CitiBank And Home Builders Support Mortgage Modification
By Kent Anderson, Oregon Bankruptcy Attorney on Jan 8, 2009 in Foreclosure Defense, Mortgage Issues In Bankruptcy
One of the world’s biggest banks has agreed to support changes in the bankruptcy code to give judges the power to modify mortgages on the debtors home. Citigroup, Inc., has signed on with Senator Dick Durbin to S 61, a bill titled the “Helping Families Save Their Homes in Bankruptcy Act of 2009.”
Senator Durbin’s bill permits a bankruptcy judge to reduce the principal and interest rate and even extend the term of a troubled home loan. The Wall Street Journal has reported a deal between the bank and the proponents of this important legislation. Advocates consider it a significant breakthrough to have a major banking institution like CitiBank sign on as a supporter of “cramdown” as a method to modify home mortgages.
The National Association of Home Builders announced its support for the bankruptcy cramdown measure as well. The Home Builders association wants the bill to include a $7,500 tax credit for home buyers and additional federal government assistance to keep mortgage interest rates low.
Cramdown, much as the term suggests, is a procedure whereby a bankruptcy court reduces the amount of secured debt to the value of the asset against which it is secured. As common sense tells us, the value of a secured claim can not practically exceed the value of the collateral.
According to the Wall Street Journal article, loan industry data shows that 10% of homeowners are delinquent on their home loans. If the Durbin bill becomes law homeowners facing foreclosure will be able to find a solution to a defaulted home loan in the bankruptcy court and avoid losing their home. While at least one excellent consumer bankruptcy lawyer finds the Durbin bill lacking in many particulars, it would help many homeowners facing foreclosure.
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