Obama Resists Attempt to Add Bankruptcy Law Change in Economic Stimulus Bill to Solve the Foreclosure Problem

by on Bankruptcy, Finance Foreclosures

Efforts to add a stipulation in the economic stimulus bill supported by congressional Democrats that would permit bankruptcy judges to minimize mortgages as a possible solution to the foreclosure problem is being resisted by President-elect Obama and his advisers.

It was made apparent to lawmakers by Obama’s economics adviser Jason Furman that Obama believes the alleged “cramdown” stipulation would sacrifice GOP votes and jeopardize bipartisan support in the Senate.

On the other hand, key supporters of the cramdown stipulation believe the issue has to be dealt with the soonest. Although risky, it may even be worth sacrificing some Republican cooperation to aid homeowners in the foreclosure problem.

With the bankruptcy provision, homeowners nearing foreclosure who owe more than what the value of their house is can seek assistance and can report for bankruptcy. A bankruptcy judge can lessen the home loan into the original worth of the home.

Democrats have urged for the change in the law as a means of aiding homeowners trapped in the foreclosure problem, compelling lenders to adjust more home loans rather than letting a bankruptcy judge reduce payments more harshly. However, lenders argued that the law would initiate a rise in mortgage rates due to an increase in loan charges that might be soon revised by a judge.

Lenders such as Citigroup and Durbin gave their approval to the change in law for as long as it is restricted to loans prior to endorsing the bill. According to Matt Gleischman, Durbin’s spokesman, there are high expectations of the bill to be passed in both the House and Senate.

A possibility could be including the cramdowns into an “omnibus” spending proposition to complete the appropriations work left unresolved by Congress last year. The House is expected to review the bill as soon as it passes the stimulus to the Senate. Cramdowns can also be set in legislation revising terms of the $700 billion bailout ratified in the fall. Still, there are some who are not confident that the bill will be passed in the Senate.

None the less, many people are giving up their homes because of foreclosure each day. It is important that the provision will be approved as soon as possible.