Mortgage âCramdownâ Measure Defeated in Senate
Tuesday, May 5th, 2009
With a vote of 45 to 51, Senate Republicans defeated a measure that would have allowed bankruptcy judges to modify mortgage terms for bankruptcy filers, dealing a blow to the Obama administrationâs foreclosure rescue program, which has yet to make a noticeable dent in the number of families losing their homes, The Washington Post reports (âSenate Defeats Measure to Allow Bankruptcy Judges to Change Mortgage Terms,â April 30, 2009).
The defeated measure would have allowed bankruptcy court judges to modify the mortgage terms of a bankruptcy filerâs primary residence with the possibility of having the filerâs interest rate or principal balance lowered in a process known as a âcramdown.â Currently bankruptcy judges can only modify mortgages for second homes or investment properties.
While opponents of the bill, including the nationâs biggest banks and Republicans in the Senate, argue that the bankruptcy modification provision would increase lending costs for future homebuyers and, therefore, destabilize the housing market even further, supporters of the cramdown measure contend that it would help more than 1.7 million struggling homeowners to stay in their homes.
In spite of the defeat, the measureâs sponsor, Senator Dick Durbin, DâIll., is determined to keep pushing for cramdown legislation that he says is needed. In the time since heâs been campaigning for bankruptcy code reform, Durbin says home foreclosures have jumped from 2 million to 8 million.
âIâll be back. Iâm not going to quit on this,â Durbin said. âAt some point, the Senators in this chamber will decide the bankers shouldnât write the agenda for the United States Senate.â
The measure is part of a larger Senate housing bill that includes a provision to revamp the Hope for Homeowners program and a proposal to temporarily increase the deposits guaranteed by the Federal Deposit Insurance Corporation, and which still has to be reconciled with the Houseâs version of the bill. House Democrats will most likely remove the cramdown measure from the bill to help get it passed by both houses of Congress.
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