Key Lawmaker Moves To Tighten Restrictions On 'Cram-Down' Bill
February 25 2009 - 4:37PM
Dow Jones News
Strapped borrowers would have to provide mortgage servicers some
basic financial information before having their mortgage debts
reduced by a bankruptcy judge, under an amendment to so-called
"cram-down" legislation offered by its chief U.S. House
sponsor.
The amendment could dampen slightly the impact of the
legislation, by ensuring that fewer people qualify to have the
principal balance of their mortgage loan reduced by a judge - known
as a cram down.
Proponents say the bill will act like a stick, spurring mortgage
servicers to modify more loans voluntarily, particularly with the
newly announced government incentives for servicers and borrowers
in place. The financial industry contends that it will raise
mortgage rates for all borrowers. The legislation is set for a
House vote as soon as Thursday.
The amendment, offered by Judiciary Chairman John Conyers,
D-Mich., is likely to be added to the bill at a meeting of the
House Rules Committee Wednesday.
Under the change, borrowers would have to supply servicers a
written statement of current income and expenses at least 15 days
prior to filing for bankruptcy, according to a text of the
amendment posted on the Rules Committee Web site.
Currently, the legislation would only require borrowers to prove
they contacted their mortgage servicer about receiving a voluntary
loan modification before seeking a court-ordered modification. They
would not have to provide any information, in writing or over the
phone.
The Obama administration, which supports legislation to allow
for court-ordered mortgage modifications, proposed that borrowers
prove they cooperated with requests for basic information from
mortgage servicers before filing for bankruptcy.
It also said cram downs should be limited to mortgages no bigger
than those that Fannie Mae (FNM) and Freddie Mac (FRE) buy or
guarantee. No such restrictions are included in the House bill. -By
Jessica Holzer, Dow Jones Newswires; 202-862-9228;
jessica.holzer@dowjones.com