The Senate last week voted down the Obama administration’s plan to amend the Bankruptcy Code to provide judge’s with the power to order “cram-downs” on principal mortgages. See our earlier feature, Obama Redesigns the Cram-down.
A dozen Democrats joined with the Republicans to defeat that particular provision of a new housing stimulus bill that would have allowed debtors to:
- reduce the principal balance on a mortgage to the current market value, and
- cut interest rates while keeping their homes.
Opponents to the measure are concerned that a record number of bankruptcy filings would drive up interest rates, and the resulting losses would deal a death blow to the already foundering banking industry. Another concern is the impact of giving judges the power to determine property values.
Proponents, including the AARP, feel the cram-down option is the right relief for mortgagors, many of whom shoulder no fault for the foreclosure crisis. Nearly 28% of homeowners in crisis are seniors.
Sen. Durbin, who first introduced the cram-down measure, vows to keep fighting for the amendment to current bankrupcty law.
Cram-downs are still available in certain circumstances for second-home mortgages and auto loans.
See more on Real Estate Financing.
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