This is the part I hate the most, where they do the stupid thing anyway but simultaneously are SO WEAK, that the final post-lobby legislation still does the ‘bad thing’ without having a meaningful impact on the goal the politicians claim they are trying to accomplish.
Now there will still be cramdowns, but cramdowns that get paid back years later if the person sells.
Way to make it more opaque and confuse accounting for derivatives purposes team!
So weak. PS This is almost exactly McCains plan but he didnt want judicial cramdown, it was lenders doing this for all borrowers and with a simple one page form to refi picked up at the Post Office, and the ‘temporary principal’ writedown paid off at resale of home.
House Democrats have reached an agreement to narrow the impact of legislation allowing bankruptcy judges to modify troubled mortgages.
Under the current version of the legislation, a bankruptcy judge could cut the principal balance of a homeowner’s mortgage, lower the interest rate and extend the terms.
But after moderate Democrats raised objections last week, delaying a vote, Democratic leaders agreed to insert some restrictions, according to a letter circulated by some moderate Democrats in support of the legislation yesterday.
The compromise version, for example, requires that a homeowner share with the lender any profit from the eventual sale of the home if a bankruptcy judge lowers the principal balance. It also gives preference to lowering a homeowner’s interest rate over cutting the principal balance.
The bill had potentially been slated for possible vote today, but various media reports as well as sources that spoke with HousingWire have suggested that negotiations over the hot-button issue are yet continuing. Read the full legislation.
“To allow time for more discussion, I expect to complete consideration and vote on the bill likely Tuesday of next week,” House majority leader Steny Hoyer (D-MD) told MarketWatch Thursday.
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. See earlier coverage of the Homeowner Affordability and Stability Plan.
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.