Bankruptcy Judges to Rewrite Mortgages?

Some Democrats in Congress are pushing to allow bankruptcy judges to rewrite mortgages as part of the proposed $700 billion bailout for financial institutions that are straining under the weight of failing home loans.

The goal is to allow homeowners facing foreclosure to seek a reduction in their mortgage debt when they file for bankruptcy. Some analysts say it makes no sense to spend billions of taxpayer dollars to buy toxic mortgages without also extending aid to households at risk of losing their homes.

“Right now the pain is with people who are having difficulty making their mortgage payments, and that is a leading reason why people would go down the bankruptcy route,” said Paul Leonard, director of the California office of the Center for Responsible Lending.

Groups that counsel people facing foreclosure long have complained that banks and loan servicers are slow to respond to requests for loan modifications. Consumer advocates hope that if bankruptcy judges are given the ability to compel lenders to reduce debt, consumers will have more negotiating clout.