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Santa Ana Mortgage Loan Modification Lawyers on Delay of Cramdown Legislation in Senate

April 13, 2009

The Senate will not consider legislation in this session that would allow bankruptcy judges to "cram down" mortgage debts, The Hill reported March 16. A spokesman for Senate Majority Leader Harry Reid (D-Nev.) told reporters that senators had already spent too much time on an earlier spending omnibus bill and a wilderness protection bill, and couldn't give the cramdown bill enough time before the Senate adjourns for its spring recess. The newspaper said Senate Democrats were having a tough time gathering support for the measure from their Republican counterparts and may be a tough sell even to centrists, meaning the Democrats wouldn't have the 60-vote majority they need to pass it.

The cramdown bill is controversial because it would make an important change in how judges handle Chapter 13 bankruptcies. In Chapter 13, the most common kind of consumer bankruptcy, consumers make a court-supervised payment plan to get control of their debt. Currently, bankruptcy judges may "cram down" -- change the principal owed on -- any loan in these cases except the mortgage loan on the debtor's primary residence. That includes mortgages on second homes and loans on luxury items such as boats. The proposed legislation would expand that to include primary home loans.

This bill would be great for homeowners who have mortgages they can no longer pay, for whom bankruptcy is a real possibility. Even homeowners who aren't headed for bankruptcy could benefit from the bill, because the possibility of a cramdown could inspire lenders to renegotiate mortgages before a judge does it for them. Currently, many lenders are reluctant to discuss significant changes to loans, in part because so many have been bundled into investments and sold. Orange County mortgage loan modification attorneys like us see this bill as an important part of any serious attempt to control the mortgage crisis. But the financial industry, which stands to lose money when judges reduce debt owed to them, vigorously opposes the measure.

As Anaheim mortgage loan modification lawyers, we prefer a late cramdown bill to no cramdown bill at all. Compromises take time; if the delay means Senators can pass the legislation in a usable form later, that's fine. And judging from the article, Senate Democrats are willing to go to bat on this. Sen. Chuck Schumer of New York has already publicly opposed efforts to "water down" the bill by limiting it to the minority of mortgages considered subprime, which would substantially reduce the number of homeowners it can help. But we also hope the bill passes, for the sake of our consumer bankruptcy and loan modification clients.

Howard Law LLP represents homeowners who need help negotiating changes to the terms of their loans, including changes to their principal. Our Newport Beach loan modification attorneys have helped many clients with subprime or "exotic" loans find an agreement with their lenders that allows them to stay in their homes. We also handle consumer bankruptcies and predatory lending litigation, when those are truly our clients' best options. If you're under water -- or just feel like you're drowning -- and you'd like to learn more about your legal options, you can contact us today for a free, confidential consultation on your case.