Mortgage Crisis Will Drive Consumers to Credit Counseling
The Association of Independent Consumer Credit Counseling Agencies says that the mortgage crisis will end up driving consumers to credit counseling. Whether it’s a “subprime crisis” news story or the “For Sale” signs lingering in front of local homes for months, there are reminders everywhere that the housing market is in trouble and that the worst may lay ahead, says the Association of Independent Consumer Credit Counseling Agencies (AICCCA).
With more than two million subprime loans set to hit their trigger point for payment adjustments between now and 2009, there are concerns that at least one-third of those borrowers will face foreclosure. New home construction has slowed and mortgage credit has tightened. Uncertainty about the extent of bad mortgage loans has destabilized the multi-$trillion mortgage backed securities marketplace, depriving it of necessary liquidity.
Congress is now considering a number of legislative proposals related to bankruptcy. One would repeal the prohibition against a bankruptcy judge modifying a mortgage on a debtor’s principal residence, and also allow for an automatic waiver of the counseling requirement in any Chapter 13 case where notice of a pending judicial or nonjudicial foreclosure has been received. BAPCPA, the 2005 bankruptcy reform measure, already allows the bankruptcy judge to waive the counseling requirement in “exigent circumstances.” A broader proposal would grant an automatic waiver in both Chapter 7 and 13 cases where foreclosure action had commenced. Nearly identical proposals would temporarily waive the counseling requirement in Chapter 13 in foreclosure situations but require the debtor to obtain counseling post-filing. All these proposals authorize judicial modifications of principal residence mortgages to varying degrees.
A broad coalition of lenders, homebuilders, realtors and the security industry opposes these proposals, arguing that they would further destabilize the mortgage credit markets and raise the costs of mortgages for all future homebuyers. They also argue that the proposals are at odds with other actions being taken by Congress to address subprime lending, including a change in the Tax Code, already passed by the House, which would end the treatment of forgiven mortgage debt as taxable income to the debtor.
The House Financial Services and Senate Banking Committees have already raised FHA loan limits to assist negotiated loan refinancings and modifications. The House has also passed a bill to enable new, tougher regulation of the mortgage industry to prevent a recurrence of abusive subprime lending practices, with the Senate expected to take up a similar measure early in 2008. Ironically, the bills under consideration would put more emphasis on pre-purchase housing counseling for certain first-time homebuyers.
Founded in 1993, Association of Independent Consumer Credit Counseling Agencies (AICCCA) is a national membership organization, established to promote quality and consistent delivery of credit counseling services. AICCCA and its members are focused on improved creditor relations, efficient processes and advanced technology to best serve clients and creditors.
AICCCA members are independent nonprofit agencies that advocate for debtors, counsel millions of consumers annually nationwide and provide debt management services to consumers with excessive unsecured debt. For more information or to contact an AICCCA member office call 866-703-TRUSTAICCCA (866-703-8787) or visit http://www.aiccca.org/.