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House Democrats Offer Mortgage "Cramdown" Bill

Monday 23 February 2009

by: Silla Brush  |  The Hill

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Bill Bibbes, seated in the kitchen of his south Jackson, Mississippi, home. Democrats in the house introduced legislation to allow bankruptcy judges to modify mortgages. (Photo: Rogelio V. Solis / AP)

    House Democrats unveiled a wide-ranging bill on Monday evening to prop up the housing market and most contentiously, empower bankruptcy judges to modify mortgages.

    The bill includes a "cramdown" provision that allows judges to write down the principal and interest payments for a homeower's primary residence, something strongly opposed by the financial services industry and mortgage lenders.

    House Democratic leaders may bring the bill to the floor for a vote on Thursday. The bill is sponsored by House Judiciary Committee chairman John Conyers (D-Mich.) and House Financial Services Committee chairman Barney Frank (D-Mass.).

    When he unveiled his plan last week to help the housing sector, President Obama voiced support for allowing bankruptcy judges to alter mortgages, but emphasized that courts should be seen as a last resort. Loan modifications should be worked through between homeowners and the owner of the mortgage before homeowners turn to judges, he said.

    The House bill says that a homeowner must have "attempted" to contact the lender or servicer before heading to a bankruptcy proceeding, but it does not require that the lender has received all the information. The bill also does not appear to limit the value of a mortgage that a judge can write down, which the financial services industry says opens the process up to far too many homeowners.

    While most of the financial services industry opposes the cramdown provision, Citigroup earlier this year came out in favor of a form of the legislation in a negotiation with Sens. Dick Durbin (D-Illinois) and Chuck Schumer (D-N.Y.).

    The financial industry praised Obama's comments that appeared to suggest that cramdown provisions would be more narrowly targeted, and they were steadfastly opposed to the House bill.

    The bill would also attempt to revamp the Hope for Homeowners program that was intended to help reduce some 400,000 foreclosures. Only 517 applications were filed with the Housing and Urban Development Department by early last week. The bill would also create a safe harbor against investor lawsuits for lending companies that complete loan modifications.

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Some of these lenders should

 Wed, 02/25/2009 - 18:14 — Americonned (not verified)
Some of these lenders should shut they're mouths and be grateful they're not in prison for usury. I would like to see some of the lenders divested of they're holdings. They new what they were up to with the sliding scale loans. That was one bad idea. These predatory loans should be annulled and offered to real lenders. They put the world in the poor house and should pay the price. A vigorous sweep might even pay off the national debt with potential fines and holdings auctions. Kid gloves are for kids.

What, since when do we trust

 Wed, 02/25/2009 - 18:28 — Anonymous (not verified)
What, since when do we trust the Bankers and not trust the local judges? Who is really more accountable to the general public, those guys wanting to rob and foreclose or those judges who will actually take a moment or two to look over the Big Picture and make a decision? --- Bankers since the early days of this country have earned a reputation for taking an US versus THEM position on so many thing. Certainly not ever one of them, but certainly enough of them. Well, enough of that. People are losing their houses. Are the bankers losing any sleep over that?

Adjusting interest rates is

 Wed, 02/25/2009 - 20:40 — Mike in NYC (not verified)
Adjusting interest rates is one thing, but lowering outstanding principal evaporates a bank's assets. That might sound great to ideologues who blame everything on "usury" and "predatory lending" -- they screwed us, so let's screw them back -- but many banks are not the branch offices of faceless monoliths, but local banks with roots and histories in communities. Real people, with families and mortgages of their own, staff these institutions. They’re not all overpaid executives. Really, if someone can't look at the price tag of a home and quickly decide if they can afford it or not, then they probably don't have the intelligence to manage their day-to-day financial affairs, let alone handle a mortgage.

Mike 20/40. illustrates the

 Thu, 02/26/2009 - 21:06 — Anonymous (not verified)
Mike 20/40. illustrates the danger of putting everyone in the same boat. True, many people have big eyes. But so did the bankers who should know better than the purchaser. That's why we go to them, for council in our financial affairs. Not to be taken advantage of. Mike ignores the effects of layoffs. My guess is that he is under the illusion of personal job security. 'No, we can't'. Forget and move on. We have to ensure that history is not repeated. Once someone leads me over the cliff, he's fired!