Senator Dianne Feinstein States That Hope is Not Lost for a CRAMDOWN

I got this e-mail today from Senator Feinstein:

Dear Ms. Rodriguez:

Thank you for writing to me to share your thoughts on legislation that would allow bankruptcy courts to modify the terms of home loans. I appreciate hearing from you on this important subject.

California is one of the states hardest hit by the foreclosure crisis. Approximately 520,000 homes received a foreclosure filing in California in 2008, and more than 2.3 million homes received a foreclosure filing nationwide.

Foreclosures are not in anyone's best interest. While they are a catastrophe for the homeowner, they also leave the lender with a property that has to be resold, frequently at a loss, and the neighborhood with an empty house that is often not being maintained. When this happens, communities can be decimated, local economies suffer, and crime often increases.

On January 6, 2009, Senator Richard Durbin (D-IL), introduced S. 61, the "Helping Families Save Their Homes in Bankruptcy Act." I am an original co-sponsor of this bill because I believe it will help to stem the current foreclosure crisis. The bill would amend the bankruptcy code to eliminate a provision that prohibits bankruptcy judges from modifying mortgage loans on primary residences. The bankruptcy court would be authorized to extend the time allowed for repayment of a mortgage loan, in order to reduce the debtor's monthly payment to a feasible amount. The bill would also allow bankruptcy judges to convert escalating adjustable rate mortgages into fixed-rate mortgages, at a reasonable rate of return for the bank.

On March 5, 2009, the House of Representatives passed a companion version of this legislation (H.R. 1106) with similar provisions by a vote of 234-191. It is expected that this legislation will come before the Senate shortly.

I believe that Congress must do everything possible to help solve the current foreclosure crisis and keep struggling homeowners in their homes. I appreciate hearing your views on this matter. Please know that I will be sure to keep your comments in mind should this bill or similar legislation come before me for consideration in the Senate.

Again, thank you for contacting me. If you have additional questions or concerns, please feel free to contact my Washington, D.C. staff at (202) 224‑3841.

Sincerely yours, Dianne Feinstein
United States Senator

Senator Durbin I feel your pain!

After a disappointing vote rejecting on Senate Bill 61 entitled the Helping Families Save their Homes In Bankruptcy Act Senator Durbin commented,

"I am sick and tired of being asked to give billions of dollars to these banks when they won't in any way help the people who are facing mortgage foreclosure," Durbin said. "They're not renegotiating these mortgages and they refuse to support an effort to add legislation that would give them the keys to the courthouse door."

He added, "The American Bankers Association and the Community Bankers Association walked away from the table."

Ryan Grim reported on the HuffingtonPost.com,

"The banking and real estate industry has funneled roughly $2,000,000 into Landrieu's campaign coffers over her 12-year career, according to data from the Center for Responsive Politics. Bayh has taken in about $3.5 million. The financial sector is Nelson's biggest backer; he's taken $1.4 million from banks and real estate interests and another $1.2 million from insurance firms. Tester has fielded roughly half a million in his two years in office.

That's about nine million dollars -- far, far less than one percent of the amount taxpayers have spent to bail out the financial industry."

I hope we will all remember every member of the Senate who took money from the leading banking institutions as part of their campaign contributions and or voted against the Cramdown Bill.

Banks Stongly Oppose Cramdown Bill (Sen. 61)

Of course banks are against the bill. But the banks are shooting themselves in the foot.

By forcing homeowners into foreclosure by refusing reasonable loan modifications and rejecting a cramdown will only serve to glut the housing market with an endless supply of REO houses. When supply goes up, and few borrowers can qualify to purchase it will only drive the price of homes down even further. This will make put more and more homes in the category of being tremendously upside down. As a bankruptcy attorney if the homes get too far upside down, I strongly urge homeowners to walk away and let the banks have it. Why. . . because in three to four years, they will have saved up enough of a downpayment and their credit will have healed enough to buy their own home, or the equivalent home for 40% less than what they would have paid had they stayed in their own home. With rents going down substantially its a much better plan in the face of there being absolutely no remedy available for these upside down loans. The cramdown would have fixed that problem.

A cramdown modification basically achieves a much better result for the investors than foreclosure. With a cramdown, the borrower gets the house at fair market value and continues paying the loan based on the new value. The investors now get paid and the homeowner is motivated to keep his or her home. In a foreclosure, the investors end up losing 9% to 12% of what they would have gotten because now they have to pay the cost of foreclosure AND they have to pay the cost of reselling the home. Not only that, the investors have to pay the cost of maintaining the home until it is resold.

It makes no sense that banks would not want to try to keep people in their homes with reasonable loan modifications. But I see it daily. There has been a decided trend among many banks to absolutely refuse to give much by way of modification plans. Many have only offer special forbearance agreements which most homeowners will breach when they cannot afford the balloon payment at the end of the agreement.

It is ridiculous that the Banks are opposed to allowing a cramdown for a limited period of time for a limited number of loans. How is that going to drive up risk in the future if future loans would not be subject to a cramdown?!?!

Please call you senator today. Demand a cramdown!

If you senator failed to vote in favor of the cramdown, please remember them at election time.

Thanks
R. Grace Rodriguez, Esq. - LORGR.COM