Bankruptcy Mortgage Modification Bill Expected on House Floor Next Week

Democratic leaders are reported to be preparing to wrap the amended version of H.R. 200 (the "Helping Families Save their Homes in Bankruptcy Act of 2009") into the omnibus spending package set to come to the House floor next week.The House Judiciary Committee approved the amended bill on Tuesday.

House Judiciary Committee Approves Chapter 13 Bankruptcy Mortgage Modification Bill

It was announced late today that the House Judiciary Committee approved an amended version of H.R. 200 (the "Helping Families Save their Homes in Bankruptcy Act of 2009") which would permit bankruptcy courts to modify mortgages on principal residences in Chapter 13 bankruptcy. The bill will now move to the full House where leaders hope to move the bill quickly.

Amendments to the bill were adopted to exempt FHA and VA loans from modification. A provision was also added to provide for a measure (decreasing with each year) of shared subsequent increase in value with modified mortgage lenders if the home is sold before the Chapter 13 case is discharged.

Judiciary Committee set to Markup H.R. 200 Bankruptcy Mortgage Modification Bill

The House Judiciary Committee reports that it will markup H.R. 200 the"Helping Families Save their Homes in Bankruptcy Act of 2009" on Tuesday, January 27, 2009. H.R. 200 was introduced on January 6, 2009 and would amend federal bankruptcy law to allow modification of mortgages on a person's principal residence. Presently, modification of a mortgage on a person's principal residence is only allowed for a junior mortgage that is wholly unsecured (ie. "underwater"). In a markup session, committee members may make opening statements and offer amendments to sections of the proposed bill. H.R.225 and S.61 are related bills.

"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.

Congressman Miller's Bill H.R. 225 Introduced

As previously anticipated, Congressman Brad Miller introduced H.R. 225 into Congress on January 7, 2009 together with 34 cosponsors. The bill is identical to Senator Durbin's bankruptcy mortgage modification bill S.60 except certain minor parts. The bill was referred to the House Committe on the Judiciary.

Citigroup On Board with Bankruptcy Mortgage Modification

In a news conference this afternoon,Senate Democratic leaders announced that Citigroup has endorsed the recently introduced bankruptcy bills S.61 and HR 200 which will allow Bankruptcy Judges to modify ("cramdown") mortgages on principal residences. This proposal will generally allow troubled homeowners with mortgage debt in excess of the home's value to be able to reduce the amount owed, the interest rates, and the mortgage's term. The bill will apply to all mortgages made prior to the enactment of the bill. It is anticipated that Citigroup's endorsement of the proposal will make it easier to bring other larger lenders on board quickly.

The media also reports that the National Association of Home Builders has also reversed its previous opposition to mortgage cramdown.

Bankruptcy Mortgage Modification Plan Introduced in New Congress

Today on the first day of the new 111th Congress, Senator Richard Durbin (D, IL) introduced S. 61, the "Helping Families Save Their Homes in Bankruptcy Act." Representative John Conyers (D, MI), chairman of the House Judiciary Committee, introduced identical legislation in the House in H.200. The bills propose various changes to the Bankruptcy Code to allow certain modifications of mortgages on principal residences, including as to reduction in amount amount, modification in interest rates, and extension of length of payment. It is reported that Representative Brad Miller (D, NC) will soon introduce another bill with a similar plan for mortgage modification.

It is reported that plans for moving the legislation are somewhat unclear although there are efforts being made to include the legislation in the economic recovery plan now being drafted by Congress and or in other broader packages expected to move early in the new Congress such as "TARP 2". The plan could become law quickly if it is included in an economic stimulus package being drafted now by congressional leaders or it could take many months to work its way through Congress.

It is also noted that today 23 state attorneys general sent letters to Congress endorsing mortgage modification in bankruptcy.

Primary Residence "Cram Down" Legislation Reported to be Introduced in Congress Today

The media reports that mortgage "cram down" legislation designed to help Americans save their homes from foreclosure by allowing bankruptcy judges to modify some mortgage debt will be introduced by Congressional Democrats today. Supporters are confident that the legislation will pass into law this time as the housing crisis has significantly worsened. Senator Richard Durbin of Illinois has promised to push for the new bankruptcy provisions to be included in an economic stimulus package being drafted by Congressional Democrats.