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“Cram-Down” Provision May Be Dropped from House-Passed Banking Bill

Published on April 6, 2009 in Bankruptcy Act 2009, Chapter 13 and Real Estate. 0 Comments

Congressional Leaders may drop the “Cram-Down” provision if it threatens the passage of the overall banking bill.  Recently, at a Christian Science Monitor Breakfast, Senate Majority Leader Harry Reid stated, “If we can’t get the votes for that, and I am hopeful we can – I am semiconfident we can – then what I’ll do is take that off [the bill] and do the other banking provisions”.  Currently the legislation is facing stiff opposition in the Senate from Republicans and moderate Democrats who are pushing for a watered down version of the cram-down provision.  Senate Republicans and moderate Democrats led by Senator Evan Bayh and Senator Arlen Specter are pushing a version of the cram-down provision that applies only to homeowners with subprime loans.  There reasoning is that the subprime problem has done enough damage to the banking industry.

The cram-down provision in Obama’s plan is designed to encourage lenders to modify at-risk mortgages so that they are more affordable to struggling homeowers.  The plan gives lenders who voluntarily modify loans a cash bonus of $1,000 for each loan modified.  For now lenders will have to hold their breath a little longer as the Senate futher debates the specifics of the cram-down provision.

“Cramdown” Bill Put On Hold To Avoid Possible Filibuster

Published on March 19, 2009 in Bankruptcy Act 2009, Chapter 13 and Real Estate. 0 Comments

Sen. Evan Bayh (D-Ind.) stated that currently there is not enough support to prevent a filibuster, or “talking out a bill”, of the proposed legislation, which would allow mortgages to be restructured through a Chapter 13 filing.  Currently, the legislation proposes to: 1) modify the principal of a mortgage to the fair market value of the property; 2) adjust the interest rate of the mortgage; and 3) extend the terms of the mortgage loan out to 40 years. 

Senate Majority Leader Harry Reid is working with Judiciary ranking member Arlen Specter to narrow the eligibility for borrowers who could take advantage of the “cramdown” provisions.  The debate in Congress currently revolves around whether an eligible homeowner offered a “qualified” loan could still take advantage of a “cramdown” if they did not take the offer for a “qualified” loan workout.  The legislation, which passed the House, did not mandate that the borrower had to take such an offer if eligible, in lieu of a “cramdown”.  Senate moderates are pushing for a mandatory requirement that borrowers try to modify their mortgage with lenders before seeking help in bankruptcy court or they will not be eligible for “cramdown”.

To overcome a filibuster, the Senate must have 60 votes to invoke cloture and end debate on the Bill or it will be defeated.  For now, debate on the Bill will be put on hold until after the Senate’s April recess ends on April 19th, 2009.