CU Lobbyists Fight To Amend Bankruptcy Code

WASHINGTON - Credit union lobbyists are opposing a proposal to amend the bankruptcy code in a way that would allow bankruptcy court judges to restructure terms and values of outstanding mortgages that have been foreclosed on. The bill would allow bankruptcy judges to change some mortgage terms on a borrower's primary residence, potentially changing the interest rate and other features of a loan.

Consumer groups have thrown their full support behind the measure, saying that it could help 600,000 homeowners avoid foreclosure in the next two years.

A vote on the bill in the House Judiciary Committee was postponed after several interest groups, including NAFCU, told the committee the measure, aimed at the subprime mortgage market, could have a broader impact on the mortgage market, in general.

NAFCU told the panel the bill could lead to uncertainty in the market and drive up the costs of mortgage credit, as well.

The bill is one of many aimed at curbing abuses in the subprime mortgage market that threatened to affect the entire market. Another bill would allow homeowners who file for bankruptcy to escape having to pay taxes on the mortgage debt forgiven or renegotiated. No taxes would be owed on the value of any debt forgiven or written off. Currently such debt forgiveness is taxable income.

While the bill is expected to reduce taxes of some strapped homeowners by $650 million, the cost to the government would be offset in part by limiting a tax break available on the sale of second homes.

Other bills would set new standards for servicing loans, licensing lenders, selling loans on the secondary market, and fees and charges for refinancing. (c) 2007 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved. http://www.cujournal.com http://www.sourcemedia.com