Bankruptcy Revamp Fades from Senate Housing Bill
by Kevin Drawbaugh
The Senate on Thursday was moving toward rejecting a Democratic proposal to let judges ease mortgage payment terms for distressed borrowers in bankruptcy court, Senate aides said.
The proposed bankruptcy law change has been the most contentious part of a Senate debate on responding to the housing crisis that appears to be dragging the economy into recession.
Sen. Richard Durbin, an Illinois Democrat, is pushing for the measure, arguing that it would help many troubled mortgage borrowers stay in their homes.
But mortgage bankers and Republicans oppose the bankruptcy change, saying it would intrude on contract law and drive up mortgage interest rates.
The measure would allow judges, in limited cases, to revise the terms of a mortgage on a primary residence for a homeowner in Chapter 13 bankruptcy. This is now prohibited, although judges may revise the terms of loans for vacation homes, farms, ranches or boats in bankruptcy cases.
Durbin's provision would allow mortgage changes only for a primary residence and only for borrowers unable to afford their current mortgage. It would also be limited to mortgages already in place at the time the bill becomes law.
Judges would be restricted on how much they could reduce the interest rate and how long they could extend the life of the loan.
Durbin's proposal was excluded from a compromise bill on the housing market that was hammered out by Senate leaders earlier this week.
Following this bill in the congressional record can get a little tricky. Because it contains tax provisions, which must originate in the House, the Senate's Housing Stimulus Package is being debated in the form of a substitute amendment to a House energy bill, H.R.3221.