Will the Real Estate Investor Please Stand Up?

Senate Democrats are attempting to push through a controversial plan to allow bankruptcy judges to modify the terms of troubled borrowers’ mortgages as part of a larger package of foreclosure prevention programs. Allowing judges to “cram down” loan modifications over the objections of lenders could raise interest rates on mortgage loans by 1.5 percent or more, industry groups fighting the proposed changes to the bankruptcy code say. If the bill caused interest rates to go up by 1.5 percent, payments on a $300,000 30-year fixed-rate loan would increase by $300 a month. The bill would also mean higher down payments for home purchases and increased equity requirements for refinancing existing home loans.

The above is certainly likely to make the real estate investing climate slightly worse off than conditions are now (low mortgage rates, depressed housing prices). On the flip side, there are some positive points that the new bill (S2636) is going to bring to the table, which hopefully can curb the foreclosure frenzy.

Some of these positive points include: $200 million for pre-foreclosure counseling, and giving the authority to the state housing finance authorities to issue $10 billion in additional mortgage revenue bonds to refinance subprime loans and provide mortgages for first-time home buyers.

Opponents of the plan say allowing bankruptcy judges to change the terms of mortgages after the fact will raise the cost of borrowing, in part because investors who purchase securities backed by mortgages will have less confidence in their ability to collect payments or foreclose on properties.

This entry was posted on Tuesday, February 26th, 2008 at 1:08 am and is filed under Mortgages. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.