House Judiciary Committee Narrowly Passes Mortgage Relief Legislation

This week, the House Judiciary Committee passed legislation sponsored by John Conyers (D-MI) and Steve Chabot (R-OH) that would allow bankruptcy judges to modify some mortgages in chapter 13 bankruptcies.  The highlight of the legislation which will now go to the full House for a vote is that chapter 13 would allow the debtor to lower both the principal balance on a mortgage and possibly the interest rate based on the value of the property.  Thus, if a debtor’s mortgage exceeds the value of the property, by filing for bankruptcy, the debtor could reduce mortgage payments.

 The House Judiciary Committee approved the legislation after making some limitations on the legislations scope.  First, the legislation only applies to loans made after 1/1/00 and already existing as of the enactment of this legislation, so this legislation won’t help those who get loans after the date of the legislation.  Second, the legislation only applies to nontraditional, subprime loans, not all mortgages.  Third, the legislation will only apply to loans where the mortgage company has already served a Notice of Foreclosure.  Finally, the legislation limits judicial discretion so that the judge can not lower the mortgage below market value and can not lower the interest rate below conventional mortgage rates.

 The legislation is expected to be considered in the full House in January or February of 2008 and the Senate Judiciary Committee is expected to take up similar legislation in January or February of 2008.  Lobby your Congressmen and Congresswomen to pass this legislation!  Despite its limitations, there are thousands of people who could benefit and keep a roof over their head if Congress enacts and the President signs this legislation.