The U.S. House approved legislation on Thursday that will allow bankruptcy judges to lengthen terms, cut interest rates and reduce the principal owed by bankrupt borrowers.
The so-called "cramdown" bill (the actual name of the bill is the "Helping Families Save Their Home Act") passed by a margin of 234-191. The legislation was modified to become more lender friendly; it requires borrowers to certify that they provided their lenders with financial information and gave them time to provide other alternatives.
Borrowers receiving a cramdown must reimburse their lender for a portion of the loss if they sell the property before they complete a five-year bankruptcy repayment plan.
House Republican Leader John Boehner of Ohio, who opposed the legislation, says it forces those who acted responsibly to “subsidize scam artists, speculators and those who knowingly made bad decisions.”
The bill also permanently increases the Federal Deposit Insurance Corp.’s insurance on bank deposits to $250,000, gives loan servicers legal protection when they modify troubled loans, and retools the Hope for Homeowners lending program, which has so far been a failure.
The Senate is expected to consider a version of the bill as early as next week.
Source: Bloomberg, Dawn Kopecki (03/06/2009)
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