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CUNA-urges-change-adoption-of-compromise-in-mortgage-bankruptcy-bill

FOR IMMEDIATE RELEASE
Contact: Patrick Keefe
CUNA Communications, 202-508-6765
pkeefe@cuna.com


CUNA can support a "manager?s amendment" to mortgage bankruptcy legislation being marked up today (Wednesday, Dec. 12), but only if a provision that could adversely affect up to 500 credit unions is changed or removed, the association stated in a letter to the chairman of the House Judiciary Committee.

In the letter to Rep. John Conyers, D-Mich., CUNA pointed out its concerns with the provision in the manager?s amendment to H.R. 3609, the Emergency Home Ownership and Mortgage Equity Protection Act, which includes the broad definition of "non-traditional mortgages" that a bankruptcy judge may reduce in value.

"This would impact almost 500 credit unions that have made ?interest only? loans in good faith and in response to member requests," CUNA wrote. "These are not subprime loans, but rather loans which were rigorously underwritten with full and clear disclosures. Members of credit unions in housing markets such as California found these types of loans were necessary to allow them to purchase what, in many cases, would be classified as ?starter homes.?"

CUNA said it would be in a position to support the manager?s amendment if the definition of "non- traditional loans" were modified to address only negative amortization loans that are not otherwise covered by the definition of "subprime loan."

CUNA also told Chairman Conyers that it appreciated the fact that the manager?s amendment includes provisions that indicate the bill will only apply to mortgages made within a defined time period and bankruptcy courts would only be able to use this temporary authority for seven years. "During our meetings with your staff, we indicated our flexibility with regard to the time period chosen to define loans subject to modification in bankruptcy," CUNA wrote. "Therefore, we can support the January 1, 2000-to-date-of-enactment period specified in the manager?s amendment. These provisions should address concerns about the potential long-term adverse effects of the legislation."

The complete text of CUNA?s letter follows:

- - - - - - - - - - - - - - - - -

December 11, 2007

The Honorable John Conyers
Chairman
Committee on the Judiciary
United States House of Representatives
Washington, DC 20505

Dear Chairman Conyers:

On behalf of the Credit Union National Association (CUNA), I am following up to my letter of November 15, 2007, regarding H.R. 3609, the Emergency Home Ownership and Mortgage Equity Protection Act. CUNA represents nearly 90% of America?s 8,400 credit unions and 90 million credit union members.

We have basic concerns with any legislation that would open the Bankruptcy Code to amendment so soon after major revisions were enacted. However, we appreciate the need to be responsive to the current crisis in the subprime mortgage market. We also appreciate opportunities that we have had over the last several weeks to meet with your staff regarding this legislation.

As our November letter indicated, CUNA would support a temporary amendment to Chapter 13 bankruptcy proceedings to address the current mortgage problem in our nation so long as the amendment contains certain limitations.

One of our limitations was that bankruptcy judges should only be able to modify loans made between January 1, 2003 and the date of enactment. We appreciate you including provisions that clearly indicate that the bill would only apply to mortgages made within a defined time period and bankruptcy courts would only be able to use this temporary authority for seven years. During our meetings with your staff, we indicated our flexibility with regard to the time period chosen to define loans subject to modification in bankruptcy. Therefore, we can support the January 1, 2000-to-date-of-enactment period specified in the manager?s amendment. These provisions should address concerns about the potential long-term adverse effects of the legislation.

As you may recall, the position we conveyed last month did not relate to a specific type of mortgage loan. We stated at that time that if Congress were to decide to amend the bankruptcy law for anyone with any type of mortgage loan secured by the principal residence, we felt that a judge should have discretion to (a) lower the interest rate (we believe this is the important provision to address the burden of resetting interest rates), (b) lengthen the maturity of the loan (which would help to reduce monthly payments), and (c) eliminate pre-payment penalties. If any mortgage loan secured by the principal residence were subject to modification, we would oppose giving the judge the discretion to lower the principal amount of the loan below the value of the property at the time the loan was originally made. Under our proposal, a judge would have the authority to reduce the amount of any loan that has increased above the original home value because of negative amortization and unconscionable fees and penalties, but could not modify the loan below the original home value. This constraint is important so that mortgage lenders would not bear the risk of declining housing prices throughout the country. The manager?s amendment, however, would not apply to all mortgage loans but only to "non- traditional mortgages" and "subprime mortgages," as defined by the bill, that are in or near foreclosure.

CUNA has no problem with bankruptcy judges ? on a temporary basis to deal with the current subprime mortgage loan crisis -- having broad discretion to modify the terms and conditions of subprime loans and loans with terms resulting in negative amortization.

Our only major concern with the manager?s amendments is the inclusion of a broad definition of "non-traditional mortgage." This would impact almost 500 credit unions that have made "interest only" loans in good faith and in response to member requests. These are not subprime loans, but rather loans which were rigorously underwritten with full and clear disclosures. Members of credit unions in housing markets such as California found these types of loans were necessary to allow them to purchase what, in many cases, would be classified as "starter homes."

Therefore, if the definition of "non-traditional mortgage," found on page one of the manager?s amendments is modified to address only negative amortization loans that are not otherwise covered by the definition of "subprime loan," CUNA would be in a position to support the manager?s amendments. However, in the absence of this modification, CUNA is unable to support the amendment due to the potential detrimental impact it would have on a significant number of credit unions.

On behalf of America?s credit unions, we thank you very much for consideration of our views on H.R. 3609. We look forward to continuing to work with you on this issue.

Sincerely,

Daniel A. Mica
President and CEO
Credit Union National Association
Washington, DC

Cc: Ranking Committee Member Spencer Bachus (R-AL)

About CUNA
With its network of affiliated state credit union leagues, Credit Union National Association (CUNA) serves over 90 percent of America's 8,800 credit unions, which are owned by more than 90 million consumer members. Credit unions are not-for-profit cooperatives providing affordable financial services to people from all walks of life. For more information, visit www.cuna.org.


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