Senators explore bankruptcy remedy for foreclosures

With foreclosures expected to climb to up to 12 million by the end of 2012, lawmakers are searching for a way to plug the leak, as the ailing housing sector continues to drag on the economic recovery.

Under Whitehouse’s proposal, mortgages could be modified and made more affordable during bankruptcy proceedings. That option is currently not available to people declaring bankruptcy.

At the hearing Whitehouse had tough words for the administration’s current mortgage modification efforts, headlined by the Home Affordable Modification Program (HAMP).

Originally, the program was built to modify up to three to four million mortgages to make them more affordable, but the program has thus far made permanent fixes to a little over 500,000 mortgages, and is on pace to do somewhere between 700,000 and 800,000 adjustments.

The program “has not succeeded in producing anywhere near enough modifications to stem the tide of foreclosures,” he said.

He added that borrowers trying to navigate the program “must endure a disorganized and often harrowing process” that often leaves them “ignored and abused.”

Three House Republicans have gone so far as introduce legislation that would immediately eliminate the program.

Whitehouse said his bankruptcy proposal “can help homeowners cut through that bureaucratic nightmare.”

Sen. Charles Grassley (R-Iowa) also critiqued the administration’s foreclosure prevention efforts, in particular the lack of clear benchmarks for the program.

“There’s no effective way for us to know whether the $75 billion program has accomplished its intended purpose,” he said. “That’s not accountability…that’s just more taxpayer money going out the window.”

However, he was also cautious about Whitehouse’s bankruptcy proposal, noting that it would lack significant congressional oversight.

Larry Britt, a homeowner who testified to offer his harrowing tale of the fight to modify his mortgage over the last three years, said government assistance was as frustrating as dealing with the private sector.

“Honestly, after a few months with HAMP, I felt like they were reading from the same scripts as the banks,” he said.