San Jose Bankruptcy Attorney explains how the mortgage cram-down legislation on Capitol Hill can benefit those filing for bankruptcy protection.
San Jose Bankruptcy Attorney explains how the mortgage cram-down legislation on Capitol Hill can benefit those filing for bankruptcy protection.
The House of Representatives is moving forward with a mortgage “cram down” bill that has been attached to a larger financial services industry regulation bill. If the bill is signed into law, it will significantly expand the ability of a bankruptcy court judge to alter the length of a mortgage, the interest rate, and the size of the mortgage on their primary residence for those who have filed for Chapter 7, Chapter 11 and Chapter 13 bankruptcy protection.
The mortgage industry has fought these changes, claiming that they will create even more uncertainty in an already uncertain mortgage industry still reeling from the decline of housing value, the 2008 credit crunch and the recession that has cost millions of American’s their jobs and ability to make their mortgage payments.
Bankruptcy judges are currently allowed to modify mortgages on vacation and second homes, but under the 2005 bankruptcy law, they are not allowed to modify the mortgages of primary residences. Borrowers are first required to seek a mortgage modification directly from the lender. Under the “Making Home Affordable Program” lenders are encouraged to reduce the mortgage monthly payment on the borrower to 31 percent of gross income by first reducing the interest rate, lengthening the mortgage term, and then reducing the mortgage amount if necessary. This legislation gives the bankruptcy court the authority to enact these changes during a bankruptcy discharge if the borrower has already pursued a mortgage modification.
Frank Backs Mortgage Cram-Down in Finance Reform Bill, Bloomberg.com, December 8, 2009
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