The Senate is to debate a homeowner rescue bill to help stem the tide of homeowners facing losing their homes in foreclosure. The proposed law contains a controversial provision to allow homeowners to hang on to their homes. The provision -- known as a "cramdown" -- was approved by the House of Representatives, and would allow bankruptcy courts to readjust primary home mortgages in Chapter 13 bankruptcies.

The bill maybe passed as legislatures see it as a way to help stabilize the housing economy by minimizing foreclosures. The bill should encourage lenders and borrowers to participate in voluntary loan modification programs before a possible judicial modification is made in a bankruptcy. The bill is estimated to help at least one million Americans homeowners facing foreclosure.
The bill has its critics, some politicians, the banking industry and some bankruptcy experts who argue it rewards those who made bad decisions and could potentially compromise the historic strength of primary-mortgage contracts, pushing mortgage lenders to reduce lending and increase interest rates.

The critics' concern is that as the bill stands now, it would allow bankruptcy judges to reduce mortgage balances, cut loan interest rates and lengthen payment terms in an effort to keep people in their homes. The bill also would allow mortgage lenders to collect a portion of the profit if a home sold within five years of modification. These proposals would likely make it more expensive for banks to lend money to responsible borrowers, in turn making home loans more expensive and depress the real estate market.

If you would like more details about this possible change or have questions on foreclosure or bankruptcy law, please do not hesitate to contact me at (847) 705-9698 or at thughes@lavellelaw.com.