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(RTTNews) - The Senate Thursday, Apri 30, 2009, blocked an attempt to allow bankruptcy courts to modify the terms of mortgages.

By a vote of 45 to 51, Sen. Dick Durbin, D-Ill., failed to attach an amendment to permit mortgage modification, called 'cramdown' by its detractors, to a housing bill being considered by the Senate.

Durbin laid the failure of the measure, which he said was backed by President Barack Obama, squarely at the feet of the banking industry and their lobbyists, accusing them of negotiating in bad faith in his attempts to craft the legislation in a way that would not be too onerous.

"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."

The actions of the bankers have soured Durbin on any further efforts to provide federal support for the banking and financial industry.

"If they have no sympathy for 8 million families that are facing foreclosure in this country, then I have no sympathy for them," he said. "A year ago, I brought this up and they said it's not that big a problem; two million foreclosures. Now we're at 8 million foreclosures and they say its not that big a problem."

He added, "I don't believe we'll get out of this recession until we deal honestly forthrightly with this foreclosure crisis. And I just don't know what it will take to bring people around to the belief that these bankers don't have the right formula for the future of this country's economy.

The House passed the Bill HR 1106 ) on March 5, 2009. Greater opposition to the bill was expected in the Senate.

The proposed legislation requires the homeowner first attempt to modify the mortgage through negotiations with the mortgage company. This legislation, introduced by Representative John Conyers (D-MI) in the House (HR 200), and Senator Dick Durbin (D-IL) in the Senate (S 61), would allow hundreds of thousands of people to stay in their homes. It was supported by President Obama, and included as a principle in the administration's housing plan. If passed it would have allowed bankruptcy judges to reduce mortgage payments to match current home values.

Senate Republicans unanimously voted against similar legislation last year and were joined by several Democrats. That legislation would give bankruptcy judges the option to reduce interest rates before directly cutting the principal of a mortgage. It would also allow lenders to collect a portion of the profit if a home is sold within four years of modification.

"Bankruptcy will remain, as it always has been, a last resort, and modifications will be at the individual discretion of a bankruptcy judge who will determine if a borrower has acted responsibly and if a claim has any merit," said Alcee L. Hastings, D-Fla.

The bill also contains language that would overhaul the Hope for Homeowners program. That $300 billion program, enacted last summer (PL 110-289), was designed to aid up to 400,000 troubled homeowners. Even its supporters have deemed the program, run by the Federal Housing Administration, a failure. The House-passed legislation would loosen eligibility requirements for the program, reduce the upfront fee to 2 percent of the purchase price of the property from 3 percent, and reduce the annual fee to 1 percent from 1.5 percent. It would also place Donovan in charge of the program and allow payments to servicers of up to $1,000 for each loan modification.

Call us at 954-356-0450 or email us if you would like more information or to discuss whether a Chapter 13 is right for you.

Dischargeability of Second Mortgages in Chapter 13

Most individuals are unaware that they may presently be able to discharge second and third mortgages in Chapter 13. If your home appraises for an amount less than your first mortgage balance you may be able to strip off all inferior mortgages in a Chapter 13. The second (and possibly third and forth) mortgage is considered unsecured and treated like a credit card. The lender is paid pro rata along with the other unsecured creditors and at the end of the plan the mortgage is stripped off the property. Call us to see if you qualify.

This article is not intended as a substitute for competent legal or accounting representation, but merely as a guide to help you decide whether you need the services of a licensed attorney or CPA.