Details of Cramdown Legislation (H.R. 1106) That Could Become Law

Here are the major changes made to H.R. 1106 during Committee consideration.  Understanding what a cramdown looks like under the present proposed legislation is very important as it appears this is what will likely be signed into law (with minor changes of course):

1.  Judicial modifications were limited to existing loans.

2.  A "clawback" provision was included to specify that increases in property values over the first four years of the bankruptcy plan would be returned to the lender, based on a sliding scale.

The manager's amendment and second-degree Lofgren-Tauscher-Cardoza amendment made a number of additional changes, including:

1.    Ensuring that a judge considers whether a qualified loan modification that is consistent with President Obama's plan was offered prior to considering a judicial modification

2.    Incorporating the Administration's debt-to-income and interest rate limits as considerations for determining whether an interest rate reduction in lieu of a principal reduction is warranted.

3.    Changes to ensure that judges use FHA appraisal guidelines in determining the fair market value of a property;

4.    Improvements in the predictability of payouts by mandating that the debtor make equal monthly payments on their restructured debt;

5.    Specifications in the pre-filing requirement that in addition to a phone call requesting a loan modification, the debtor must certify that he or she provided information on income, expenses, and debts to the holder of the mortgage;

6.    Extending the pre-filing requirements to request a qualified loan modification from 15 days to 30 days to allow sufficient time for the loan modification process

7.    Changes to ensure that judges must deny judicial modification in cases where the debtor could otherwise afford the loan.  This will prevent wealthy people from taking advantage or falling real estate prices;

8.    A GAO study to determine whether Chapter 13 proceedings are working to prevent foreclosures and the effect this is having on access to credit;

9.    Extending FHA, VA and rural housing assistance guarantees to adjustments as a result of judicial loan modifications.

10.   Amending the "clawback" provision to increase the amount of appreciation owed to the lender in the case of a home sale during the bankruptcy