The Obameter

Allow bankruptcy judges to modify terms of a home mortgage

Will repeal provisions of the Chapter 13 law that prohibit bankruptcy judges from modifying the original terms of home mortgages for ordinary families -- regardless of whether the loan was predatory or unfair or is otherwise unaffordable -- "so that ordinary families can also get relief that bankruptcy laws were intended to provide."


House rejects "cramdown" amendment on bankruptcy modifications of home mortgages

The last time we visited this promise, the Senate had rejected a proposal that would allow bankruptcy judges to modify the original terms of home mortgages. This can involve reducing the amount of principal that the person owes on a home, which would have the effect of lowering mortgage payments. Policymakers typically refer to this type of a reduction as a "cramdown."

Democratic Rep. Jim Marshall of Georgia proposed the measure as an amendment to a larger financial reform bill. Marshall said that the rule made more sense than sending a home to foreclosure.

"Here"s how cram down should work," Marshall wrote in a letter to constituents. "Following well established and predictable process, the bankruptcy court should assure that secured creditors get at least the value of their collateral. The debtor must pay this amount to the creditor, with interest, over time. In many cases, the debtor"s cram down obligation to the lender will be more than the lender would have obtained through foreclosure. Not only are foreclosure costs avoided, but since the judge typically picks a market value, not a foreclosure value, for the collateral. The bill as amended not only offers this possibility of gain for the creditor, it also provides that the creditor shares in any increase in the property value if the property is sold within five years."

The House didn't see the appeal of the measure, though, and voted it down 188 to 242, with 71 Democrats voting against the measure.

The Obama administration did very little to lobby for the provision, preferring instead its voluntary mortgage modification plan known as the Home Affordable Modification Program, or Making Home Affordable, said Samuel Gerdano, executive director of the American Bankruptcy Institute. The institute is an association for professionals who work on bankruptcy issues, including attorneys, judges, bankers and accountants.

"This provision ain't happening in this Congress, or likely ever," Gerdano said.

Given that the cramdown provision has been voted down in both the House and the Senate, we rate this Promise Broken.



Clerk of the U.S. House of Representatives, roll call vote on cram-down amendment , Dec. 11, 2009

Rep. Jim Marshall, letter to constituents on cram-down , Dec. 11, 2009

E-mail interview with Samuel Gerdano of the American Bankruptcy Institute

Reuters, U.S. House rejects mortgage "cramdown" measure , Dec. 11, 2009

The Atlantic, The Consumer Financial Protection Agency Lives, Cramdowns Fail , Dec. 11, 2009


Senate rejects new bankruptcy rules for homeowners

President Barack Obama's goal of allowing bankruptcy judges to modify the terms of a home mortgage hit a roadblock when the Senate refused to approve the measure April 30, 2009.

The measure was offered as an amendment to a larger housing bill and failed 45 to 51.

Sen. Richard Durbin, D-Ill., who had sponsored the measure, said he wasn't giving up.

"While I'm disappointed with the outcome of today's vote, I'll continue to bring this issue to the floor until the Senate decides to put the interests of homeowners above the interests of bankers," Durbin said in a statement after the vote. "When I first proposed this legislation two years ago, nearly 2 million homeowners were at risk of losing their homes. Today, that number has skyrocketed to over 8 million homes, with nearly 1 in 6 mortgages in America on the verge of foreclosure. We've given the bankers who got us into this crisis every opportunity to responsibly address this crisis and they have failed. I'll keep working to give homeowners every legal means to save their homes."

Advocates for homeowners in foreclosure also said they hoped to see the bill revived. has launched an ad campaign targeting senators who voted against the bill and who have accepted campaign contributions from the financial industry.

The White House still supports the measure. "The President continues to support balanced bankruptcy reform to permit judicial modifications of mortgages for borrowers who have run out of options and will continue to work with Congress on housing policies that support the Making Home Affordable programs and strengthen the housing market," said White House spokesman Nick Shapiro.

It's too soon to say whether this measure can be revived. The Senate vote was not a positive sign, however. So we rate this promise Stalled.


U.S. Senate, S.Amdt. 1014 to S. 896 (Helping Families Save Their Homes Act of 2009) , April 30, 2009

Sen. Richard Durbin, Statement on mortgage bankruptcy proposal , April 30, 2009 via, "A Choice to Make" ad , May 8, 2009

Interview with Austin King of the ACORN Financial Justice Center, May 12, 2009

Obama seeks bankruptcy changes for home mortgages

President Obama unveiled a plan to address the foreclosure crisis on Feb. 18, 2009, centered on a $75 billion fund to help people refinance subprime or underwater mortgages.

As part of his announcement, Obama said he would continue to seek changes to bankruptcy laws.

"My administration will continue to support reforming our bankruptcy rules so that we allow judges to reduce home mortgages on primary residences to their fair market value — as long as borrowers pay their debts under court-ordered plans," Obama said in a speech in Mesa, Ariz. "I just want everybody to understand, that's the rule for investors who own two, three, and four homes.  So it should be the rule for folks who just own one home, as an alternative to foreclosure."

Such legislation has been introduced in Congress. Rep. Barney Frank, D-Mass., who chairs the House Financial Services Committee, said the House would soon take up the legislation.

We rate this promise In the Works.


The White House Web site, Remarks by the President on the home mortgage crisis , Feb. 18, 2009

The Boston Globe, President steers $275b to housing , Feb. 19, 2009