Cramdown Loan Modification Legislation Approved

Posted on January 9, 2009. Filed under: bankruptcy, Foreclosure Defense, Legislation, Loan Modification, Mortgage Law | Tags: , , , , , |

Banks and the building industry are purportedly working together with Senators on “cramdown” legislation affecting bankruptcy judges’ powers regarding mortgage loan modifications. The rule change would give bankruptcy judges the power to change repayment terms for certain homeowners who declare bankruptcy.

The Wall Street Journal reports that lenders including Citigroup are cooperating with key Senators on “cramdown” legislation to increase bankruptcy judges’ power to modify the payment terms (loan modification) on primary home mortgages. As of last October, the WSJ reported that almost one in six homes was worth less than the value of its mortgage. “Cramdown” (or “strip down”) refers to taking the value of a home’s mortgage and cramming it down to the current value of the home.

Illinois Senator Dick Durbin introduced legislation including court ordered workouts of individual mortgages on Tuesday’s first day of the new Congress. Endorsement of cramdown provisions by lending institutions could bode well for passage either separately, or as part of the anticipated Obama stimulus package.

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