Thursday, January 22, 2009

"Top Priority" for Bankruptcy Code Change for Mortgage Modification, Congressional Hearings Held

The media reported today that Speaker of the House, Nancy Pelosi (D-Calif.) stated today that the Bankruptcy Code change to allow judges to modify mortgages on principal residences of chapter 13 debtors is a top priority and that Congress may move quickly to enact the amendments. House Majority Leader Steny Hoyer (D-Md.) stated that he belives that there is sufficient support in both houses of Congress to pass the bill as a stand-alone bill.

The House Judiciary Committee today held hearings on the amendment measures that were introduced by John Conyers (D-Mich.) as H.R. 200, the “Helping Families Save Their Homes in Bankruptcy Act of 2009" as well as H.R. 225, the "Emergency Homeownership and Equity Protection Act," introduced by Rep. Brad Miller (D-N.C.).

Professor Adam J. Levitin of the Georgetown University Law Center testified in favor of the bills. He stated that the bills would "significantly help ease the nationwide foreclosure crisis and stabilize financial markets." He made four major points in his testimony: 1. that voluntary, private-market attempts to manage the foreclosure crisis have failed, 2. that bankruptcy reorganization is the only method that can fully address the issues inherent due to mortgage securitization, including fragmentation of mortgage ownership, 3. that the modification of mortgages in bankruptcy will not result in higher interest rates or effect the availability of credit, and 4. that bankruptcy modification does not create issues of "moral hazard" or windfall. He pointed out that foreclosure is not a desirable outcome for borrowers, lenders or municipalities. He referred to a study that found that a single foreclosure can cost the city of Chicago over $30,000.00.
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