Home loan plan makes headway

Sen. Richard J. Durbin (D-Ill.) introduced a bankruptcy reform bill last month that also would allow judges to modify mortgages.

Final votes on the legislation will probably take place next year, backers say.

Rep. Brad Miller (D-N.C.), sponsor of an earlier bankruptcy reform bill, said the shift by home builders was significant.

"They matter economically and politically in every [congressional] district, much more so than Wall Street. Morgan Stanley is not in my district, home builders are," he said.

More important, Miller said, is the continuing rise of foreclosures in numerous congressional districts. "No voluntary program has worked yet" to substantially stave off foreclosures, Miller said.

Ginna Green, spokeswoman for the Center for Responsible Lending, a group that is pushing for bankruptcy reform, said prospects for legislation had improved because "the solutions brought forth to date have clearly not been effective."

A research paper issued Tuesday by analysts at Credit Suisse projected 16% of U.S. mortgages -- or 8.1 million homes -- would end up foreclosed in coming years because of falling home values and the economic recession.

Miller said he did not expect bankruptcy filings to increase substantially if reform was passed. Instead, lenders faced with the prospect of a court-ordered loan modification would more likely cut a deal with homeowners before the borrower filed for bankruptcy. That's what happened in the 1980s when such bankruptcy reform was enacted for family farms, he said.

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peter.hong@latimes.com