Revised Attempt at Bankruptcy Cramdowns on Mortgages
On February 13 and 14, Senate Majority Leader Harry Reid (D-NV) read into the record proposed legislation that would give bankruptcy judges the ability to force changes to the terms of mortgage agreements in bankruptcy proceedings. Senator Reid then placed the bill on the Senate calendar.
This bill, the Foreclosure Prevention Act of 2008 (S. 2636) includes a variety of provisions, some of which the Mortgage Bankers Association supports. However, the bill also contains the bankruptcy cramdown provisions widely opposed. These provisions necessarily are bad for lenders and nearly all consumers. The provisions also encourage financially negligent behavior and bankruptcy filings, at the cost of financially responsible individuals.
The MBA has indicated that cramdowns would further destabilize the economy and harm consumers at a time when the credit markets are experiencing serious challenges.
Boiled down, if a borrower could even get a loan, the loan would have higher interest rates or fees and require larger down payments.
A prior posting on Mortgage Law Blog has explained that the resulting costs of similar provisions would likely amount to an average of $160/mo. increase in mortgage payments nationwide.
Additional postings about similar legislation in another pending bill can be found here.
This portion of the legislation should be opposed as bad for business, bad for consumers and bad for the American economy. It should be strongly opposed.
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