Congress wrestles with home mortgage crisis
The House passed a bill giving some homeowner relief. Now it's on to the Senate.
Until this week, “cramdown” for a family’s primary residence -- that is, a provision to allow judges to change the terms of a mortgage -- was a non-starter on Capitol Hill.
Opponents said that forcing lenders to lower principal or interest rates on a family’s No. 1 home would increase interest and shift costs to more responsible borrowers.
This week, against robust opposition from finance industry lobbyists, the House voted 234-191 to give primary homeowners the bankruptcy option to alter the terms of loans that has long existed for second homes, vacation homes, or investment property.
Judges would have a range of options
The bill requires bankruptcy judges to consider a range of options currently unavailable to them. These include: Lowering the interest rate on a troubled mortgage to as low as 2 percent and reducing mortgage payments to no more than 31 percent of a borrower’s income.
If these changes don’t make mortgage payments feasible, a judge can then consider lowering the principal owed on a loan.
The proposed law also requires homeowners to demonstrate that they have used available options to modify loans with lenders on their own, including the Obama administration’s voluntary refinancing program.