WASHINGTON – The House Judiciary Committee fended off objections from credit unions and other lenders and voted yesterday to endorse a bill that will allow troubled homeowners to ask a bankruptcy court amend the terms of their mortgages.
The bill will now go to the floor of the House, where it is expected to pass
The so-called cramdown provision would only apply to mortgage already in existence, so as not to affect interest rates and other terms of new mortgages, noted Rep. John Conyers, the chairman of the Committee, who sponsored the bill.
The Michigan Democrat noted that debtors are already allowed to file for bankruptcy and ask the courts to amend the terms of every other kind of secured loan. "The evidence is quite substantial that these voluntary mechanisms don’t work," said Conyers of the various programs aimed at helping at-risk homeowners.
Opponents of the cramdown provision, including credit unions, hoped to limit the measure to subprime and other non-traditional mortgages, but the Conyers bill does not do that.
The bill endorsed by the committee will also require homeowners to have contacted lenders at least 15 days before filing for (Chapter 13) bankruptcy to illustrate good faith in working out their loan; and will allow the lender to share in any profit the troubled homeowner may earn if they sell their home.
The Senate is preparing to debate a similar bill allowing cramdowns in bankruptcy.
