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Cleveland, OH (Aug 6) – Two researchers of the Federal Reserve Bank of Cleveland believe it possible to end the current rising of foreclosures by applying laws from the 1980s.
During that decade, farm foreclosures were steadily getting worse, and in 1986, the establishment of Chapter 12 of the Bankruptcy Code allowed for a provision for courts to “courts to modify the terms of farm mortgages and reduce mortgage balances in cases where property values had declined.”
Critics at that time claimed that such action would open the floodgates for more foreclosures. They were wrong.
The impact of such a move, allowing courts to review cases on a per-case basis, resulted in fewer foreclosures, the ability for more farmers to keep the farm, and saw a steady decline in filings thereafter.
In addition, economists Thomas Fitzpatrick IV and James Thomson cite that the provision “had little impact on the cost and availability of agricultural credit”.
With the current housing foreclosure crisis, perhaps it is time to take a page of out the past and apply the lessons learned in the 1980s. Wall Street’s ability to run business without oversight spurred the economic global collapse of the market. Real estate values have plummeted, with numerous forecasts that the fall has not stopped yet.
In some areas of the country, it is expected that housing values will fall by as much as 20 percent. Even then, it is sheer guesswork as to
“will that be rock bottom”.
“The real estate boom and bust of the past decade have produced the biggest housing finance calamity since the Great Depression. Four years after the onset of the foreclosure crisis, mortgage default and foreclosure rates remain near historic levels. Distress in the housing sector has persisted despite a cavalcade of proposals and programs aimed at stemming the tide of foreclosures,” state Fitzpatrick and Thomson.
What worked so well for the farmers needs close inspection by the regulators of today. Keeping families in their homes, at prices consistent with today’s evaluations, and with reduced mortgages whereas one’s current monthly payment can be the difference between remaining in one’s home or forced to the streets requires further diligence.
The “Stripdowns and Bankruptcy: Lessons from Agricultural Bankruptcy Reform” can be found at www.clevelandfed.org/research/commentary/2010/2010-9.cfm
T. Cahill – Editor/Journalist WorldNewsVine