‘Cramdown’ Plan Hits Wall in Senate

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Thursday, April 30, 2009 at 6:00 am
Flickr: respres

Flickr: respres

A central element of the Democrats’ strategy to stabilize the economy — empowering homeowners to prevent foreclosures through bankruptcy — has hit a wall in the Senate, where fierce opposition from the finance industry is threatening to kill the proposal this week.

Despite major concessions to the banks at the expense of borrowers, Senate leaders have been unable, after weeks of negotiations, to persuade most industry players to endorse the proposal. Unless further genuflections are made to the banks, supporters of the bill appear unlikely to garner support from enough senators to defeat a mostly Republican filibuster — a vote that could occur as early as Thursday.

Illustration by: Matt Mahurin

Illustration by: Matt Mahurin

The saga is just the first in what will likely be a series of hurdles as Democrats attempt to reform the finance industry this year with new protections for borrowers and consumers. Despite the epic fall of Wall Street — not to mention the trillions of dollars put up by Washington to rescue the ailing finance industry — the banks remain a lobbying juggernaut on Capitol Hill. And they’re using their influence to water down a host of consumer-friendly proposals this year — including credit card, mortgage lending and payday loan reforms.

The bankruptcy bill, sponsored by Sen. Richard Durbin (D-Ill.), permits bankruptcy judges to reduce, or “cramdown,” homeowners’ mortgage payments to help borrowers stay in their homes — an option currently available to save vacation homes, yachts and almost any other valuable asset, but not primary homes. The House passed a similar bill in March, but it’s been stalled in the upper chamber while Durbin and other Senate leaders tried for weeks to negotiate the support of the giants of the finance industry, including Bank of America, Wells Fargo, JP Morgan Chase and the Credit Union National Association.

To no avail. Only Citigroup, which endorsed the Senate bill earlier in the year, has signed on in support. And it wasn’t for a lack of concessions from Democrats. Indeed, behind Durbin, Senate leaders diluted the bill so that eligibility applies only to: (1) loans taken out before Jan. 1, 2009; (2) loans that are at least 60 days delinquent; (3) loans with outstanding balances of less than $729,750; and (4) loans for which homeowners were not offered a modification from their servicer — one compatible with either the Obama administration’s new anti-foreclosure plan or the Hope for Homeowners program. Also, the Durbin compromise sunsets the bankruptcy option in 2012.

“It’s a compromise six ways to Sunday to answer everyone’s concerns, and yet you’ve still got what looks like all the Republicans, and a handful of Democrats, who don’t want the bill,” said David Abromowitz, a housing expert at the progressive Center for American Progress. “[The banks] still have enormous political power on Capitol Hill.”

And it’s not only Republicans who are lined up with the banks. Indeed, the Huffington Post reported this week that Democratic Sens. Mary Landrieu (La.), Ben Nelson (Neb.) and Jon Tester (Mont.) plan to vote against the proposal, while a long list of other moderate Democrats remain on the fence.

Defeat of the bill would come at a tough time for homeowners. Foreclosure filings topped 800,000 in the first three months of this year, up 24 percent from 2008, according to RealtyTrac, an online foreclosure database. And the numbers are rising as unemployment jumps as well. Of the first quarter foreclosures, more than 341,000 came in March alone — up 17 percent from the month before.

A Credit Suisse report conducted in December found that the cramdown bill alone would prevent 20 percent of the nation’s foreclosures. A more recent analysis from Moody’s Economy.com found that Durbin’s proposal could prevent 1.7 million foreclosures nationwide.

Yet the finance industry and Republicans have blasted the bankruptcy change as adding another layer of uncertainty to the borrower-lender relationship. If judges are permitted to alter the terms of mortgages to reduce the lenders’ profits, the critics argue, then those lenders will have little choice but to hike rates on other more reliable borrowers to compensate for the additional risk. Industry opponents also argue that the change would encourage homeowners to seek bankruptcy as a early option rather than a last resort — something consumer advocates and Democrats adamantly refute.

“They’re acting like it’s just a walk in the park to go into bankruptcy,” said Linda Sherry, director of national priorities at Consumer Action. “It’s not. It’s a life-altering process. It’s not something that you go out and do just because you want to screw a bank.”

Considering all the bailout money doled out to Wall Street in recent months, Sherry added, it’s high time Congress focused some of that largess on Main Street as well. “Corporate America has gotten enough welfare,” she said. “It’s time to help the people who are in distress.”

Speaking from the Senate floor Tuesday night, Durbin laid out his own theory why the industry opposes cramdown. “They don’t like this change,” he said, “because it means at the end of the day, if they will not sit down with someone facing foreclosure to try to work out and renegotiate the terms of the mortgage — at the end of the day that person may go to bankruptcy court and end up having a judge do it … [T]hat is why many of the banks resist it. They don’t want to sit down and renegotiate the terms of the mortgage.”

A failure of cramdown in the Senate would mark a defeat for the Obama administration, which is supporting the proposal as a complementary element of its foreclosure prevention strategy. Unveiled in February, that plan offers mortgage lenders and servicers a number of financial incentives to modify troubled loans voluntarily. Housing experts say the threat of bankruptcy is a necessary accompaniment to the administration’s voluntary enticements.

“The Obama plan has some carrots,” Abromowitz said, “but they’re pretty small carrots if there’s not a stick behind them.”

The Senate bottleneck has placed some housing advocates in the uncomfortable position of supporting the diluted Durbin Senate compromise for the singular reason that it’s better than having no bankruptcy language at all. Ellen Harnick, senior policy counsel for the Center for Responsible Lending, an advocacy group, said the compromise is “substantially limited,” yet without some threat of bankruptcy “there’s nothing to compel the lender to participate in the Obama modification plan.”

David Berenbaum, executive vice president of the National Community Reinvestment Coalition, relayed a similar message, arguing that the compromise “is certainly watered down, but will help a lot of consumers.” Berenbaum said a particular advantage of the Durbin proposal is a provision that would force lenders, as a condition of precluding bankruptcy, to reduce monthly mortgage payments as low as 25 percent of the homeowner’s income in the case of low- and moderate-income borrowers — a good deal lower than the 31 percent demanded under the Obama plan.

“Each day that we wait, there are thousands of consumers who are facing foreclosure,” Berenbaum said.

The Senate is scheduled to begin debating housing legislation Thursday, with the cramdown provision likely arriving as an amendment to the larger bill. Durbin warned the finance industry Tuesday that a failure to pass cramdown this week wouldn’t dissuade him from trying again soon.

“I might say to the bankers, if you beat me this week — I hope you do not, but if you do — hang on tight. We are coming back at you next week.”

Comments

69 Comments

scared dem
Comment posted April 30, 2009 @ 5:14 am

Why have I not read an artical about that lame-ass press conference.13 Questions from 13 liberals (Thats Fair) Miss America was asked harder Questions than Obama.Nothing on that 320 thousand dollar photo shoot-Nothing on the GDP and Budget that will be off by a trillion dollars and 3% of GDP growth–Nothing on CAP and Trade that will crush poor people with energy costs.This is SICK.Obama is the GOP best friend.When this is done Democrats wil be out of favor more than Bush.If I am a democrat and I see this,just think what the republicans are thinking.


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scared dem
Comment posted April 30, 2009 @ 6:22 am

Sean Penn is having Marrital problems.I exspect unfair treatment towards him from the Left,like they did with Mel Gibson.


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scared dem
Comment posted April 30, 2009 @ 6:28 am

Im going to switch to republican.I believe the Libs have lost it.They care of nothing but retard topics.They do not care about anyone but themselves.They make fun of people that want lower taxes,but lift up George Soros.I think the Democrats are for the rich.


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todd
Comment posted April 30, 2009 @ 7:24 am

i'm a home owener and iam facing forcluser 25 precnt of my gorss incom wil do it for shure, i am pray to god that this bill will past thank you.


CaraLowe
Comment posted April 30, 2009 @ 8:39 am

Many people find that Payday Loans are a huge help. However, it is also very important to consider that if the loans are abused, or not properly handled they can become a huge problem. For consumers who use the loans properly, there is typically a huge help to be had, but it does require careful attention paid to the financial aspect. Using the loans correctly allows many consumers to get some financial help that would otherwise not be available.


beachdude
Comment posted April 30, 2009 @ 8:41 am

The most common mortgage modifications are listed below:

lowering the mortgage interest rate
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Check out this public service site: http://mortgagemodificationinfo.org


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scared dem
Comment posted April 30, 2009 @ 8:54 am

Good luck to you my fellow American


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JBW
Comment posted April 30, 2009 @ 10:18 am

So on the left we have homeowners and various advocacy groups. Each group as a small war chest and a single issue platform they are campaigning for. On the right we have the major financial institutions and their trade organization. The banks are flush with nearly a Trillion dollars in new capital and are seeing their balance sheets generally improve. At stake – 10 to 20 government employees that make about $200,000 a year when you add in some of their perks who are being asked to make a decision that will impact potentially millions of people. For the group on the left they have limited access, poor cross coordination between groups and few if any lobbyists. On the right we have a coordinated group that has the ability to pour several million dollars per government employee into meetings, lobbyists, experts and face time. In addition, they have the added benefit of leverage.

Let’s imagine for a moment a hypothetical discussion between a large bank and our good senators over lunch at a one of Washington DC’s $100/plate restaurants:

Mr. Big Bank – “Senator, you are not considering voting for this cram-down bill are you?”

Senator X – “I can see merit in the bill. Many of my constituents struggling terribly complain to me that while your bank promises to work with them all they experience are stall tactics and misinformation until it is too late to save their home”

Mr. Big Bank – “Senator, you know that we are working hard to respond to these requests but with so many and our reduced staffing we just can’t get to everyone as quickly as they would like”

Senator X – “I hear you, but 4 – 6 months just to respond to a homeowner’s request for assistance, never mind a proposed modification that doesn’t decrease their mortgage payment?”

Mr. Big Bank – “Yes , it is hard for use to restructure a loan and make sure our investors still recover 100% of their investment”

Senator X – “Sir, I believe the point of the loan modification is for everyone, including the bank, to absorb some of this immediate loss so worse losses don’t happen in our communities.”

Mr. Big Bank – “Yes but our investors don’t see it quite that way. You know, if you vote for this bill we may have to substantially increase the loan rates in your district to cover for the losses that we could experience. We would also have to substantially tighten our lending standards which would mean fewer people being able to buy homes.”

Senator X – “What losses? The loans in question are already made, are already non-performing and if you get them back in foreclosure the costs to carry them will be greater than the loss you would suffer by the write down. Plus, with the dollar limitations, loan type limitations and timing limitations you are talking about a small number of loans. Plus, most of those loans are insured so if they stop performing you are paid off through the mortgage insurance. In addition, interest rates will be climbing as the economy stabilizes and the cost of money becomes more expensive. Blaming it on a single piece of legislation would way out of line.”

Mr. Big Bank – “Senator, Senator, we must not be communicating. Can you imagine how it would look if you voted for this legislation and interest rates increases. Think what your opponent in the next election would be able to say. Gee, my opponent agreed to give those irresponsible Californians a break on their MacMansions and now all of you working folks have to pay the price. While we know this the restrictions on the bill will not let this occur but once Pandora ’s Box is opened….. By the way, didn’t we contribute significantly to your campaign last election? If you chose to turn your back on us on this issue we would be forced to assist in funding your opponent the next time around. I am confident that we would be able to round up a fairly substantial series of contributions.”

Senator X – “How is the steak?”

And we wonder why the banks are winning on this issue.


lymit
Comment posted April 30, 2009 @ 11:01 am

Regardless of whether this passes or not, it's going to take months before people can start using it and people who are facing foreclosure and are considering bankruptcy can't afford to wait that long. A loan modification might help you save your home and your credit won't be hit as hard. If you're in that kind of situation, you might want to discuss your case with a loan attorney. I heard The Castle Law Group is supposed to be really good. They have a lot of helpful info on their website too http://www.castlelawgroup.com


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riisacoff
Comment posted April 30, 2009 @ 11:09 am

Having worked the Maryland S&L crisis in the mid 80s for the State of Maryland and with FSLIC, and having lobbied for the Mutual Savings Bank industry just prior to the S&L debacle, I understand the power of the finance/banking industry. The legislation to permit the Bankruptcy Court to modify unfair and deceptive loans, and to cut through the red-tape and Thomas Mann-esque maze of derivatives (mortgage backed securities). The judges have the authority to deal with all other types ofloans and seem to have done that job quite well. The opposition is strictly to protect imaginary profits and avoid the need to recognize losses – a true mark to market.


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werewatching
Comment posted April 30, 2009 @ 4:27 pm

If you work you are of no use to this administration.My brother in law is going through this.Most think the wealth distribution is about the rich,and its not.We will all suffer.


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foggyjones
Comment posted May 1, 2009 @ 6:14 am

I watched those corrupt senators on cspan yesterday. it made me want to puke when i listened to sen. kyle (r-ariz) helped defeat this important piece of legislation. even one democratic senator from rhode island fought for the disgusting mortgage banksters. those who voted against helping homeowners near foreclosure should be listed and never be forgotten. these are traitors. these people are the puppet politicians who support the corrupt mortgage bankers who create ARMs and later help create the securitized mortgage loans that triggered the current economic. these people are playing with life and death with their greedy natures. these are the most evil of the evil ones. sen. kyle is one of them. these people should be indicted for high crimes and treason. we must go after these dogs. anybody who voted against this durbin bill should be hanged from the paraphet of the Captiol building.


werewatching
Comment posted May 1, 2009 @ 7:03 am

You must be talking about Dodd,Frank,Maxine Walters and the slew of Democrats who fought against Fannie May reform,while they were lining their pockets.When I talk to Real Estate Agents who sold 50 homes on average a year until 1998 and they were suddenly selling 150 a year because of government intervention.My one friend called this crisis in 1998.He was 1 year off from the actual crisis ,but he was close.He said in 10 years a housing bubble would crush the economy.We have to keep government out of our lives.Republicans seem mean but they are masters of economics.They are looking out for everyone.The notion that republicans are for business is mis-leading.Most successful business people are well versed in economics,and that is what republicans use for their therory.I never new this either until I decided to make money in stocks on the side.After studying business,finance ,and economics for 3 years I learned the truth.Im republican now and well on my way.


Dave H
Comment posted May 1, 2009 @ 8:44 am

Any bill like this MUST contain a provision that any mortgage loan applicant who made ANY false or misleading statements in applying for the loan are not eligible. And open the way for the banks to conduct discovery on anybody who tries the procedure. Then only people who really deserve it will get help from “cramdown” procedures.


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chris
Comment posted May 1, 2009 @ 11:31 am

the best government $$$ can buy. pathetic country, circling the drain !


fmichael
Comment posted May 1, 2009 @ 11:53 am

What I don't understand is that no one is talking about the fact that homeowners had the right to exercise the right of “cramdown” (bifurcating a debt into a secured and unsecured portion, based upon the value of the property) under Chapter XIII of the old Bankruptcy Act, and four Circuit Courts of Appeal (2nd, 3rd, 9th & 10th) had held that the (unintentionally) muddled language of the 1978 Bankruptcy Code kept that protection in place. Then, the far more conservative Fifth Circuit went to other way and the Supreme Court affirmed, based upon it's reading of the statute. Nobelman v. American Sav. Bank (92-641), 508 U.S. 324 (1993).

So all we are talking about is cleaning up that language of the statue and thereby repeal a 16 year old Supreme Court decision. Not some right that the banks have had since the beginning of time.

fmichael


fmichael
Comment posted May 1, 2009 @ 11:56 am

What I don't understand is that no one is talking about the fact that homeowners had the right to exercise the right of “cramdown” (bifurcating a debt into a secured and unsecured portion, based upon the value of the property) under Chapter XIII of the old Bankruptcy Act, and four Circuit Courts of Appeal (2nd, 3rd, 9th & 10th) had held that the (unintentionally) muddled language of the 1978 Bankruptcy Code kept that protection in place. Then, the far more conservative Fifth Circuit went to other way and the Supreme Court affirmed, based upon it's reading of the statute. Nobelman v. American Sav. Bank (92-641), 508 U.S. 324 (1993).

So all we are talking about is cleaning up that language of the statue and thereby repeal a 16 year old Supreme Court decision. Not some right that the banks have had since the beginning of time.

fmichael


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adjustmyloan
Comment posted May 5, 2009 @ 6:56 am

Amazing that there is actually people listening the the financial lobbyist in a time where millions of American homeowners are losing their homes to foreclosure. The loan modification experts at AdjustMyLoan.com have always been in support of the Cram Down Bill because it would act as a catalyst to force the banks to modify more loans before a homeowner went into bankruptcy! Too bad it didn't pass but at least Obama's “Making Homes Affordable” plan is setting industry standards in the modification world!

We write about the cram down and other loan modification news on our mortgage modification blog (http://blog.adjustmyloan.com).

The http://www.adjustMYLOAN.com team


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Tony Sandberg
Comment posted May 9, 2009 @ 8:49 am

I am an attorney practicing consumer bankruptcy. I am disappointed with the senates faile to pass the cram down legislation. However your comment alludes to some court cases that might be helpful, I would like to discuss this further if you would care to.


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Jeanette Rewalt
Comment posted May 12, 2009 @ 10:47 am

I'm a 74 year old woman, a senior in white tennis shoes on a fixed income who was a victim of predatory lending. My home refinancing loans have all the bad stuff, arms, balloons, high interest rates, prepayment penalties. Some of my loan papers have illegal signatures(not mine) and false statements as well as illegal provisions as stated in my state's (Tenn.) laws. Now Countrywide/B of A will not do any refinancing, modifications, etc. for me and advised me to sell the house. I am doing that and then declaring bankruptcy just to get out of this mess.
It is about time we marched on Washington and held our Congressmen and Women to task for refusing to get us out of this foreclosure mess. We were lied to and are still being lied to while the banks are holding their hands out for OUR MONEY. You know what that is–we are being screwed and are expected to like it.
Further, why do we have to send money to Pakistan so they can improve their country when our Congress doesn't take care of our own people? We need to name names of those who are on the take of the banks!!
Read the article in The Nation May 18,2009 about the mortgage mess. There is no hope other than complete collapse of our finance system. I believe that would be the big equalizer for all.


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johnmayer76
Comment posted May 17, 2009 @ 11:51 pm

It is estimated that Obama's plan could benefit 8 to 9 million homeowners from the new modification procedures. So how do you know you qualify for the Mortgage Modification? Check the website http://obamamortgage2009.blogspot.com/
to see if you qualify. I was also in trouble and I am glad I did check it before I talk to my mortgage company and it helped – John Mayer, California


Jimbo
Comment posted June 16, 2009 @ 2:02 pm

Home Loan Modifications are still possible while we await the Senate ruling on the bankruptcy bill, but how does one go about it? You can try to do it yourself, but if it were my decision, I would think that an Attorney that specializes in bankruptcy or Real Estate Law would probably get you superior results.

http://HomeLoanModification.dyndns.org has a site that refers to such attorneys at no cost to you. So if you are in need of a specialist to help you obtain a successful Home Loan Modification, check out their site.

Also most of the attorneys have a free consultation with NO Upfront Fees!


1carey_wellls2
Comment posted June 23, 2009 @ 7:29 am

I am a loan officer and I will tell you right now that 1 out of 20 applicants are actually able to buy a home or refinance. Lenders are not working with borrowers to modify the loans as they are more interested in the investors they represent.

They refuse to modify unless you go into a repayment plan that is 1.25% of the original payment which makes no sense. If you can't afford the original payment how can you afford 25% more? It is a joke. They say you don't have enough income when you go to do the repayment plan and yet you are requesting to modify to a longer term or lower payment. They are totally ignoring the administrations incentives etc.. they would rather tell you that you need to sell your home and take a huge loss…….and the HVCC rule is a joke since May 1 you can't talk to your appraiser?

What fool passed this law? Can you talk to your mechanic when you get your car fixed? Why shouldn't a loan officer talk to the appraiser. They are insinuating that the crooks out there are everyone and not just the select few that actually have been arrested and prosecuted.

This is a joke..it is killing the industry that they won't allow you to work with your appraisers anymore etc…to help borrowers.


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seogene
Comment posted February 19, 2010 @ 9:27 am

I don't understand what that opposition want. If the empowering homeowners to prevent foreclosures through bankruptcy doesn't suit them – if they want to destabilize economical situation?
People got tired from permanent shocks. I think it would be much better for all of us if our government promotes in the improvement of situation in the country. A lot of foreclosures in the country make people apply for different kind of loans like no telecheck payday loans to restore financial situation.


seogene
Comment posted February 19, 2010 @ 2:27 pm

I don't understand what that opposition want. If the empowering homeowners to prevent foreclosures through bankruptcy doesn't suit them – if they want to destabilize economical situation?
People got tired from permanent shocks. I think it would be much better for all of us if our government promotes in the improvement of situation in the country. A lot of foreclosures in the country make people apply for different kind of loans like no telecheck payday loans to restore financial situation.


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Comment posted May 8, 2010 @ 7:33 am

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RonaldEmmet
Comment posted May 10, 2010 @ 10:00 pm

It is important to keep people into their homes by supporting their mortgages at least until this financial crisis is over. There is nothing worse than losing the home you worked for all your live.
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John Wright
Comment posted May 23, 2010 @ 12:04 pm

WHERE IS OUR LOAN MODIFICATION BANK OF AMERICA!?

If it walks like a piggy, talks like a piggy, by golly it’s a PIGGY!

BofA and it’s CEO Brian Moynihan reminds me of that song by John Lennon and George Harrison titled “Piggies” I invite you to listen to this song on youtube and see if it appropriately fits.

http://www.youtube.com/watch?v=NTmeHM-Hojg&feat…

Have you seen the little piggies
Crawling in the dirt
And for all the little piggies
Life is getting worse
Always having dirt to play around in.

Have you seen the bigger piggies
In their starched white shirts
You will find the bigger piggies
Stirring up the dirt
Always have clean shirts to play around in.

In their ties with all their backing
They don't care what goes on around
In their eyes there's something lacking
What they need's a damn good whacking.

Everywhere there's lots of piggies
Living piggy lives
You can see them out for dinner
With their piggy wives
Clutching forks and knives to eat their bacon.

I AM FIGHTING BACK!

Write a letter to the BofA CEO at: http://www.piggybankblog.com/2010/05/22/blank-07/

Divided we might fallen, but UNITED WE MUST STAND!

Johns-Wright@hotmail.com
Piggybankblog.com


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Each day that we wait, there are thousands of consumers who are facing foreclosure
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Comment posted July 30, 2010 @ 5:12 pm

If it walks like a piggy, talks like a piggy, by golly it’s a PIGGY!


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Wiping out a Second Mortgage | izle, Nedir, Nas?l Yap?l?r, Ders, Ödevi,Sa?l?k
Pingback posted January 25, 2011 @ 10:56 am

[...] that a Bankruptcy Judge would be authorized to wipe out the unsecured portion of a first mortgage. That proposal failed, but we could likely see it pop back up again if the home foreclosure rate continues to [...]


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