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The Bankruptcy Bill Lives

April 3, 2008 - by Donny Shaw

As the full Senate begins to move forward with their bipartisan housing bill, in the background, a Senate committee is preparing a proposal to allow bankruptcy judges to revamp mortgages, which was dropped from the bill, so that it can come back separately to the Senate floor later.

via subscription-only CongressDaily:

>The Senate Judiciary Committee voted along party lines today to approve legislation sponsored by Senate Majority Whip Durbin [pictured above] that would let bankruptcy judges retool the mortgage terms of subprime borrowers in danger of losing their homes. The bill, which cleared the panel 10-9, would authorize judges not only to roll back or delay interest rate resets in bankruptcy proceedings but reduce loan principals to levels determined to be a home’s current values. The measure was excluded from the overall housing package now on the Senate floor because it is opposed by the lending industry.

For more on Durbin’s bankruptcy proposal, see this point-by-point rundown from a press release.

A competing and somewhat weaker bankruptcy proposal was rejected by the committee. According to a member of Arlen Specter’s (R-PA) staff, it will now be offered as an amendment to the housing bill currently before the Senate:

>The committee rejected, in another party-line 10-9 vote, a measure offered by Senate Judiciary ranking member Arlen Specter that would have allowed for the interest rate resets and other relief but would have permitted reductions only when the lenders agreed to them. Specter argued that a unilateral scale-down of mortgages by judges could lead to lenders pulling out of the market if “we meddle with the principal sums.”
>Democrats argued that the Specter amendment would gut the Durbin bill. “It would basically take away what the bill is trying to do,” said Sen. Benjamin Cardin, D-Md. Durbin, who did not attend the markup because he was presiding over the housing bill debate, has repeatedly insisted that his reduction or “cramdown” language is essential.

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