The Star-Ledger

Drowning In Foreclosures

The Star-Ledger — Sunday, March 22, 2009

The Star-Ledger Editorial Board

An estimated 20 percent of Americans mortgages are now "underwater" — meaning their owners owe more on their homes than the properties are worth. Meanwhile, the U.S. Senate is poised to vote on legislation that would allow bankruptcy judges to cut the mortgage debt of homeowners facing foreclosure.

The House has passed the bill. The Obama administration and Democratic leaders are trying to win Senate passage before Congress goes into recess on April 6, but they're having trouble rounding up enough votes.

The proposed legislation would allow bankruptcy judges to reduce the principal on a homeowner's mortgage as well as cut interest rates and extend terms — provisions known as cramdowns.

The bill would benefit those with no equity cushion in their homes, for whom interest rate adjustments are not enough to bring their debt in line with their ability to pay. About 10 percent of home loans in New Jersey are "underwater" — a number expected to grow, according to a report by First American Core-Logic, a California-based provider of real-estate data and mortgage analysis.

The plan also will allow agencies that provide mortgage counseling greater leeway in helping those homeowners.

New Jersey Citizen Action, a statewide watchdog group that provides home-ownership counseling, says more than 120 people are coming to the agency each week looking for help holding onto their homes. The Union County Urban League, which assists homeowners in distress by providing counseling and helping work out loan modification deals with lenders, says it used to see some 50 borrowers in a year. In the past 12 months, it has seen more than 450.

Foreclosures are still on the rise; nationally, they increased 6 percent between January and February. New Jersey ranked 29th, with one in every 1,067 homes receiving some sort foreclosure notice, according to Realty Trac, a foreclosure listing service.

It's a discouraging trend. Those foreclosures are a big drag on the economy at large, adding to the distress of the banks and other lenders stuck with the "toxic assets" backed by those troubled mortgages. Each foreclosed home also brings down property values in its neighborhood.

For some homeowners, bankruptcy may be the only option. Bankruptcy courts have broad power to reorganize debts, but current law does not allow them to adjust the amount owed on a home mortgage. The legislation to change that is necessary and should not be delayed.

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