Major Lender, Top Senate Democrats Reach Understanding On Mortgage Cramdown Provisions Allowing Bankruptcy Judges To Modify Troubled Home Loans

The Wall Street Journal reports:

• A Senate bill aimed at giving strapped homeowners more leverage in renegotiating their mortgages cleared a hurdle Thursday when Citigroup Inc. dropped its opposition. The legislation, which is being advanced by top Senate Democrats, would let judges set new repayment terms for mortgage holders in bankruptcy court.

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• The proposal from Sen. Dick Durbin, an Illinois Democrat, to allow so-called mortgage "cramdowns," would apply only to homeowners who have filed for Chapter 13 bankruptcy protection.

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• The Democrats' proposal allows judges to approve plans that make major reductions in home-loan debts, after homeowners certify that they have attempted to contact their lenders about a mortgage reduction before bankruptcy proceedings begin. [...] The cramdown bill would apply to all mortgage loans, including subprime loans, written any time prior to the bill's date of enactment.

• In a concession to lenders, a mortgage debt could be forgiven entirely only if the lender was found committed a major violation of the Truth in Lending Act. Under the bill's original language, the entire mortgage debt could be wiped away based on a violation of any number of state and federal consumer lending laws.

For more, see Plan to Cut Foreclosure Rate Clears Key Hurdle.

See also:

• BusinessWeek: Does Citigroup Stand Alone? Industry Balks at Bankruptcy Bill,
• New York Times: Citi Reaches Deal With Lawmakers on Home Loans.