WASHINGTON - The House Judiciary Committee yesterday approved a measure giving judges the power to reset the terms of mortgages for people in bankruptcy proceedings.
Although the measure includes some improvements backed by credit unions and other financial institutions-including a provision requiring homeowners to share the proceeds with the lender if they sell the property within five years--lobbyists for both CUNA and NAFCU both said before the measure was passed they doubted they would support it.
Both groups say that the measure would punish credit unions even though they did not engage in many of the practices that caused the current housing crisis. They also say it could hurt credit unions by reducing their assets.
The measure, would allow judges hearing the cases of people who file for Chapter 13 bankruptcy to rewrite the terms of mortgages, a move known as a "cram down."
The panel, which voted for the measure 21-15, adopted an amendment requiring homeowners to contact their lenders at least 15 days before filing for bankruptcy. While that was strongly backed by credit unions, lawmakers rejected another amendment that would have limited the provision to subprime and other non-traditional loans.
It's unclear when the House will take it up. It was originally supposed to be part of the economic stimulus bill currently working its way through Congress but leaders decided against doing so and could include it in bills that fund the operations of the government for the rest of the fiscal year.
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