Thursday, October 9, 2008

As was reported in the media, the Helping Families Save Their Homes in Bankruptcy Act of 2008 was
HELPING FAMILIES SAVE THEIR HOMES IN BANKRUPTCY
ACT OF 2008
SEPTEMBER 26 (legislative day, SEPTEMBER 17), 2008.—Ordered to be printed
Mr. LEAHY, from the Committee on the Judiciary,
submitted the following
R E P O R T
together with
MINORITY VIEWS
[To accompany S. 2136]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to which was referred the bill
(S. 2136), to address the treatment of primary mortgages in bankruptcy,
and for other purposes, having considered the same, reports
favorably thereon, with an amendment, and recommends that the
bill, as amended, do pass.
CONTENTS
Page
I. Background and Purpose of the Helping Families Save Their Homes
in Bankruptcy Act of 2008 ......................................................................... 2
II. History of the Bill and Committee Consideration ....................................... 7
III. Section-by-Section Summary of the Bill ...................................................... 9
IV. Congressional Budget Office Cost Estimate ................................................ 13
V. Regulatory Impact Statement ....................................................................... 16
VI. Conclusion ...................................................................................................... 16
VII. Minority Views of Senators Specter, Hatch, Grassley, Kyl, Brownback,
Cornyn and Coburn .................................................................................... 17
VIII. Changes to Existing Law Made by the Bill, as Reported ........................... 23
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1 See The Looming Foreclosure Crisis: How To Help Families Save Their Homes, Hearing before
the S. Comm. on the Judiciary, 110th Cong. (December 5, 2007) (prepared statement of
Mark Zandi, Chief Economist and Co-Founder, Moody’s Economy.com) (‘‘I expect approximately
2.8 million mortgage loan defaults (the first step in the foreclosure process) in 2008 and 2009.
Of these, 1.9 million homeowners will go through the entire foreclosure process and ultimately
lose their homes’’).
2 See Edmund Andrews, Relief for Homeowners Is Given to a Relative Few, The New York
Times, March 4, 2008 (‘‘With housing prices falling, analysts estimate that about 30 percent of
all subprime loans written in 2005 and 2006 are for more than the current sales value of the
homes that secure them’’).
3 John Christoffersen, U.S. Housing Slump May Exceed Depression: Shiller, Associated Press,
April 22, 2008.
4 Neil Irwin, IMF Puts Cost of Crisis Near $1 Trillion, The Washington Post, April 9, 2008.
5 Id.
6 Center for Responsible Lending Issue Brief, Updated Projections of Subprime Foreclosures
in the United States and Their Impact on Home Values and Communities, August, 2008, available
at http://www.responsiblelending.org/pdfs/updated-foreclosure-and-spillover-brief-8-18.pdf.
7 Chairman Ben S. Bernanke, Chairman of the Board of Governors of the Federal Reserve System,
Reducing Preventable Mortgage Foreclosures: Speech at the Independent Community
Bankers of America Annual Convention, Orlando, Florida, March 4, 2008, available at http://
www.federalreserve.gov/newsevents/speech/bernanke20080304a.htm (‘‘ * * * principal reductions
that restore some equity for the homeowner may be a relatively more effective means of
avoiding delinquency and foreclosure [than interest rate reductions]).’’
I. BACKGROUND AND PURPOSE OF THE HELPING FAMILIES SAVE
THEIR HOMES IN BANKRUPTCY ACT OF 2008
As the number of foreclosures in the United States continues to
rise to historic levels—threatening the economy overall and the
families at risk in particular—further congressional action is required
to help as many families as possible save their homes.
Risky lending practices in the subprime mortgage market have
put nearly two million families in danger of losing their homes to
foreclosure before the end of 2009.1 These families are typically either
trapped in ‘‘exploding’’ subprime loans they can no longer afford
due to upward adjustments in mortgage interest rates, or are
saddled with mortgage debts that far exceed the value of their
homes due to rapidly declining housing markets.2 The problem is
expected to continue to worsen throughout 2008 and 2009; noted
economist Robert Schiller, who pioneered the Case-Schiller housing
index, has said that housing prices could fall further than the 30%
reduction experienced during the Depression of the 1930s.3
The foreclosure crisis is threatening the overall economy at the
same time that it strikes every neighborhood in which a foreclosure
occurs. According to the International Monetary Fund, $565 billion
will be lost on investments in U.S. home mortgages.4 The IMF also
predicts that the overall credit crisis, which was instigated by and
continues to be fueled by the rising number of foreclosures, will
cause $1 trillion in worldwide losses.5 And in each neighborhood in
which any foreclosures occur, homeowners who have never missed
a mortgage payment will still lose $8,667 on average in the value
of their homes; these 40.6 million homeowners who do not face foreclosure
are expected to lose over $352 billion in value from their
primary store of wealth.6
To respond to this crisis, it is imperative to craft policies that
will avoid home foreclosures. Reducing the principal owed on mortgages
to a level that the homeowners can afford to repay—without
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