WASHINGTON – The House Judiciary Committee narrowly passed a bankruptcy reform bill yesterday which would allow bankruptcy court judges to restructure subprime mortgages under Chapter 13.
The measure, partly crafted by NAFCU, would carve out large exemptions to limit its effect on credit unions.
The main target of the bankruptcy court restructurings are subprime mortgages and so-called non-traditional mortgages. The aim of the bill is to help hundreds of thousands of homeowners whose mortgages are scheduled to reset to significantly higher rates over the next 18 months. The bill passed by the Judiciary Committee would empower the bankruptcy court judges to reset the rates lower, extend the term of the mortgages or "cram down" the outstanding value of the loan to the fair market value of the home.
CUNA balked at the compromise, saying it is worried that too many credit unions have an exposure to interest-only and other non-traditional mortgages, thereby creating potential havoc if these borrowers file to reorganize through the bankruptcy courts. According to CUNA, 108 credit unions have non-traditional mortgages that account for at least 10% of their first mortgage loans.
Representatives from both credit union lobby groups, who are working separately on the bill, said they will continue to work with lawmakers to exempt interest-only loans from the bill. "We’re pleased that the committee passed the bill, as amended, and we’ll continue to work with staff of the committee to limit its impact on interest-only loans," Brad Thaler, senior lobbyist for NAFCU, told The Credit Union Journal yesterday.
