Home builders reverse course on court-ordered loan modifications

Things are looking so bleak for the nation's home builders that they've recently changed course, and now support allowing bankruptcy judges to order mortgage holders to modify loan terms to avoid foreclosure. From an L.A. Times story:

Bankruptcy judges would be able to reduce payments and principal for homeowners with troubled mortgages under a proposal that appeared to be gaining momentum Wednesday...

Such reform is also supported by key advisors to president-elect Barack Obama, including former Treasury Secretary Lawrence H. Summers, who will be chairman of the National Economic Council in the new administration.

On Tuesday, Jerry M. Howard, chief executive of the National Assn. of Home Builders, said his group would no longer oppose the proposal. Continuing home foreclosures and the economic recession have opened the group to previously off-limits ideas, he said.

"The situation's deteriorated so much [that] every proposal needs to be considered," Howard said...

Howard said his group's newfound flexibility on the issue was "a huge acknowledgment by the home-building community that in this crisis, old doctrines don't necessarily fly." He said the builders would be most likely to agree to a temporary expansion of bankruptcy provisions, not a permanent one.

Builders will not oppose court-ordered mortgage modifications because they could keep more people in their homes, which in turn would mean fewer foreclosures flooding the market. Competition from cheap repossessed houses has made it difficult for builders to sell their vacant, surplus homes in many areas, Howard said.

Conyers' bill would empower bankruptcy judges to order reductions in mortgage principal, waive prepayment penalties and stop or modify interest rate changes on adjustable-rate mortgages. Judges could also extend the length of mortgages to 40 years. Such measures would apply to mortgages on primary residences...

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