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Anaheim Mortgage Loan Modification Attorneys on the Senate's Rejection of Bankruptcy Cramdowns

May 20, 2009

As Tustin loan modification lawyers, we were disappointed to see that the Senate failed to pass a bill that would have done our clients a whole lot of good. We are referring to the Senate's 45-51 rejection of a bill that would have allowed bankruptcy judges to "cram down" the principal on primary-home mortgages in Chapter 13 bankruptcies. The measure passed the House of Representatives in March with backing from President Obama, but that support wasn't enough to keep the bill alive in the Senate. Several Democrats crossed party lines to join Republicans in voting for a bill they said would hurt the economy more than it would help homeowners.

We supported the cramdown bill because we disagree. In fact, we believe that cramdowns could have helped shorten the housing crisis while saving many individuals' homes from foreclosure. In a cramdown, a bankruptcy judge reduces the principal owed on a mortgage loan -- a power judges already have for second homes, cars, boats and other loans. As you might imagine, lenders strongly dislike this forced reduction in their profits. Industry lobbyists argued that the change would have forced lenders to raise interest rates and make it even harder to buy a home -- possibly true, but a price we think is worth paying to cut short the housing crisis.

However, months of evidence have made it clear that lenders also dislike granting meaningful loan modifications to homeowners at risk of default. Frequently, they refuse to even speak with homeowners in financial trouble until those homeowners have already gone into default and taken a hit to their credit. When homeowners do qualify for a loan modification, they frequently get ignored outright or are given the "runaround." And when they manage to negotiate a workout, studies show that only a minority of those workouts actually lower monthly payments -- sending the borrower right back into default.

As Cypress loan modification lawyers working to find a solution to this for our clients, we believed that the possibility of a cramdown would have encouraged lenders to get serious about loan modifications. Lenders don't like the financial loss they take in a loan modification -- but at least that loss would be under their control. If they left the homeowners with no option to save their homes but bankruptcy, they would have faced the possibility of a loss they could not control -- and probably a loss bigger than they would have faced by changing a loan's interest rate or structure. That possibility no longer exists, thanks to banking industry lobbying in the Senate.

Howard Law LLP has an active practice negotiating mortgage loan modifications for homeowners throughout Southern California. Our Yorba Linda loan modification attorneys negotiate on behalf of homeowners who have not been successful reaching loan workouts -- or even getting the lender's attention. We get the lender's attention because we negotiate aggressively -- and because banks know that, as lawyers, we can and will sue them if our clients' rights have been violated. We have successfully negotiated lower interest rates, changes to exotic loan structures and changes in repayment periods for many homeowners.

If you believe you can stay in your home with a reasonable loan modification, but your lender isn't listening, Howard Law can help. For a free, confidential consultation, please contact us as soon as possible through our Web site or call us toll-free at 1-800-872-5925.