WASHINGTON – NAFCU is working with members of the House to exempt prime mortgage loans from pending legislation that would allow bankruptcy court judges to rewrite the terms of home loans brought before them in personal bankruptcies.
A member of the House Judiciary Committee was prepared to offer the language before the bill was pulled from a vote Wednesday night. The bankruptcy bill, part of a number of measures aimed at combating abuses in the subprime mortgage market, would give bankruptcy court judges the power to amend the terms of a mortgage under a Chapter 13.
The bid comes while as many as two million ARM borrowers are expected to have their rates spike over the next 18 months, and the government is projecting as many as one million homes will be foreclosed on this year.
The amendment favored by NAFCU would apply the provision only to subprime loans, defined generally as those that have a rate of 3% or more above the conforming Treasury product. Similar language was included in another bill passed by the Financial Services Committee earlier Wednesday, limiting that bill’s scope to the subprime mortgage market.
A bill that would give bankruptcy judges power over mortgage terms is especially troubling for credit unions, said Brad Thaler, senior lobbyist for NAFCU. He said it would create uncertainty in the credit markets and in the secondary markets, where mortgage backed securities are structured by the terms of the loans. "It opens the door for people to seek any relief from the bankruptcy courts on their mortgages," Thaler told The Credit Union Journal Thursday.
The Senate is debating similar bills on the bankruptcy proposal.
