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Delay likely on mortgage bankruptcy legislation
WASHINGTON (1/26/09)--The Obama administration and congressional Democrats have agreed not to include controversial mortgage bankruptcy provisions in an economic stimulus bill currently making its way through Congress, according to press reports. Reuters late Friday reported a meeting between President Barack Obama and Democratic leaders during which they agreed to try to pass bankruptcy reforms as part of a major spending bill to be considered early in the year. The Credit Union National Association (CUNA) mid-week had sent a letter to House committee leaders last week opposing inclusion of mortgage bankruptcy provisions in a stimulus bill. (See News Now, Jan. 23, “CUNA opposes current bankruptcy bills.) CUNA also told the leaders of the House Judiciary Committee that unless changes are made to current legislative language to address mortgage bankruptcy, CUNA would actively oppose such legislation. Among its concerns, CUNA opposes unlimited mortgage loan “cramdown” authority for bankruptcy judges. CUNA urges Congress to limit such power specifically to loans determined to be "subprime," with large re-sets of interest rates; loans with negative amortization; or loans that a court reasonably determines were fraudulent or abusive when made with no reasonable underwriting standards and expectation the borrower could actually repay the loan. CUNA has also voiced concern that a lender that made a mortgage loan using good underwriting standards should not bear the risk of a decline in the house's value. CUNA also warned that imprudent legislative action could encourage financially fit borrowers to stop mortgage payments, triggering foreclosure, simply because they no longer want to make large mortgage payments on houses which have dropped notably in value. The letter noted that CUNA has worked for more than a year with Hill staff to design a bankruptcy amendment that would allow courts to amend only certain mortgage loan agreements secured by the debtor's principal residence. CUNA Vice President of Legislative Affairs Ryan Donovan said of the development, “Clearly we still have our work cut out for us. While the bankruptcy provision will not be a part of the stimulus, the supporters of this legislation will try again on future must-pass bills. “But,” he added, “We now have more time to continue to convey our message to Congress that the mortgage bankruptcy bill in its current form would have an adverse impact on credit unions."
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