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: The Law of Second Chances

Dawn Kopecki is Reporting that Cram-Down Bill may be BACK!

By R. Grace Rodriguez, Esq.

House Financial Services Committee Chairman Barney Frank threatened to revive the mortgage ?cram- down? bill that stalled in Congress this year, saying lenders aren?t being aggressive enough in modifying troubled home loans.

Cram-downs let federal judges lengthen terms, cut interest rates and reduce mortgage balances of bankrupt homeowners, even if the lender objects. Congress gave the mortgage industry every legislative tool it requested to allow them to more easily modify loans for those facing foreclosure, and the results have been below expectations, Frank said in a statement today.

?People in the servicing industry and in the broader financial industry must understand that if this last effort to produce significant modifications fails, the argument for reviving the bankruptcy option will be extremely strong, and I think there is a substantial chance that the outcome will be different,? Frank, a Massachusetts Democrat, said.

Foreclosures and delinquencies have continued to rise since President Barack Obama began rolling out relief programs in February. Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, assailed the sluggish results at a hearing this month, while industry executives blamed ?confusion and delay? from how the government sets rules for the programs.

?Congress is very irritated with the banks, they don?t think they?re moving fast enough,? said Paul Miller, a bank analyst at FBR Capital Markets in Arlington, Virginia.

Convincing the Senate

Frank managed to get a cram-down bill through the House of Representatives in March, only to see the legislation stall in the Senate as lawmakers there bickered over whether to limit the provisions to certain loans or a specific timeframe.

?Barney Frank can threaten to bring back the cram-down bill all he wants, he will never get it past the Senate in its most recent form,? said Josh Rosner, an analyst with Graham Fisher & Co. in New York.

Frank said he will re-attach the provisions to any new legislation requested by the industry, ?unless we see a significant increase in mortgage modifications and foreclosure- avoidance.?

More than 1.5 million properties received a default or auction notice or were seized by banks in the six months through June, Irvine, California-based RealtyTrac Inc. said July 16, a 15 percent increase from a year earlier. Miller estimated that roughly 22 percent of homes in the U.S. are tied to mortgages that are higher than the market value of the property.

?There?s no easy answer and the political establishment is searching for a simple answer,? Miller said.

Servicer Meetings

Mortgage servicers pledged to step up their modification volume in meetings yesterday with officials from the U.S. Treasury and the Housing and Urban Development Department. The Obama administration, which originally targeted as many as 4 million borrowers for modifications in February, said roughly 200,000 trial modifications are underway.

Servicers at the meetings yesterday complained of the ?piecemeal changes? the Obama administration has made to the program, according to Jay Brinkmann, the chief economist at the Mortgage Bankers Association in Washington.

?There?s an issue of announcing programs prior to when the details are figured out,? Brinkmann said. ?When an announcement like that is made, suddenly the servicers start getting a lot of calls. That clogs up their call centers with questions they can?t answer and leads to a lot of frustration with servicers and consumers.?

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net.

Full post as published by The Law of Second Chances on August 03, 2009 (boomark / email).