While the House passed a bill permitting mortgage cramdowns, the Senate has yet to do so.  However, it hopes to have a compromise in place this week.  Senate Majority Whip Dick Durbin (D-Ill) met with banks, credit unions, and consumer groups to negotiate terms for the Senate bill.

Details are sketchy, but it appears that the terms would further limit the pool of borrowers who may be permitted to reduce the principal balance on mortgages in bankruptcy.  If a lender offers a refinance that reduces the interest rate through the current Obama plan, a borrower may not be permitted to reduce the principal balance in a Chapter 13 plan.  This is obviously an incentive for lenders to offer refinancing to certain borrowers in an attempt to avoid a reduction of the principal balance by a bankruptcy judge.

“At-risk low income borrowers” and those who spend less than 31% of their income on home mortgage payments would be ineligible as well for principal write-downs.  The program would apply only to loans originated before 2009, and would end in 2014, thus limiting bankruptcy cram downs to approximately five years from enactment of any bill.

WWR will continue to keep you informed as this Senate bill takes form.