Bankruptcy judges won’t get the power to rewrite the terms of mortgages on primary residences anytime soon, after a dozen Democrats joined Republicans in the Senate on Thursday and voted against tacking bankruptcy "cram down" legislation onto another housing bill.
In a 45-51 vote, the Senate rejected an amendment to S 896, the Helping Families Save Their Homes Act. Introduced by Sen. Dick Durbin, D-Ill., the amendment would have allowed cram downs on mortgages when homeowners were already in foreclosure and lenders had not offered a loan modification.
In a 234-191 vote March 5, the House of Representatives signed off on cram-down language in passing the House version of the bill, HR 1106 (see story).
Cram-down supporters say they want to force lenders to step up efforts to help homeowners avoid foreclosure. Bankruptcy judges already have cram-down powers over mortgages on second homes and investment properties.
But opponents in the lending industry continued to lobby against an expansion of cram-down powers. Judicial modifications of mortgages on primary residences would raise the cost of borrowing, they said, by introducing new risks for lenders and investors who fund lending through purchases of investments backed by mortgages.
While loan servicers are on track to engage in 3 million "workouts" with borrowers this year, foreclosure starts hit an annualized rate of 3.5 million in March, according to numbers released by the HOPE NOW loan servicers (see story).
Both HR 1106 and S 896 would provide a legal "safe harbor" for loan servicers who modify loans, and expand the scope of the Federal Housing Administration’s "Hope for Homeowners" guarantee program for refinancings.
House and Senate lawmakers had a similar split on cram downs a year ago. After the House included cram-down language in a foreclosure relief bill, the Senate passed its own version of the bill without such a provision (see story).
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