Mortgage Cram-down Bill Back in Discussion Skip to main content

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Mortgage Cram-down Bill Back in Discussion



Of all the special programs and incentives in place to help struggling Americans during what many have now deemed "The Great Recession," perhaps the most critical is the often debated but not often publicly discussed "mortgage cram-down" bill.

First introduced last year but shot down in the Senate in favor of the President's "Making Home Affordable" loan modificationprogram, the cram-down provision would grant bankruptcy judges special authority over the terms of a mortgage during the bankruptcy process. Based on a filer's situation, the judge could lengthen the payment term, reduce the interest rate or decrease the balance. The judge will have the right to alter the mortgage even in the face of lender rejection.

Given the number of bankruptcies happening today, it is easy to understand why the lending industry lobby has become increasingly active this week, as the legislation will be inserted into a larger, more sweeping economic regulatory plan being put to the House this week.

The cram-down bill has been championed by many Democratic party leaders, namely House Financial Services Committee Chairman Barney Frank. This version of the cram-down bill, which is identical to the previous bill offered in March of this year, is being presented as an amendment by House Judiciary Committee Chairman John Conyers.

Currently, federal judges have some say over mortgages that become part of the bankruptcy picture. Investment properties and vacation homes can have their mortgages altered by a judge.

What makes the cram-down legislation additionally interesting is that at one time judges were able to alter mortgage terms. Guess what changed that measure? You guessed it. The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act.

Defeating the re-institution of this court power will be a major win for the lending industry. They presented a letter to House leaders stating that the cram-down bill would increase foreclosures and bankruptcies because homeowners would envision an easier path to escaping a burdensome mortgage and further destabilize the house market.

In essence, mortgage lenders are offering no stronger an argument than credit card companies do when trying to fight any sort of rule that may allow a consumer some sort of leeway in repaying overdue balances. In this economy, it comes across as quite brash for lenders to accuse consumers of trying to avoid responsibility. Truthfully, homeowners are the ones shouldering the load for the lending industry's egregious mis-steps.

In its current state, the cram-down proposal would first require borrowers to attempt a loan modification plan, either through their lender or with the help of a third party. This would enable the judge to make a more qualified decision about the sincerity of the homeowner's efforts and to determine if the plan they sought was qualified under the Making Home Affordable program.

Lenders would be encouraged to voluntarily decrease a borrower's monthly payment to 31 percent of a borrower's paycheck, a standard that before the "boom times" was considered the benchmark for approval. Another component includes the provision that a borrower who is able to have a mortgage "crammed down" would have to reimburse the lender in question for a portion of the expenses incurred from the process if the house is sold before the five-year bankruptcy repayment plan is competed.

Things are different now than they were in March. This time, the cram down bill might fit.

If your lender simply won't work with you, or you're stuck in an indefinite "trial mod", call your Congressman today and insist on judicial modification of mortgages. Go to for your Congressman's contact information. The mortgage banking industry has been pulling the strings for far too long. It's time to take the power back.


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