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Congressman Threatens to Revisit Bankruptcy Cramdowns if Loan Modifications Do Not Increase

September 16, 2009

Our Santa Ana loan modification attorneys were disappointed early in this year when Congress failed to pass legislation allowing bankruptcy judges to "cram down," or reduce the principal, on primary-home mortgages. So we were pleased to see that the idea may soon be revived, at least according to a Sept. 10 HousingWire report about House Financial Services Committee chair Barney Frank. The Massachusetts Democrat said Sept. 9 that he was disappointed by the sluggishness of mortgage lenders in responding to the overwhelming demand for loan modifications under the federal Making Home Affordable foreclosure prevention plan. If servicers and lenders don't increase the number of modifications, Frank said he may try again to pass cramdown legislation.

Currently, bankruptcy judges may reduce the principal owed on every other kind of debt but mortgages on a primary home. Mortgages on second homes, cars, boats and other property are all eligible for cramdowns, and indeed, primary-home mortgages were eligible for cramdowns until a legal change in 1978. Proponents believe allowing cramdowns in Chapter 13 (reorganization) bankruptcies would help reduce foreclosures, by giving lenders an incentive to work out a loan modification with homeowners who could afford to pay off their loans, with some adjustments. Because so many banks' efforts to modify loans without that incentive have been decidedly lackluster, Frank said, he may once again introduce cramdown legislation.

"The best lobbyists we have for getting bankruptcy legislation passed are the servicers who are not doing a very good job of modifying mortgages," Frank said at a House subcommittee hearing. "And if they do not improve their performance, then they improve the chances of that legislation."

Political pundits believe Frank would have a tough time getting the bill passed. But as Temecula loan modification attorneys and bankruptcy attorneys, we wish him luck. Despite modest improvements in the month of August, lenders have not shown much willingness to modify loans without a sharp stick to go along with the carrots offered by Making Home Affordable. As we have written here many times before, evidence suggests that loan servicers and lenders believe making loan modifications would cost them money. In many cases, allowing the property to go into foreclosure would cost even more money, especially in the current real estate market -- but these losses are easy to hide in the financial reports that go out to Wall Street. As a result, lenders have chosen to bait and switch homeowners, offering them loan modifications and then ignoring calls or stringing them along for months without granting any actual help.

Howard Law LLP has an active practice helping homeowners negotiate meaningful loan modifications from their lenders and servicers. We routinely take over these cases from homeowners who have tried to handle them on their own, only to have banks lose their paperwork, ignore their calls or incorrectly say they do not qualify for a modification. Our Carson loan modification attorneys even the playing field by knowing our clients' rights and aggressively pushing to make sure those rights are respected. In fact, we start all of our cases by reviewing clients' histories for evidence of predatory lending practices or other legal violations we can use as a bargaining chip. We hope to leave each client with a loan modification that lowers their payments to a realistic, sustainable amount.

If you're fighting to stay out of foreclosure and your lender refuses to help, you should call Howard Law to learn about what we can do for you. To set up a free, confidential consultation, please contact us online or call 1-800-872-5925.