A record 5.4 million homeowners were either overdue on payments or in foreclosure at the end of last year.
In Virginia, over 94,000 homeowners are behind in their mortgage payments representing over 6 percent of the market. On the West Coast, things are much worse. Tent cities have sprung up in Sacramento, increasing by 25-50 people per week. Our nation’s housing crisis is at the center of the economic turmoil. Until we stop falling home prices, recovery will be out of reach.
In response to this crisis, the House passed legislation last week that would restore fairness and hope to families facing foreclosure. The Helping Families Save Their Homes Act (H.R. 1106) is the first piece of President Obama’s comprehensive Homeowner Affordability and Stability Plan to halt the falling price of homes and keep people from defaulting on their mortgages. The President also announced details of his plan last week, including a website, www.financialstability.gov that includes an eligibility quiz for homeowners struggling to make their payments.
H.R. 1106’s key component is that it gives bankruptcy judges the ability to modify existing mortgages for families who file for Chapter 13 bankruptcy. This acts as an incentive to spur lenders into voluntarily modifying loans – they are likely to reach better terms modifying the loans themselves than if a judge does it. And it allows people to stay in their homes, paying a mortgage payment they can afford.
Chapter 13 bankruptcy filing is a last resort for many families who are unable to make ends meet in the midst of this recession. It is a strict and intrusive process that forces a family to open their finances up to the scrutiny and management of the courts for up to five years. Despite what some critics say, no one enters Chapter 13 lightly. But when families cannot afford their mortgages, it’s the only way to keep people in their homes and prevent lenders from experiencing even greater losses through default and foreclosure.
Making this legislation law and stabilizing the housing market is central to the overall recovery of our economy. Home prices dropped 18 percent in the last quarter of 2008. More than 14 million homeowners owe more on their mortgage than their home is worth and cannot refinance. Many are facing foreclosure through no fault of their own. And each foreclosed home reduces nearby property values by as much as 9 percent.
We all stand to lose if we do not stop the steep decline in home prices. This measure is an economic necessity. I will continue to work with the President to help the seven million to nine million Americans currently in danger of losing their homes and prevent their neighbors from losing greater home value.