An amendment disfavoring protection of the debtor’s principal residence was added to bankruptcy laws in 1978. At that time home mortgages 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. As a result, bankruptcy law singled out the home mortgage loan as the major debt for which the bankruptcy court is powerless to provide relief, they said.
“Since that time, the mortgage market has shifted considerably. Subprime lending practices of the last six years, which have relied on property appreciation, and in many cases appraisal fraud, have left many borrowers with mortgages larger than the value of their homes. If the borrowers cannot restructure these debts, then they cannot get back on their feet financially.”
“When one also considers subprime and abusive second mortgages such as those from Household Finance (HFC) and Beneficial HSBC Group, consumer frustration begins to mount,” according to Household - HSBC Watch consumer advocates. “Many of these loans are solicited by live checks,” the group said.
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