Subprime Lending Woes Lead to Bankruptcy Proposals

WASHINGTON – Congress is revisiting bankruptcy reform even though it just passed a major overhaul of bankruptcy laws. Leading to Congress’ rekindled interest in an issue many were glad to put behind them is fallout from a larger problem that already has been the subject of separate hearings: the crash of the subprime mortgage market. A House Judiciary subcommittee already has approved a bankruptcy-related bill, and two, similar new bills have been submitted in the Senate. All of the bills create a distinction for mortgages within bankruptcy proceedings and at least one bill, from Sen. Richard Durbin (D-IL), would allow borrowers to rescind a mortgage if the lender violated the Truth in Lending Act or any other state or federal consumer protection law. The Durbin bill also would give bankruptcy court judges the power to reduce the interest rate on home mortgages and extend the maturity of it up to 30 years. Sen. Arlen Spector (R-PA) has introduced a bill that would allow mortgages to be modified only if they were underwritten before Sept. 26. In both cases, analysts are critical of the proposals, arguing it modifies the status of an asset for a financial institution.