The bankruptcy bill proposed by the new administration is facing strong opposition from the mortgage industry, particularly from major banks and lenders. The new law, announced by President Barack Obama as part of his rescue program, will allow bankruptcy judges to grant principal and interest rate reductions in troubled loans to help curb foreclosures.Mortgage lenders are aggressively disputing the bill and trying to influence it on key revisions. According to them, the bill will eventually lead to higher processing fees and interest rates. As main industry players take on unpredictable costs and greater risks, they cannot help but pass at least part of it to their customers.
Supporters of the bill, however, are confident that the changes will be for the better. They believe it will force lenders to put more effort into helping troubled borrowers, instead of going straight to foreclosure. By offering solutions such as loan modification, they can cut down on foreclosures by state and minimize losses for both parties. It also offers a viable alternative to going to court and filing for bankruptcy.
Most banks are left with no choice but to get into positions that would give them a say in major decisions. Citigroup, for instance, has forged a deal with the party that the bill would only apply to loans that were originated before it becomes law, and only to at-risk homeowners who explored other options besides Chapter 13 bankruptcy.
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