MBA's 'Stop the Cram Down Resource Center' Puts a Price Tag on Bankruptcy Reform

A proposed change in the bankruptcy law that would allow bankruptcy judges to unilaterally change the terms of mortgage contracts would cost home buyers across the country hundreds of dollars every month and thousands of dollars a year, according to a new resource on MBA's website: www.mortgagebankers.org/stopthecramdown .

'If this proposal becomes law, it will amount to a new tax on homeowners, costing them hundreds of dollars more per month and thousands of dollars more per year,' said MBA Chairman-Elect David Kittle. 'The last thing potential homeowners, and those looking to refinance into new loans, need in this market is higher mortgage payments.'

The House Judiciary Committee passed HR 3609, the Emergency Home Ownership and Mortgage Equity Protection Act of 2007 on December 12th, 2007. The legislation would end a 110-year old federal protection that prevents bankruptcy judges from altering the mortgage terms of loans on primary residences. The protection was specifically affirmed by Congress in the 1978 re-write of bankruptcy law as well as in a 1993 Supreme Court decision.


MBA's website provides state and county-level data explicitly demonstrating how much more potential homebuyers would pay each month if the bill became law. MBA estimates that the change in bankruptcy law will increase interest rates across the board by at least 1.5 points for those seeking to buy a home or refinance their existing loans.

If bankruptcy judges are allowed to independently change the terms of a signed mortgage contract, lenders will face new uncertainty as to the value of the asset - the home - that is to serve as collateral for the loan. To account for the new risk that this bill imposes, lenders will be forced to require higher down payments, higher costs at closing and higher interest rates. This would have the effect of adding hundreds of dollars to mortgage payments to borrowers in all fifty states.

'Congress is, quite laudably, attempting to help consumers who face difficulties paying their mortgages,' Kittle said. 'But this law will, ironically, create future difficulties by increasing mortgage costs. To help consumers, Congress should finish work on modernizing the FHA and pass a predatory lending bill that provides uniform protections for all consumers. Congress should not change the bankruptcy laws to help the few at the expense of increasing costs on every borrower seeking a new mortgage.'