A hurricane storm surge can take away someone's home in a matter
Now imagine an even bigger, more powerful wave — one strong
enough to wash out the wealth of thousands of homeowners —
but washing over the community for a year, two years, or
That's the foreclosure wave riding along with the nation's current
financial crisis. In Florida, the flood is far from cresting, and
thousands of homeowners are struggling in its undertow.
A growing wave of foreclosures is adding to the woes of South
Florida residents. In addition to displacing homeowners, landlords
who stop paying for utilities, trash removal, and other services on
foreclosed properties often leave renters in squalid, unsafe
conditions. Many who are forced to leave have nowhere to
Herald reporter Monica Hatcher describes the plight of one
homeowner, Miami-Dade schoolteacher Marisela Gonzalez. After a long
struggle, Gonzalez has finally decided to give up and let her house
go back to the bank — or in this case, into the hands of the
federal government, which is holding her lender, IndyMac, in
financial receivership after the bank's failure.
Failure may also be the word to describe the government's efforts
so far at fighting off the foreclosure tsunami. Reports the Herald,
for example, "Hope for Homeowners, passed by Congress in July, was
expected to help 400,000 borrowers avoid foreclosure with Federal
Housing Administration guarantees of up to $300 billion in
refinanced loans. So far, only 350 loans nationwide have been
refinanced, according to the U.S. Department of Housing and Urban
Some observers argue that homeowners have only themselves to blame,
if they leveraged their ownership to refinance their homes, taking
cash out on terms they couldn't afford to repay. But the
foreclosure wave is also making life tough on renters, who had no
choice in the matter but who are now stuck in rental housing that a
financially failing landlord can't, or won't, maintain.
In a December
story, Hatcher wrote: South Florida's foreclosure crisis is
creating unique hardships for renters in some apartment buildings.
Unlike tenants of condos and houses, apartment dwellers rely on
landlords to collect garbage, keep up the premises and make
repairs. The cost is included in the monthly rent. So when a
landlord enters foreclosure, those services often stop, leaving
residents without vital utilities and sometimes in unsafe
conditions. They may be forced to move. Low-income renters
sometimes have nowhere to go. Will the new administration bring
hope and change for homeowners and renters beset by foreclosure?
It's too early to tell, of course. But foreclosure relief was
already on the Congress' agenda even before Barack Obama took
office. One bill to watch is Senate Bill 61, re-introduced on
January 6 by Senator Dick Durbin of Illinois (a companion bill was
introduced in the House by Congressman John Conyers of Michigan).
Durbin's bill, titled the ""Helping Families Save Their Homes in
Bankruptcy Act," aims to empower bankruptcy court judges to
restructure the terms of home mortgages when a homeowner files for
bankruptcy — a power bankruptcy courts currently lack.
Said Durbin's office in a press
release: Today, virtually every type of personal debt,
including vacation homes and family farms, can be restructured in
bankruptcy with the exception of mortgages on a primary residence.
This exception dates to the 1970's, when most mortgages were fixed
rate, long term agreements between local bankers and their
neighborhood customers. The mortgage market has changed
considerably since the 1970's, and mortgages on primary residences
are often now the primary cause of financial distress. This bill
would help the bankruptcy code catch up with these changes in the
Senator Durbin has been pushing his proposed bankruptcy law change
since 2007, to little avail. But with a new party lineup in the
Congress, and a continued deepening of the global financial crisis,
the idea may face better odds this year. On January 9, CitiGroup
boss Vikram Pandit came out in favor of the deal, a sign that
bankers may be warming up to the idea (see the Wall
Street Journal's coverage).
New York Senator Chuck Schumer said that the CitiGroup move has
"broken the dam" of banker opposition to the so-called "cramdown"
measure, and that other bankers have already contacted him in
support of the change. On the other hand, the Mortgage Bankers
Association still remains officially opposed to the idea. However,
Senate proponents say they will try to wrap the bankruptcy reform
into the $850 billion emergency stimulus bill now moving through
Congress. If that effort succeeds, significant foreclosure relief
could take effect early this year.