MORTGAGE MODIFICATION PROPOSAL FOR SOME IN BANKRUPTCY GAINS STEAM - Citigroup Backs "Cram Down" Plan!
IL SENATOR RICHARD DURBIN'S PROPOSAL WOULD APPLY ONLY TO CERTAIN HOMEOWNERS SEEKING CHAPTER 13 BANKRUPTCY PROTECTION!
To this point, judges in cases involving personal bankruptcy had no power to modify the principal balance and mortgage rate of the debtor's primary home mortgage. Most homeowners, unable to repay these loans, even under the umbrella of their bankruptcy, often ended up losing their homes.
Many lenders oppose this proposal to allow "cram downs," or loan modifications to those in bankruptcy. According to a story by James Oliphant of the Chicago Tribune Washington Bureau, from January 9th, many warn of increased risk for mortgage lenders, resulting in less mortgage money available to all prospective home borrowers.
However, the reversal of position by Major U.S. Lender Citigroup increases the chances for wider industry acceptance. From the same Tribune Article, Senator Richard Durban (D-IL) considers this change of position ". . . the breakthrough we've been waiting for. (Citigroup) can make a big difference in convincing their fellow institutions to join us."
Democrats in Congress have long favored this modification to the bankruptcy laws. They feel it will give highly distressed homeowners, who now owe more than their home will fetch on the market today, more leverage in saving their home from bank foreclosure.
According to Moody's Economy.com Chief Economist Mark Zandi, as quoted in The Wall Street Journal, and an article by Elizabeth Williamson and Ruth Simon from their January 9th edition, nearly 10 Million homeowners across the U.S. are having trouble making their house payments. Zandi estimates the proposed changes could help as many as 800,000 borrowers in trouble keep their homes rather than losing them to foreclosure.
Durbin's legislation would allow judges in bankruptcy cases to modify existing high-rate adjustable loans as to interest rate and extend payment terms. This would make it more likely that bankrupt home borrowers can actually pay their delinquent house payments during a typical three-to-five year Chapter 13 Repayment Period.
There are two catches, however, apparently necessary to garner Citigroup Support. First, the new law would apply to only those who file for a Chapter 13 Bankruptcy, which requires an eventual repayment cycle. The mortgage debt is never completely "wiped out" under this type of BK.
Also, legislation would apply only to current borrowers in distress. Those who purchase AFTER the bill becomes law would not be eligible.
See both sources cited for details.
DEAN MOSS & DEAN'S TEAM CHICAGO
