducing principal (to no lower than the property’s full market value). A mortgage modification or “cram down” is not available to borrowers who can afford to pay non-mortgage debts and their mortgages after a Chapter 13 plan. Homeowners who obtain relief under the bill would face three to five years of court supervision during completion of the plan and during that time, they must use all available income to repay creditors. There is expected to be some debate in the Senate about the authority given to judges under the proposed bill.
Only homeowners who have received notice that foreclosure proceedings may be commenced are eligible for relief under the Helping Families Save Their Homes Act. In order to seek relief in bankruptcy court a homeowner must show that he or she first tried to work out a deal with the mortgage lender. In addition, bankruptcy judges would be able to consider whether the mortgage company made a reasonable offer to modify the loan’s terms so that the homeowner could reduce monthly payments to roughly one-third of income, in line with terms outlined in President Obama’s housing plan.
The Helping Families Save Their Homes Act would apply only to existing mortgages and would prohibit a borrower who can afford his or her mortgage payment or a borrower convicted of mortgage fraud from altering the terms of his or her mortgage. In addition, the bill applies only to owner-occupied homes, not investment properties.
The proposed legislation has the potential to touch tens of millions of American families. In addition to the millions of families that would be directly affected by the bill, many additional homeowners would avoid property value depreciation caused by foreclosures in their neighborhoods.