Foreclosures
A House bill would empower trustees to rework loan terms, helping to keep subprime borrowers from losing their homes.
Colorado could avoid nearly 6,000 foreclosures linked to delinquent subprime home loans if a bill allowing bankruptcy trustees to rework mortgage terms becomes law, according to backers.
Opponents counter that the bill would make mortgages harder to come by and more expensive, worsening the current housing slump.
Several consumer groups are behind HR 3609, including the National Association of Consumer Bankruptcy Attorneys, the Consumer Federation of America and the Center for Responsible Lending.
The bill would allow a trustee in a Chapter 13 bankruptcy case to reduce a loan’s principal to the current market value of a property or convert an adjustable-rate loan into one with a fixed payment.
That could prevent 600,000 foreclosures nationally, including 5,973 in Colorado, among subprime borrowers, according to the NACBA.
It would also close a loophole in the 1978 bankruptcy code that prevents trustees, who can rework terms on other consumer loans, including mortgages on second homes, from touching primary home mortgages, said Bart Balis, a bankruptcy lawyer with Balis & Barrett in Boulder.
In 1978, most borrowers took one kind of mortgage, a 30-year, fixed-rate loan. During the past seven years, mortgage offerings have become more diverse, complex and, some consumer advocates argue, predatory.
Many unsophisticated borrowers took on mortgages they couldn’t understand, much less afford. But not all of those working with troubled borrowers are behind the bill.
Denver housing counselor Zachary Urban, who oversees the Colorado Foreclosure Hotline, said more study is needed on a difficult issue.
Urban said he might support the bill if lenders aren’t working with borrowers, but even rigid lenders have become increasingly flexible.
The state hotline is helping struggling homeowners avoid foreclosure about 80 percent of the time, Urban said.
In just one example, Ocwen Financial Corp., once considered a rigid lender, shaved $40,000 off a mortgage and cut an adjustable rate of 10 percent down to a fixed rate of 6 percent, Urban said.
Chris Holbert, president of the Colorado Mortgage Lenders Association, said giving bankruptcy courts more power to adjust mortgages would result in higher costs.
“It would encourage fewer entities or people to provide money to lend,” he said.
The Mortgage Bankers Association estimates the added risk would push interest rates on a 30-year, fixed-rate mortgage from 6 percent to 8 percent. On a $300,000 loan, that would increase monthly payments from $1,800 to $2,200.
Balis counters that bankruptcy courts can provide lenders, who have to take the hit one way or another, an out that is less damaging to the overall housing market.
“How do we solve the problem right now? Do you want your house back, or do you want to get paid?” Balis asked.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
Markets
LONDON — HSBC Holdings PLC, Europe’s largest bank, said Monday it will bail out two troubled funds it manages by transferring about $45 billion of their assets onto its balance sheet.
HSBC said it will also inject $35 billion into the two funds, Cullinan Finance Ltd. and Asscher Finance Ltd., in a move that will clarify responsibility for the funds and prevent liquidation of assets.
The moves are another symptom of a global credit crisis that has forced up the cost of short-term lending.
The funds are structured investment vehicles, or SIVs — bank-sponsored businesses that sell short-term debt such as unsecured commercial paper to investors such as hedge funds. They are bank-sponsored businesses that have been operated off the bank’s balance sheet.
The banks use the proceeds to buy longer-term assets like mortgage-backed securities.
SIVs normally generate money through fees and the difference between short- and long-term rates.
