NCPA - National Center for Policy Analysis


March 4, 2008

The right solution to the foreclosure crisis must keep families in their homes, restore their financial security and preserve mortgage credit for the majority of American homeowners who are not delinquent on their mortgages, says David G. Kittle, chairman-elect of the Mortgage Bankers Association.

Unfortunately, bankruptcy legislation -- empowering local bankruptcy judges with the ability to amend the terms of mortgage contracts -- is being advocated by many as the best solution to the problem.  But bankruptcy has serious long-term consequences that will negatively impact homeowners and other consumers down the road:

  • One unavoidable consequence is that bankruptcy leaves a long-lasting negative mark on one's credit; this will make acquiring future credit difficult.
  • In addition, a homeowner entering the convoluted bankruptcy process can look forward to paying an average of $3,000 in attorney's fees and court costs.
  • And future homeowners not directly affected by the current crisis will face higher interest rates, larger down payments and stricter lending criteria.
  • Lenders will build these costs into new loans to reduce risks associated with potential modifications by bankruptcy judges.

While there might be disagreement about the right method, virtually everyone agrees that helping at-risk homeowners is of paramount importance, says Kittle.  But rewriting bankruptcy laws, which have protected homeowners since 1898, is irresponsible and will certainly cause more uncertainty in an already fragile economy.

Source: David G. Kittle, "Opposing view: Maintain contract integrity," USA Today, March 4, 2008.


Browse more articles on Government Issues