One of the key components of the “Helping Families Save Their Homes in Bankruptcy Act of 2009”, currently pending in Congress, is a provision allowing a borrower to extend the repayment period on their mortgage loan for up to 40 years.  While such a provision appears straightforward at first glance, Congress to date has failed to indicate whether a borrower will need to actually complete their Chapter 13 plan and receive a discharge in order to enjoy the benefits of the modified terms for the remainder of the loan.  In other words, what if a borrower seeks Chapter 13 relief, modifies the loan term and then has his case dismissed 6 months later for failing to stay current on plan payments?  Does this cancel the loan modification?

Another unanswered question centers on how many “bites at the apple” a borrower gets to utilize for this loan extension provision.  What if, hypothetically, a borrower with a 30 year fixed rate loan files for Chapter 13 relief, modifies the loan term out to 39 years and completes his plan in 3 years.  Then, the same borrower files a second Chapter 13 case 3 years later and attempts to recast the loan back out to 34 years? 

The answers to these questions will have dramatic effects upon the mortgage lending industry and how it assesses risk going forward for all potential borrowers.  Congress should take these issues to heart in determining the final version of the Bill, lest it create more problems for the public than it seeks to solve.