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Mortgage Bankers Fault Bankruptcy Bill
Homeowners will pay if federal law increases bankruptcy protections, according to the Mortgage Bankers Association.


A proposed change in the bankruptcy law would allow courts to write down the value of a mortgage, should the homeowner face bankruptcy. It comes as many borrowers with poor credit are having trouble making payments now that rates on their mortgages have reset. The MBA says the change would drive up interest rates on mortgages by 1.5 to 2.0 percentage points because lenders would face new uncertainty as to the value of homes they finance.


The costs, says MBA, would be transferred to homeowners. For example, it estimates that in New York the average mortgage payments would have been $249 higher per month if the bill had become a law in 2006.


The House Judiciary Committee passed the Emergency Home Ownership and Mortgage Equity Protection act of 2007 last month.


"Congress is, quite laudably, attempting to help consumers who face difficulties paying their mortgages," MBA Chairman-Elect David Kittle said in a release. "But this law will, ironically, create future difficulties by increasing mortgage costs."


But some say that the cost of foreclosures far outweighs any costs associated with the write downs. Mark Zandi, chief economist at Moody's, testified before Congress last October that the legislation would not result in increased interest rates. "Given that the total cost of foreclosure is much greater than that associated with a Chapter 13 bankruptcy, there is no reason to believe that the cost of mortgage credit across all mortgage loan products should rise," he said in his prepared remarks.


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