Barack Obama has pledged to help hard-pressed homeowners, but he will have to move quickly to forestall a new wave of foreclosures.
Some in Congress favor direct mortgage relief, but others worry that the cost — on top of the bank bailout — will be too expensive.
Judging by positions laid out in his campaign, Mr. Obama might seek to change personal bankruptcy laws to help people avoid losing their homes, a step that the Bush administration and the mortgage industry have resisted.
Like other Democrats, Mr. Obama wants to empower bankruptcy judges to ease the terms of home loans on primary residences. Under current laws, judges are prohibited from reducing the balance on those mortgages but can change loans backed by commercial property or second homes.
The shift, proponents say, would help keep millions of people in their homes and ease the broader housing crisis. Many mortgage companies and Wall Street investors, however, might suffer greater losses on the loans and securities backed by them.
The Bush administration and many lenders have argued that changing the bankruptcy law would ultimately drive up mortgage rates, worsening the downturn in the housing market. They also argue that it would violate the sanctity of contracts and drive investors away from the mortgage market.
But with more comfortable majorities in both houses of Congress, Democrats could move quickly. Republicans in the Senate could try to block a change through a filibuster.
Mr. Obama has generally supported the $700 billion financial rescue package that Congress and the Bush administration negotiated and approved last month. He also endorsed the move by the Treasury secretary, Henry M. Paulson Jr., to redirect $250 billion of that money to recapitalizing the nation’s banks.
But Mr. Obama has not specifically said how he would spend the remainder of the money or whether his administration would acquire loans or securities as Congress initially intended. (The Treasury has made no acquisitions yet and it is unclear if it will do so before the Bush administration leaves office in January.) Mr. Obama has said that the government should help homeowners refinance troubled loans that can be saved.
Source New York Times 11/6/2008