Mortgage Daily

Published On: December 12, 2007
Modification Bill Passes CommitteeH.R. 3609 approved by House Committee

December 12, 2007

By SAM GARCIA

Legislation from Democrats that would enable bankruptcy judges to modify subprime mortgages has narrowly passed a House committee — drawing concern from mortgage bankers.

By a vote of 17-15, the House Judiciary Committee today passed H.R. 3609, the Emergency Home Ownership and Mortgage Equity Protection Act of 2007, committee spokesman Jonathan Godfrey told MortgageDaily.com.

An announcement from the bill’s sponsor, Rep. John Conyers Jr., indicated a compromised version of the bill “will help hundreds of thousands of homeowners save their homes from foreclosure while seeking bankruptcy to reorganize their debts.”

The legislation goes beyond those who would benefit from the Bush Administration’s recently announced plan, which would freeze interest rates only for subprime borrowers who have remained current on their loans, and improves loan terms for delinquent borrowers or those facing foreclosure.

On owner occupied properties, the bill would enable Chapter 13 bankruptcy judges to modify subprime and non-traditional mortgages originated after Jan. 1, 2000, and delinquent at least 60 days or in foreclosure, according to an announcement from the National Association of Federal Credit Unions. Among the qualified modifications are interest rate revisions, loan maturities and the waiver of prepayment penalties and other fees. In addition, judges can modify the principal loan balance based on a property’s actual value.

Published reports indicate the bankruptcy-law change would expire seven years after the bill is enacted.

NAFCU, which noted its members generally don’t make the types of loans involved in the bill, said the bill was even more harsh before a compromise was reached Tuesday.

“At a time like this, the last thing we want to do is make credit harder to come by when people need it most,”NAFCU President Fred Becker said in the announcement.

The compromised bill, according to the committee announcement, had the support of Republican Rep. Steve Chabot.

“We are very disappointed that the committee has approved this partisan legislation,” David G. Kittle, chairman-elect of the Mortgage Bankers Association, said in a statement issued by the group. “Giving judges the power to completely rewrite a loan contract between a lender and a borrower brings into question the value of the collateral the loan is made against, which is the cornerstone of our mortgage finance system.”

Kittle explained that if such a bill passes, lenders would be forced to reprice risk — resulting in a 1.5 percent to 2 percent increase in mortgages for most U.S. borrowers.

“But to radically alter the bedrock on which our mortgage system is built is a counterproductive overreaction to the current situation,” Kittle stated. “This is not the answer.”

MBA also voiced its concern about The Homeownership Preservation and Protection Act of 2007 legislation introduced by Senate Banking Committee Chairman Senator Christopher Dodd.

“Senator Dodd’s bill does not provide a uniform national standard to protect consumers from predatory lending, a step we feel is necessary to ensure a smooth and efficient marketplace,” Quinn said in a separate announcement. “Further, we are troubled by the bill’s ‘duty of care’ and assignee liability requirements.”

Quinn added that the group is still reviewing the specific language in the bill.

H.R. 4299, the Terrorism Risk Insurance Revision and Extension Act of 2007, was passed by a final vote of 303-116 by the full House today, which MBA applauded in yet a third announcement. That bill reportedly extends the Terrorism Risk Insurance Extension Act of 2005 for seven years through calendar year 2014.

“Extending terrorism risk insurance will resolve an important area of capital market uncertainly — the long-term availability of terrorism insurance,” Quinn stated.

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