Mortgage Industry Balks At Proposed Changes In Bankruptcy Law To Help Homeowners Facing Foreclosure

The Wall Street Journal reports:

• Some major U.S. banks are concerned an effort by Democrats to help mortgage borrowers avoid foreclosure could lead lawmakers to scale back tough bankruptcy overhauls adopted two years ago, when Republicans were in power. To help address defaults and foreclosures on subprime mortgages, lawmakers are pushing a bill that would allow bankruptcy judges to rework the terms and conditions of loans. Consumer groups have gotten behind the effort, and caught the ear of some Republicans from districts seeing mortgage problems.

[...]

• The new bill, sponsored by Reps. Brad Miller (D., N.C.) and Linda Sanchez (D., Calif.), would allow bankruptcy judges to change the interest rate and length of a mortgage for borrowers in bankruptcy, in an effort to avoid foreclosure. It could also potentially allow judges to change the balance of a loan. For example, if a borrower near foreclosure owed $125,000 on a house now worth $100,000, the judge could mark $25,000 as "unsecured debt," which would make it much harder for the bank to recover that portion.

[...]

• [House Judiciary Committee Chairman John] Conyers said his panel could vote on the bill as early as this week. That could set the stage for action this month by the full House, where its scope possibly could be broadened. Sens. Richard Durbin (D., Ill.) and Arlen Specter (R., Pa.) are working on a related bill in the Senate. The Senate Judiciary Committee may take it up early next year, according to a panel aide.

From: Banks Fear Democrat Bids To Aid Mortgage Borrowers (may require subscription; if no subscription, try here or try here).