‘Cramdown’ Bill Could Move This Week
House Democrats introduced legislation yesterday designed to stem the foreclosure crisis, including a provision empowering bankruptcy judges to alter the terms of primary mortgages — an option homeowners don’t have under current law.
The move comes less than a week after President Barack Obama unveiled his own sweeping plan to tackle the housing market collapse, which also featured support for the bankruptcy, or “cramdown,” provision — a move the finance and mortgage lending industries have fervently opposed.
The Hill points out, however, that there are some nuanced differences between the White House approach to cramdown and that of congressional Democrats:
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.
The House could bring the proposal to the floor as soon as Thursday,