AG: Foreclosures to blame for nation's recession

Chris Rizo Jan. 13, 2009, 12:02am

Terry Goddard (D)

PHOENIX, Ariz. (Legal Newsline)-The legions of homeowners who have lost their homes in recent months is a major cause of the nation's current economic woes, Arizona Attorney General Terry Goddard said.

The Democratic attorney general and proponent of federal intervention in the housing crisis said in an open letter Monday that it's hard to overstate magnitude of the foreclosure tsunami that has touched virtually every corner of the nation.

He said nationally, about 4.6 million people, or one in 10 homeowners, are somewhere in the foreclosure process or delinquent in their housing payments, adding that record number of Americans are filing for bankruptcy.

"Across the nation, foreclosed properties are dragging down housing values and depressing the economy," Goddard wrote, noting that Arizona has one of the highest foreclosure rates in the nation.

He said voluntary efforts by mortgage servicers to reduce the number of struggling homeowners foreclosed upon have largely been ineffective.

"These efforts have been complicated by the securitizing of mortgages, making negotiated modifications extremely difficult," he said. "What's needed is a way to modify home loans that is fair to both homeowners and mortgage holders. Ideally, these adjustments would be worked out without creating a new bureaucracy and new costs for taxpayers."

In his My Turn column, Goddard reiterated his call on Congress to revise the U.S. Bankruptcy Code to allow federal judges to amend the terms of home mortgage loans. Last week, 21 other state attorneys general joined Goddard in calling for the law change.

"Judges would then have authority to reduce principal to bring it in line with a home's current market value, reduce the loan's interest rate, extend the loan's term, or make any combination of those three changes," he said, conceding that the American Bankers Association opposes the proposed change.

Goddard called the proposal a "win-win solution" for lenders and struggling homeowners.

He said in U.S. Bankruptcy Court modifications, lenders would likely receive lower payments, but likely more money than they would receive if the home was foreclosed upon and sat unsold.

"If we stem the tide of foreclosures in Arizona and across the country, the housing market will stabilize more quickly and help turn around the economy for everyone," he said.

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