Much of the banking industry continues to resist mortgage bankruptcy reform, but some observers are arguing that bankers would actually see a benefit if the legislation passed.

Legislation letting bankruptcy judges rewrite mortgage terms would give servicers justification to pursue principal reductions — something investors holding loans have long resisted. It also would address one of the issues prolonging the housing downturn: Half of all borrowers who receive loan modifications end up defaulting again, leading to more of the foreclosed properties that have flooded the market.

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