Merkley unveils plan to stem tide of foreclosures, help struggling homeowners

By Vicki Needham - 01/18/11 07:18 PM ET

Sen. Jeff Merkley (D-Ore.) unveiled a plan Tuesday to help struggling homeowners and reduce foreclosures as the housing market continues to find its footing.

"We’re not going to see a true economic recovery until we do something about the broken housing market," Merkley said.

Merkley’s proposal would provide a permanent tax credit for first-time homebuyers and assist families facing foreclosure through a national "short refinance" program that would allow homeowners facing foreclosure to refinance their mortgages based on current interest rates and home values.

The proposal also would:

• Stop the "dual track" that continues foreclosures while loan modifications are evaluated until it is determined that the borrower is not eligible or does not qualify for a loan modification.

• Provide homeowners with a single point of access when they seek a loan modification to improve accountability and ensure greater clarity during the process.

• Establish a third-party review prior to foreclosure and fully enforce existing law.

• Implement the "lifeline" bankruptcy option by providing bankruptcy judges with the power to modify the terms of home loans just as they can with vacation homes and yachts.

Foreclosures are expected to reach a peak this year while prices bottom out as the nation's housing crisis trudges into its fifth year.

Lenders repossessed more than 1 million homes in 2010, up 14 percent from the previous year and the most since 2005, according to a report released by RealtyTrac, a California-based company that tracks the foreclosure market.

Foreclosures could rise by 20 percent this year while prices will likely drop by 5 percent, as the market begins to make a turn toward recovery, the report said.

“We will peak in foreclosures and probably bottom out in pricing, and that’s what we need to do in order to begin the recovery,” Rick Sharga, RealtyTrac’s senior vice president, said last week. "But it’s probably not going to feel good in the process."