Archive for March, 2009
Bankruptcy Reform Will Hurt Many
Congress is considering legislation called the “Helping Families Save Their Homes in Bankruptcy Act”, which would allow bankruptcy judges to change the terms of a borrower’s mortgage contract (cram-down). I believe this proposal would benefit a small minority homeowners, but would severely worsen the outlook for the rest of us.
Allowing a Bankruptcy judge to unilaterally change the terms of a mortgage contact will force lenders to compensate for the added risk by: increasing down payment requirements, charging additional fees, and/or increasing interest rates. An article in the Atlanta Journal-Constitution reports that analysts predict a resulting increase in interest rates of 1.5% across the board.
On a $300,000 loan, for example, the current interest rate of 5.25% would require a payment of $1,657 per month. If bankruptcy reform passes, rates would go to 6.75% or $1,946 per month. The borrower would be looking at an increase of is $289 more per month; $3,468 per year; & $104,040 over the life of the loan. This will adversely impact home values, home buyers, and home owners looking to refinance.
- By Dale Bohannon
