On March 5, the House of Representatives passed a bill that permits bankruptcy judges to modify mortgages on primary residences (referred to as a "cramdown" provision) in personal bankruptcy cases. Last week the House delayed a vote on the legislation due to some unexpected opposition from moderate House Democrats. Republicans, as well as those in the financial services industry, generally oppose the measure.
As a concession to get approval of some House members, provisions were added to the bill to narrow the circumstances in which a mortgage can be modified. For example, the new bill requires the judge to consider whether the homeowner has previously received a "qualified loan modification," such as when the lender has offered to modify the loan such that monthly payments on the loan are less than 31% of his monthly income. Under such circumstances, the person filing bankruptcy could not get a mortgage modification through the bankruptcy. This provision seems to dovetail with the Obama mortage modification plan (here), which seeks to encourage lenders to modify more mortgages.
In addition, the amended bill would require judges to first look to extending the length of the loan or decreasing the loan interest rate before actually lowering the principle amount of the loan.
The legislation faces sterner opposition in the Senate. Interestingly, Reuters has interviewed several federal judges and looked at the history of bankruptcy judges use of similar tools in the 1980s. The judges quoted in the article claim that fears of the widespread use of the cramdown provision, and therefore the feared consequences of bankruptcy modification tool, are overblown (here).
Whatever the consequences of the bill if it gets passed by the Senate, it is clear that new mortgage modification legislation and regulation will present lenders and mortgage servicers with new legal challenges.
Additional coverage of the bill is available here, here and here.
This is great news for borrowers and their bankruptcy attorneys and bad news for loan modification scammers! The House down, the Senate to go.
- Paul J. MOlinaro, Esq.
Posted by: PaulMolinaroEsq | March 08, 2009 at 05:51 PM
The most common mortgage modifications are listed below:
lowering the mortgage interest rate
reducing the mortgage principal balance
fixing adjustable interest rates within the mortgage
increasing the loan term throughout the mortgage
forgiveness of payment defaults and fees
or any combination of the above
Check out this public service site: http://mortgagemodificationinfo.org
Posted by: beachdude | April 04, 2009 at 07:13 PM
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Posted by: Colorado Home Mortgage | June 29, 2009 at 04:07 PM
And you can bet that the goverment is going to controll everything
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Posted by: Colorado Home Mortgage | June 29, 2009 at 04:11 PM