WASHINGTON – NAFCU yesterday called on leaders of the Senate Judiciary Committee to reject a bill that would allow bankruptcy court judges for the first time to restructure the terms of mortgages through the Chapter 13 process.
On the eve of hearings into the proposal, NAFCU urged Committee Chairman Pat Leahy and ranking Republican Arlen Specter to scale back a proposal meant for troubled subprime borrowers, lest it draw in mortgages of all kinds.
The bill making its way through the Senate and the House separately is aimed at helping the estimated two million borrowers, most of them of in subprime mortgages, who will have their rates jump in the coming months, pushing many of them into foreclosure. Illinois Sen. Richard Durbin, the chief sponsor of the Senate bill, is chairing today’s hearing on the issue.
NAFCU told the senators opening bankruptcy courts to mortgage restructurings could create havoc in the mortgage market, have the unintended consequence of raising rates for riskier borrowers and increasing uncertainty in the secondary market.
The credit union lobby group is working with lawmakers in the House in hopes of limiting the ability of bankruptcy courts to restructure mortgages only in the case of subprime loans– generally defined as those carrying rates 3% or more higher than the comparable Treasury rate.
