Despite the recession and tough times facing homeowners across the country, a bill designed to help homeowners facing possible foreclosure was shot down in the Senate, reports the L.A. Times. One major feature that would have assisted homeowners facing foreclosure was a "cram down" provision that would apply in bankruptcy proceedings.
That home loan measure would have allowed for bankruptcy judges to reduce the principal owed on a mortgage for a primary residence, which bankruptcy judges are alreadly allowed to do for vacation homes, cars, and boats. In other words, for people who have arguably "extra" stuff besides the roof over their head, a judge can reduce principal on the loans for such "extras" to make them more affordable, but the judge can't do that for the roof over one's head. A key idea behind the cram down legislation was that it could have encouraged lenders to modify loans for borrowers before they were forced into bankruptcy.
For anyone wondering about the reasoning behind treating mortgages on primary residences differently, you are not alone, although opponents of the measure pointed to the fact that its passage would simply result in higher interest rates and mortgage costs for everyone else in the future.
Majority party leaders were not pleased with the 45 votes garnered in support, which fell way short of the 60 necessary to overcome opposition:
"I am sick and tired of being asked to give billions to these banks," said Senate Democratic Whip Dick Durbin (D-Ill.), who threatened to oppose any further industry bailouts. "If they have no sympathy for homeowners facing foreclosure, I don't have any sympathy for them."
On the bright side for consumer advocates, credit card legislation intended to cut down on credit card industry abuses may have a better shot of passing in the Senate when it is considered next week.
- L.A. Times: Mortgage reduction bill fails in Senate
- N.Y. Times: Senate Refuses to Let Judges Fix Mortgages in Bankruptcy
- Mortgage Loan Modification Negotiating Tips (FindLaw's Free Enterprise)
- Bankruptcy Cramdown Mortgage Loan Modification? Key Banks Approve Possible Legislation (FindLaw's Common Law)
- Will a debtor lose his or her home by filing bankruptcy? (provided by Rothschild, Nave & Ausbrooks, PLLC)
- Bankruptcy and Debt Center (FindLaw)
- 10 Tips to Avoid Foreclosure (FindLaw)