WASHINGTON—AARP CEO Bill Novelli sent a letter to the chairmen and ranking members of the Senate Banking Committee and the House Financial Services Committee urging Congress to include consumer bankruptcy protections in upcoming financial legislation.
Novelli writes in the letter, "[Bankruptcy protections] would benefit all homeowners, not just those at risk of foreclosure, as it would decrease the number of foreclosures, stabilize home values, protect communities, and help put the economy back on the path to recovery.” He added: "This nationwide crisis engulfs not only individual families, but neighborhoods and entire communities, as well.”
A complete copy of Novelli's letter follows. For more information, contact AARP Media Relations, (202) 434-2560.
September 22, 2008
Chairman Chris Dodd
Ranking Member Richard Shelby
Senate Banking Committee
Washington, DC 25010
Chairman Barney Frank
Ranking Member Spencer Bachus
House Financial Services Committee
Washington, DC 20515
Dear Chairman Dodd, Chairman Frank, Ranking Member Shelby, and Ranking Member Bachus:
As Congress considers legislation to address the financial crisis, AARP is writing to urge you to include the consumer bankruptcy protections of S. 2136/H.R. 3609 to help provide relief to the nearly 700,000 older homeowners currently in foreclosure or in default and at risk of foreclosure.
AARP strongly supports including these provisions, which would give bankruptcy judges the discretion to restructure primary mortgage debt as they can currently do for vacation homes, investment properties, yachts, and any other securitized debt. This is an effective way of providing relief to homeowners at no cost to taxpayers. It would benefit all homeowners, not just those at risk of foreclosure, as it would decrease the number of foreclosures, stabilize home values, protect communities, and help put the economy back on the path to recovery.
At the height of the subprime boom, older homeowners were targeted by unscrupulous lenders because their savings were primarily in their homes; such homeowners were cash-poor but equity-rich. Many received subprime refinance loans with low teaser rates that were not properly underwritten. Now, as those rates expire and escalate upwards, some older homeowners on fixed incomes simply cannot afford to stay in their homes. Unfortunately, these older homeowners – some of whom owned their house outright just a few years ago – face the nightmare of foreclosure when they cannot make their mortgage payments. This nationwide crisis engulfs not only individual families, but neighborhoods and entire communities, as well.
As a matter of basic fairness, homeowners at risk of foreclosure should be granted relief as part of this package. This needed change would not reopen the Bankruptcy Act of 2005, but would modify the bankruptcy legislation enacted in 1978 that excludes loans for primary residences from those loans that may be modified in a Chapter 13 bankruptcy. At that time, mortgage loans were nearly all fixed-interest rate instruments with low loan-to-value ratios and were rarely themselves the source of a family's financial distress. This is no longer the case. Preventing the modification of home loans for primary residences makes no sense in an age of subprime adjustable rate mortgages and negative amortization, where the mortgage itself causes financial crisis, and millions remain at risk.
As Congress looks to address the many implications of the financial crisis, AARP looks forward to working with you on additional legislative changes we seek relating to investor protection, regulatory reform, and fairness to taxpayers that remain important to our members.
Thank you for your consideration.
William D. Novelli
Chief Executive Officer