Bankruptcy

House Committee Approves Mortgage Modification in Bankruptcy Bill

By Richard K. Gustafson

Yesterday, the House Judiciary Committee approved legislation that would allow bankruptcy judges to modify residential mortgages in chapter 13 bankruptcy.  The legislation is named H.R. 200 and it’s next stop is the floor of the House of Representatives.  The leadership in the House hopes to move the legislation quickly either as a free-standing bill or as part of an economic stimulus package.

The version of the bill that was passed by the Committee included exclusions for FHA and VA insured mortgages.  It also provides provisions that would allow lenders to share in any appreciation in value on the property securing their mortgages when the property is eventually sold.  

Also of interest is that Credit Suisse that concluded by these bankruptcy provisions could reduce foreclosures by 20% and help stabilize the housing market, according to Rueters.  Its report indicated that the legislation gives lenders incentive to voluntarily workout loan modifications with their customers. 

There was another report issued by Friedman, Billings & Ramsey Co. that warned of a chilling effect of the bankruptcy legislation that would scare more banks away from the housing lending market.  The report also speculated that the legislation will damage banks that specialize in second liens or home equity lines of credit.  This report fears increased bankruptcy filings which will increase losses across the “sector.”

Full post as published by Consumer Bankruptcy Blog from Legal Helpers on January 29, 2009 (boomark / email).