Mark Zandi, chief economist of Moody’s economy.com, supports a radical idea to stem the tide of home foreclosures-change bankruptcy law. He recently testified before congress on the benefits on HR3609, which would let a bankruptcy judge tinker with a struggling homeowners mortgage to make it more affordable. If passed soon, the bill would be the second major change to bankruptcy law in about two years.

 

Mark goes on the say that if a bankruptcy judge could modify home loans so they are secured only up to the “market value” of a property that would reduce foreclosures.

 

You ask how, well here it is. In a Chapter 13 bankruptcy, to try to keep the home, a workout is developed in which the homeowner will have to make good on the debt he owes through a payment plan. The make the debt loan manageable, the bankruptcy judge can change the terms of the loan under certain limitations. These changes can include reducing the amount of mortgage debt owed to the appraised value of the home, lower the interest rate on the loan and extend the maturity of the loan. He believes that it could forestall as many as 500,000 foreclosures through early 2009.

It would be nice to see some relief to those in jepordy of losing their home.