Late this afternoon, Housing Wire summarized the latest developments in the cramdown-in-bankruptcy provisions that are contained in the "Helping Families Save Their Homes Act." A vote on the Act is expected by the House next Tuesday. According to sources noted by Housing Wire, it appears that two important modifications may be made before the House vote.
Some of those discussions include linking any bankruptcy cramdowns to the Obama administration’s newly-announced mortgage modification plan, as well as potentially limiting cramdown authority (at least initially) to subprime mortgages only. Marketwatch reported Thursday afternoon that a group of 67 centrist House Democrats are pushing for an explicit loan modification-cramdown link, meaning that no mortgage could see its principal balance reduced by a bankruptcy judge unless the borrower had first sought out relief under the terms of the administration’s loan modification guidelines.
[...]Senator Richard Durbin (D-IL), the lead sponsor of the cramdown legislation, suggested to American Banker on Tuesday that Democrats might be willing to limit cramdown authority to just subprime mortgages, in an effort to quell industry unrest and long-standing opposition to the proposal. Subprime loans are not available for modification under the administration’s HASP.
“We’ve talked about that as a possibility,” he told the news service. “I am willing to negotiate. I want this to be a reasonable approach, but we have to include [bankruptcy]. If we don’t include it, we’ll be stuck in the same mess we’re in today.”
Both of those changes would be good news for mortgage lenders. They'd also be good news for most borrowers, of course (you know, those who actually pay back their loans in a timely manner), since broad cramdown power that applies to prime loans may very well increase the cost of those loans. Consumer advocates argue otherwise, but mortgage lenders assure everyone who will lend them an ear that, indeed, those three or four credit-worthy borrowers who will still be able to get a mortgage loan by the time this meltdown turns into a recovery will pay more than they otherwise would if cramdown in bankruptcy is a reality for prime loans. Of course, no one knows for certain, do they?
Another interesting provision of the Act that is discussed by Housing Wire is the "safe harbor" for mortgage loan servicers who engage in the type of "systematic mortgage loan modifications" favored by Sheila Bair. I'll need to see the final version of that provision before I believe it, but I expect that no matter how it's worded, cranky investors and their class action counsel will find that Congress has once again violated private contract rights, and we can look forward to many, many years of "Dancing With The Bear."
Yesterday, we noted how bankruptcy attorneys are rolling in dough. Next up to feed at the trough may be trial lawyers.
Thank you Congress.