Mortgage bankers warned Congress against proposed bankruptcy reform.
Proposed bankruptcy legislation would enable judges to "cramdown" debt on primary residential mortgages, Mortgage Bankers Association Chairman-elect David G. Kittle said in testimony today, according to an announcement. He was speaking before the House Judiciary Committee's Subcommittee on Commercial and Administrative Law.
The proposed bankruptcy code changes, H.R. 3609, the Emergency Home Ownership and Mortgage Equity Protection Act of 2007, would allow judges under Chapter 13 bankruptcy proceedings to make loan modifications, including marking down the value of a primary mortgage to the fair market value of the home, MBA said. The changes will impair mortgage market liquidity.
"If this bill becomes law, we believe mortgage rates would jump significantly, going up 1½ to 2 points," Kittle reportedly testified. "This is a massive back-door tax increase on homeowners."
The statement indicated even prime borrowers would apparently be among those who would shoulder the additional costs from the forced write downs. An example cited suggested a borrower on a $300,000 loan will wind up paying $400 more monthly if the changes to the code are made.