Here's an update on the "Cram-Down" BK bill:

By Dawn Kopecki
Bloomberg

At least 1 million Americans would be able to use bankruptcy to reduce mortgage payments under legislation approved by the House on Wednesday, part of Democratic efforts to stem a crisis that has erased more than $2.4 trillion in home values.

The so-called cram-down bill would allow federal judges to lengthen terms, cut interest rates and reduce mortgage balances of bankrupt homeowners. It also would permanently increase the Federal Deposit Insurance Corp.’s coverage of bank deposits to $250,000. The measure, which passed the House 234-191, now goes to the Senate.

The bankruptcy provision is opposed by the banking industry and most Republicans, who said it would further destabilize home prices. President Barack Obama and a majority of Democrats backed using bankruptcy as a last resort for homeowners facing default or foreclosure in the worst housing meltdown since the Great Depression.

“There is broad agreement that until we begin to stem the tide of foreclosures, you will not get an end to the current crisis” in the economy, Representative Barney Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, said on the House floor.

Democratic leaders had pulled the measure from consideration last week amid opposition from industry organizations including the American Bankers Association.

Stricter provisions were added at the urging of a group of self-described moderate lawmakers called the New Democrat Coalition, including a requirement that borrowers seek loan modifications from their mortgage companies before they could qualify to amend repayment terms through bankruptcy.

‘Not Perfect’

“This bill’s not perfect, but the process has worked better than anyone expected,” Representative Ellen Tauscher, a California Democrat and chairwoman of the New Democrat Coalition, said on the House floor. “Over the last couple of weeks we’ve worked together to make improvements to make sure bankruptcy is an option of last resort.”

The Senate may vote on a companion bill as early as next week, said Jim Manley, a spokesman for Majority Leader Harry Reid of Nevada.

The U.S. recession cut residential property values by $2.4 trillion, to $19.1 trillion, in 2008, according to estimates released this week by First American CoreLogic, a Santa Ana, California-based seller of mortgage and economic data.

House Republican Leader John Boehner of Ohio said the cram- down legislation was “disingenuously” titled the “Helping Families Save their Homes Act.”

‘Scam Artists’

“The measure forces those who have acted responsibly to subsidize scam artists, speculators and those who knowingly made bad decisions,” Boehner said in an e-mailed statement.

The bill may encourage more Chapter 13 bankruptcy filings, with at least 1 million borrowers likely to benefit from the measure, the Congressional Budget Office estimated in a Feb. 23 report, before revisions to the legislation.

The measure was intended to complement Obama’s homeowner rescue initiatives, including his latest plan to help as many as 9 million Americans avoid foreclosure through government- subsidized loan modifications and refinancing.

Under the House compromise, bankruptcy judges would have the discretion to decide whether banks had offered a “qualified” loan modification that would bar borrowers from cramming down their mortgage in bankruptcy.

A qualified modification must meet standards set out by Obama on March 4 as part of his housing rescue plan. It calls for lenders to cut a borrower’s monthly payment to as little as 31 percent of gross income by first reducing the interest rate on the mortgage, then lengthening repayment terms and reducing the outstanding loan balance if necessary.

Judge’s Power

If a lender doesn’t offer such a plan, a bankruptcy judge would have the power to force a bank to lengthen loan terms, reduce interest rates and cut principal payments on a borrower’s primary residence.

Borrowers taking advantage of provisions in the legislation would have to reimburse mortgage companies for a portion of losses if the property is sold before the debtor completes a five-year bankruptcy repayment plan.

Chapter 13 of the bankruptcy code allows individuals with regular income to pay all or part of their debts without losing their homes to foreclosure.

FDIC Provision

The legislation, which was sponsored by House Judiciary Committee Chairman John Conyers, a Michigan Democrat, would also triple the FDIC’s borrowing authority from the Treasury Department to as much as $100 billion in order to support the insurance fund.

FDIC Chairwoman Sheila Bair said in a letter to the Senate yesterday that the increase in borrowing authority will allow her to reduce insurance assessments levied on community banks, according to Frank.

“A number of members have been concerned about the increased assessment that’s hit community banks from the FDIC in part because of failures to which they did not contribute,” Frank said. “So voting for this bill will be an important step to lowering the assessment on community banks.”

The package also includes a provision that gives mortgage servicing companies legal protection to modify troubled loans, and it reshapes the $300 billion HOPE for Homeowners lending program.

HOPE for Homeowners, which was designed to refinance 400,000 borrowers facing foreclosure, has completed about 25 loans since it began in October, according to testimony last month from the program executive director. The changes to the program will allow the Federal Housing Administration to help 25,000 borrowers over the next 10 years, the CBO said in a separate analysis.

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net.

Scott Chappell and Brian Bean
Real Estate Brokers
http://www.scott-brian.com/
http://www.orangecrestriversidehomes.com/

Labels: Corona, Foreclosure, Home Prices, Inland Empire, Loan Modification, Moreno Valley, Murrieta, Real Estate, Riverside, Short Sales, Temecula