Firm commentary:

The Congress missed the opportunity to avert a prolonged housing recession when it failed to pass Bankruptcy "Cram down" provisions that would have allowed bankruptcy judges to modify first mortgages. 

This office joined NACBA, the National Association of Consumer Bankruptcy Attorneys, to lobby members of Congress to pass the legislation in 2009.  The well funded lobbying efforts of the lending industry prevailed over the best interest of the consumers and the national economy.   The proposed law passed the House but failed to pass in the Senate by 5 votes.  

NACBA is now promoting a new proposal, the "Principal Paydown Plan" that is said to be gaining momentum in Washington DC including the support of 19 members of Congress and Edward DeMArco, Acting Director of  the Federal Housing Finance Agency (FHFA).  FHFA is the entity that manages defaulted FANNIE MAE and FREDDIE MAC.

The Plan would allow homeowners in Chapter 13 bankruptcy to pay down loan principal and reduce negative equity during a five-year period with no interest.  In exchange, homeowners would agree to settle claims against servicers, thereby avoiding litigation and reducing taxpayer liability.

See Press release below:

UNITED STATES CONGRESS

For Immediate Release
October 26, 2011
 

FHFA Director Praises Principal Paydown Plan as "Promising" and "Credible"
Pledges to Provide Members an Assessment in Two Weeks

Washington, DC (Oct. 26, 2011)--During a meeting today with 19 Members of Congress, Edward DeMarco, the Acting Director of the Federal Housing Finance Agency (FHFA), praised a principal reduction proposal by Rep. Zoe Lofgren and pledged to provide an assessment within two weeks of how it could be implemented.
 
Rep. Elijah E. Cummings, the Ranking Member of the House Committee on Oversight and Government Reform, hosted the meeting with Rep. Dennis Cardoza, Co-Chair of the Housing Stabilization Task Force, to discuss additional measures to address the foreclosure crisis.
 
Members lauded the latest move by FHFA.  In response to DeMarco's comments, Cummings said, "If Mr. DeMarco actually works with us to implement this proposal, it would be an important step to address this crisis, especially on the heels of his announcement Monday that he will implement the President's plan to help responsible American homeowners refinance at today's historically low rates."
 
Rep. Lofgren stated, "I am encouraged that the Federal Housing Finance Agency is considering a plan similar to the one I've long advocated. Allowing homeowners to pay down the principal balances on their mortgages more rapidly in conjunction with Chapter 13 filings is a sensible solution.  Linking this to the bankruptcy process will help those who truly need it and avoid the administrative failures that have plagued other modification initiatives. I believe this plan is entirely consistent with FHFA's obligation to minimize taxpayer losses in Fannie Mae and Freddie Mac, and I look forward to Director DeMarco's answer two weeks from now."
 
Rep. Lofgren's proposal would allow homeowners in Chapter 13 bankruptcy to pay down loan principal and reduce negative equity during a five-year period with no interest.  In exchange, homeowners would agree to settle claims against servicers, thereby avoiding litigation and reducing taxpayer liability.
 
During today's meeting, Mr. DeMarco said his legal team had already begun reviewing the proposal.  "Based on initial feedback," he said, the proposal "has a lot of promise," "strikes me as being responsible," and appears to be a "credible way" to address the crisis while recognizing various interests in mortgaged properties.  He committed to Members that he would provide a more detailed assessment of the proposal within two weeks.
 
Today's meeting was a follow-up to a previous meeting Cummings and Cardoza hosted on October 6, 2011, during which Members pressed DeMarco to implement the President's recent proposal to eliminate barriers faced by underwater homeowners seeking to refinance their mortgages at current market interest rates.  DeMarco announced on Monday that FHFA would be taking several steps to reduce these barriers.
 
Cummings issued a release on Monday stating, "I commend the President for proposing this idea in his speech to Congress, and I thank Mr. DeMarco for listening to the concerns of Members and their constituents.  The changes announced today will provide additional relief for middle-class Americans and an important boost for our economy.  But we must not stop here.  Economists warn that the housing crisis is 'ground zero' for the economy and jobs, and this is only one modest step towards addressing it."