Over two million families with subprime mortgages have already lost their homes to foreclosure or they’re likely to lose them in the next few years unless Congress changes the bankruptcy laws. That’s the message in a joint  “Call forAction” issued the other day by the National Association of Consumer Bankruptcy Attorneys (NACBA), the Consumer Federation of America (CFA) and the Center for Responsible Lending (CRL) – on behalf of the hundreds of thousands of families struggling with abusive subprime mortgages and hoping to escape foreclosure.

These three nonprofits warn that the bankruptcy laws are currently written in a way that means low-income subprime mortgage borrowers will have a very hard time keeping their homes … while those with second (and even third) homes will have a much easier time saving those properties.

Catch 22: The Rulz Is Nuts!
The problem is that the Bankruptcy Code includes very restrictive provisions that apply only to mortgages on primary residences. Home loans are essentially excluded from bankruptcy protection, which puts mortgage lenders in a far better position than virtually every other creditor.

In the best case scenario, the “Ponzi Scheme” subprime lenders came up with was based on low rates plus quick property appreciation. That’s the only way  folks could hope to keep afloat. But rates went up and property values have gone down, leaving borrowers who can least afford them with mortgages that are bigger than their homes are worth. So even if they were able to sell, they’d get a lower price, would still owe their mortgage lenders a pile, and would be homeless.

Then there are all the worst case scenarios brought to us by even more irresponsible lenders – for example, those who gave subprime loans based on appraisal fraud. Even in these circumstances, judges cannot restructure the mortgages. So how in the world are these people supposed to get back on their feet?!

The answer: Congress should modify the bankruptcy code so judges can write down these loans and let people stay in their homes.

You Can Help!
Let your legislators know that you support revising the Bankruptcy Code. And if you are facing this situation, please share some of the details with us. Your "horror story" may be what convinces a legislator that the current code must go!