The U.S. House approved legislation on Thursday that will allow bankruptcy judges to lengthen terms, cut interest rates and reduce the principal owed by bankrupt borrowers.
The so-called “cramdown” bill (the actual name of the bill is the “Helping Families Save Their Home Act”) passed by a margin of 234-191. The legislation was modified to become more lender friendly; it requires borrowers to certify that they provided their lenders with financial information and gave them time to provide other alternatives.
Borrowers receiving a cramdown must reimburse their lender for a portion of the loss if they sell the property before they complete a five-year bankruptcy repayment plan.
House Republican Leader John Boehner of Ohio, who opposed the legislation, says it forces those who acted responsibly to â€œsubsidize scam artists, speculators and those who knowingly made bad decisions.â€
The bill also permanently increases the Federal Deposit Insurance Corp.â€™s insurance on bank deposits to $250,000, gives loan servicers legal protection when they modify troubled loans, and retools the Hope for Homeowners lending program, which has so far been a failure.
The Senate is expected to consider a version of the bill as early as next week.
Source: Bloomberg, Dawn Kopecki