Cramdown is Back in the News
Earlier this year a bill that would have given bankruptcy judges the authority to modify home mortgages was soundly defeated in the Senate after intensive lobbying by the financial industry. After the defeat Sen. Dick Durbin said of the bank lobbying effort, “Frankly, they own the place.”
Six months later, it is apparent that legislation designed to encourage home loan modification between lender and home owner is impotent. The “Home Affordable Program (HAMP)” and the 2008 HUD “Hope for Homeowners” are voluntary programs that have proven too costly and cumbersome to be effective. The Huffington Post recently characterized the situation this way:
“The Obama administration had high hopes for the law Congress passed intended to encourage mortgage modifications. The law is all carrot, however, and no stick. Cramdown is the stick. If banks think they could get hit in bankruptcy court, they’re more likely to bargain.”
Rising unemployment rates and mounting home foreclosures are putting new pressures on Congress to do something. Some lawmakers are revisiting the idea of bankruptcy cramdown to encourage voluntary modification by lenders, or to enable forced modification by the bankruptcy courts. Passage of this cramdown legislation would give Federal bankruptcy judges the authority to modify bankruptcy debtors’ mortgage contracts by lengthening terms, cutting mortgage rates, or reducing loan balances. The current bankruptcy law allows modification of some contracts, but not home loans.
House Financial Services Committee Chairman Barney Frank (D-Mass.) has announced his intent to push for legislation giving bankruptcy judges the authority to modify home mortgages. The Huffington Post reports that Frank has met with key members of the Senate Banking Committee who are ready to make a serious push at major financial regulatory reform before the year was out.
If you are behind on your mortgage and experiencing difficulty with your lender, consult an experienced bankruptcy attorney for advice. There are many options available to homeowners, and new opportunities are developing, but quick action is still vital to your chances for a positive result. Take control of your situation by learning your rights and legal options.