The House of Representatives received a standing ovation from the real estate finance community for its approval of a new bankruptcy bill that makes it tougher to relinquish debt -- both secured and unsecured. But the legislation appears to benefit commercial and unsecured creditors more than residential lenders.
The Mortgage Banker's Association gave its nod of approval to the House in a recent announcement regarding the passage of "the Bankruptcy Abuses Prevention and Consumer Protection Act of 2005."
"We are especially pleased that the House has joined the Senate in passing the bankruptcy bill," Kurt Pfotenhauer, MBAs senior vice president of government affairs said in a public statement. "This legislation will prevent commercial/multifamily lenders from becoming victims of a loophole that has allowed borrowers with assets valued over $4 million to side-step required repayments."
MBA said the bill, which includes a provision that removes the $4 million cap on single asset bankruptcies, will reduce its commercial/multifamily members' vulnerability for assets valued over $4 million.
The American Banker's Association has also publicly welcomed the bankruptcy reform.
In a recent press release, ABAs executive vice president Edward L. Yingling said the new bill would "protect and improve our nation's financial safety net" by providing bankruptcy protection to those who need it most and by "reining in some filers who wrongly use the system as a financial planning tool."
America's Community Bankers president and CEO Diane Casey-Landry called the new bill a "win" for consumers and a "win" for community lenders."
"The legislation will also hold down the cost of home mortgage loans by once-and-for-all prohibiting federal district courts from reducing the value of secured mortgage loans in bankruptcy proceedings," Casey-Landry said in a statement. "The U.S. Supreme Court outlawed "cramdowns" in 1993, but the practice persists."
Independent Community Bankers of America president and CEO Camden R. Fine in a statement praised Congress for passing the reform bill that was "eight years in the making."
"This bill will restore the principles of fairness and personal responsibility to our bankruptcy system, while protecting and enhancing the rights of consumers," Fine stated.
Noel L. Lippman a practicing bankruptcy attorney for 40 years said he questions whether mortgage lenders would benefit very much from the law changes.
"Mortgages, being a secured debt are seldom included in bankruptcies," Lippman said. "Home lenders are generally protected."
"The value of the home would have to be far in excess of what is owed," he added.