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Senators and Lenders Deep in Negotiations Over Mortgage Cramdown Legislation

April 21, 2009

The financial industry is fighting with Senate Democrats over legislation that would authorize bankruptcy judges to "cram down" home loans, the Washington Post reported April 21. A similar bill passed in the House of Representatives in March, but has stalled in the Senate due in part to fierce resistance from the financial industry. According to the article, some of the nation's largest lenders were in talks with Sen. Dick Durbin (D-Ill.) throughout the recent two-week Congressional recess. President Obama has called the measure an important part of his foreclosure prevention efforts.

In a "cramdown," a bankruptcy judge handling a Chapter 13 individual bankruptcy reduces the principal homeowners owe on their primary home's loan -- not just their interest rate or other terms. Judges have not had that power since the late 1970s, although they may cram down the principal on many other kinds of debt, including mortgages on vacation homes, vehicles and boats. The financial industry strongly opposes this bill, in part because it would almost certainly reduce revenues for mortgage lenders. They also argue that the bill would harm the troubled housing market further and encourage homeowners to file for bankruptcy unnecessarily.

Observers expect the Senate bill to undergo major changes from the House version before it can be passed. Proposed changes mentioned in the article include an expiration date in 2014 and a requirement that homeowners consider a loan modification before a cramdown can be authorized. Democrats have already bundled it with an unrelated measure that would lift the cap on how much credit unions may lend to small businesses, and some are considering linking it to an increase in FDIC buying authority. Supporters hope to vote on the bill by late May, the article said.

As Westminster loan modification attorneys, we strongly support cramdowns because we believe they would encourage lenders to find voluntary loan workouts -- which would avoid the need for bankruptcy in the first place. Lenders say they want to modify loans, but when borrowers call, most of them are ignored or passed from person to unhelpful person. Those who do get modifications don't always end up with lowered mortgage payments; some actually end up paying more than before and wind up right back in default. With the possibility of a cramdown facing them, lenders have a strong incentive to offer loan modifications that could keep homeowners out of foreclosure.

Howard Law LLP has an active mortgage loan modification practice, negotiating with lenders for substantial, meaningful changes to our clients' mortgages. Our Cypress loan modification lawyers use negotiating skills, legal knowledge and any evidence of predatory lending to convince lenders that changing the terms of your loan is in their best interests as well as in yours. We have helped many clients win changes to the structure of their loans, their interest rates, repayment terms and other features. Our goal is always to leave you with a lowered monthly payment that enables you to stay in your home.

If you're behind on your mortgage payments, or will be soon, and you know you need help convincing your lender to listen, you should call Howard Law as soon as possible. Based in Anaheim, our Orange County loan modification attorneys represent people throughout Southern California. To set up a free, confidential consultation, you can contact us through our Web site or call 1-800-872-5925.