WASHINGTON (12/6/07)—As Senate Majority Whip Richard Durbin was poised to conduct a hearing on the “looming foreclosure crisis,” the Credit Union National Association (CUNA) urged him to include some limits on a plan to allow mortgage modifications in bankruptcy proceedings. In a letter to Durbin, a Democrat from Illinois, CUNA addressed the Helping Families Save Their Homes in Bankruptcy Act (S.2136), which would eliminate the current exemption for first mortgages from modification during Chapter 13 bankruptcy proceedings. The CUNA letter said credit unions could support the legislation only if it included five limitations. It should:
* Permit bankruptcy judges to lower the principal amount of a loan, no less than the value of the house at the time the mortgage was made; * Permit bankruptcy judges to lower interest rates on mortgages, no less than current market rates for standard mortgage loans; * Permit bankruptcy judges to extend the remaining term of a loan secured by a borrower’s primary residence by up to five years, but to no more than 40 years; * Permit the cancellation of prepayment penalties; and * Extend the authority for bankruptcy judges to modify the terms on loans secured by a borrower’s primary residence only to loans made between January 1, 2003 and the date of enactment of the bill.
“This approach targets the real source of the threat to the many borrowers and the economy over the coming few years: payment shock resulting from loan rate resets,” wrote CUNA President/CEO Dan Mica. “It does this by providing for substantial reductions in payments from what the post-reset levels would otherwise be,” the CUNA executive said and added that this approach not only limits “cramdowns” to amounts resulting from high fees that were financed into the mortgage, negative amortization, and greater than 100% loan-to-value lending; but it also sets a timeframe that targets the solution to the specific problem. On Wednesday afternoon, Durbin presided over a hearing entitled “The Looming Foreclosure Crisis: How to Help Families Save Their Homes.” Scheduled witnesses included: Jacqueline P. Cox. U.S. Bankruptcy Court Judge for the Northern District of Illinois, Thomas Bennett, U.S. Bankruptcy Court Judge for the Northern District of Alabama, and Henry J. Sommer, president, National Association of Consumer Bankruptcy Attorneys.