Meanwhile in Ohio, which has one of the nation's highest foreclosure rates, the attorney general has asked state judges to dismiss or delay some foreclosure actions. The proposed dismissals are meant to encourage mortgage companies to renegotiate terms of the loans, to keep borrowers in their homes. At the end of the third quarter, 3.7% of home loans in Ohio were in foreclosure, up from 3.6% in the second quarter, according to a Mortgage Bankers Association survey. The number of new foreclosures in Ohio rose by about 20% in the same period.
While the deal in the House indicates progress, Rep. Brad Miller (D. N.C.), an architect of the bill, said the full House of Representatives won't vote on it until next year. So, Congress will probably recess this year without passing one major bill targeting the housing crisis.
Also in the works, but gummed up in the Senate, is a bill that would let the Housing and Urban Development Department's Federal Housing Administration help more struggling borrowers, and another bill that would change the ways mortgages are sold and securitized.
Those moves by Congress would be in addition to a much broader mortgage plan recently announced by the industry and the Treasury Department, which would help some struggling homeowners either refinance or win a temporary freeze on their low, introductory interest rates.
The bankruptcy issue before the House, which was opposed by the mortgage and financial-services industries, has been perhaps the most sensitive public policy proposal to date aimed at helping borrowers struggling with their mortgages. Republicans and the banking industry delayed the matter, arguing that it could raise interest rates for all homeowners and rattle the market for securities backed by these loans.
Late last week, Democrats agreed to make significant changes to the bill and won the support of Rep. Steve Chabot (R. Ohio). The panel plans to vote today, then the measure would be sent to the House floor. The chances of the bill's passing in the Senate are uncertain.
Under the agreement, this bankruptcy-law change would expire seven years after the bill is enacted, and would give bankruptcy judges only the authority to alter the terms of subprime and nontraditional mortgage products originated between 2000 and 2007. Earlier proposals didn't specify which mortgages could be altered.
In Ohio, dismissal motions have been filed by Attorney General Marc Dann in 31 foreclosure cases in five counties since last month, and more will be filed soon, a spokeswoman for Mr. Dann said. The motions argue that the plaintiffs, often banks that act as trustees for investors of securities backed by mortgages in the cases, don't actually hold the promissory note and mortgage, and so don't have a right to foreclose. The situation occurs in part because mortgage documents and the contracts between borrowers and lenders may change hands multiple times and may not be assigned to the plaintiffs at the time the suits are filed.
Whether those circumstances should lead to dismissal of cases is being debated across the country. In Ohio, judges haven't yet ruled on Mr. Dann's motions.
Mr. Dann's move follows a series of court rulings in Ohio this year in which several federal judges dismissed dozens of suits on similar grounds. In October, federal Judge Christopher A. Boyko in Cleveland dismissed 14 foreclosure suits filed by Deutsche Bank National Trust Co., writing that "the institutions seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance." Deutsche Bank declined to comment on the ruling.
State attorneys general have been responding in different ways to the wave of foreclosure actions that has come in the wake of rising defaults on subprime mortgages. Earlier this year, Mr. Dann sued several mortgage lenders and brokers, alleging that they violated state consumer-protection laws by pressuring appraisers to inflate home values. He asked that the companies pay $25,000 in civil penalties in each case. So far, the state has gotten a default judgment against one broker and has settled with two brokers, according to Mr. Dann's spokeswoman.
In New York, Attorney General Andrew Cuomo filed a lawsuit in November against a home-appraisal firm, alleging it had defrauded consumers by allowing its biggest customer, a national bank, to exert pressure for higher property valuations to help ensure that loans went through. Mr. Cuomo has subpoenaed participants in the secondary market for mortgage debt, including investment banks that sell mortgage-backed securities.
Lately, some Ohio state judges have ruled against banks for filing suits without showing proof that they hold the mortgage. Mr. Dann's motions urge judges to review foreclosure filings in their courts and, as warranted, dismiss actions on the same grounds. Short of that, he encourages judges to order mediation so that "parties can negotiate a workout agreement, thereby resolving their dispute without resort to foreclosure.
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