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Durbin: Mortgage crisis threatening economy

Posted January 10, 2008 10:00 pm

Bruce Rushton

The free market can't solve the mortgage crisis by itself, U.S. Sen. Dick Durbin, D-Ill., said Friday as he called for changing bankruptcy law so that homeowners facing foreclosure can renegotiate mortgages as part of bankruptcy proceedings.

Under current bankruptcy law, debtors can renegotiate mortgages on second homes and investment property, but not on their primary residences.

The federal government needs to do more to prevent an escalating foreclosure rate from dragging down the entire economy, Durbin said at a press conference at First Presbyterian Church in downtown Springfield.

"If we don't do more, this year will be awful for our economy, and we may face a recession," he said.

Durbin's comments came as the Dow Jones Industrial Average tumbled, losing nearly 250 points. The average is down 5 percent since Jan. 1 and has lost nearly 1,600 points since October.

The mortgage crisis is depressing the stock market, Durbin said, and homeowners who aren't losing their homes are suffering because foreclosures depress home values.

"If we don't aggressively address the mortgage crisis in America, it's going to have a negative effect on all of us," he said.

While some people facing foreclosure have made bad investment decisions, Durbin said unscrupulous lenders who sold high-interest mortgages to homeowners who can't afford them are to blame for much of the problem.

"I think there were more victims (of unscrupulous lenders) than there were people who made the wrong (decisions)," he said.

Bruce Rushton can be reached at (217) 788-1542.

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