At a forum hosted yesterday by the Center for American Progress Action Fund, Senator Dick Durbin (D-IL) addressed the importance of ensuring that mortgage modifications are available to prevent any avoidable foreclosures and thus “fix the problem that caused the recession in the first place.” With unemployment rising and option ARM payment resets looming, Durbin argued that “Americans don’t have time for voluntary half-measures.” He thinks servicers can certainly meet the Making Home Affordable program’s target of starting 500,000 modifications by November and is putting them on notice that he will seek further legislative action if they do not meet that target on time.
What is needed to reduce the impact of foreclosures on communities and make a national loan modification plan really work? Durbin outlined four steps for Congress to take: (1) pass legislation to allow homeowners facing foreclosure to stay in their residence by paying fair market to the bank, (2) provide funds for cities and states that want to create mandatory arbitration programs such as the one in place in Philadelphia, (3) institute penalties if servicers refuse to meet the foreclosure reductions they have agreed to as part of the Administration’s plan, and (4) make bankruptcy available as an option at the end of the road for home mortgages as it is on all other secured assets.
In response to a suggestion that perhaps better financial education is really what is necessary to ensure that families do not agree to loans with terms that don’t work for them, Durbin replied that financial education is good, but even with legal representation at the closing table the average person cannot keep up with all of the tricks and traps of the financial industry.
Maya Brennan is a research associate for NHC's research affiliate, the Center for Housing Policy.