The principal modification just earned a new player in the form of Earl Blumenauer, a Democratic congressman from Oregon who is backing a bill that would allow bankruptcy judges to force write downs on loans during bankruptcy proceedings.
The Bankruptcy Equity Act, as the bill is called, would amend bankruptcy laws and allow judges to modify mortgages to avoid foreclosures.
In a statement about the bill, Blumenauer said his legislation would simply extend to regular homeowners the same privileges that luxury clients already receive.
“People with vacation homes or investment properties can have their mortgage terms reduced by a bankruptcy judge, but regular folks who live in their own homes are forced to play by different rules — bankruptcy judges aren’t allowed to change mortgage terms of primary residences,” Blumenauer stated, according to a HousingWire story on the bill.
Blumenauer also said in an appearance on Capitol Hill that regular homeowners are unable to declare bankruptcy and receive mortgage relief, a privilege that owners of multiple homes are allowed; instead, homeowners are often left with foreclosure as their only option.
The bill is still in its infant stages, but it represents yet another attempt by the government to work around the Federal Housing Finance Agency’s efforts to prevent a government-led principal reduction program. For months, now, the FHFA has refused to even consider write downs as an effective response to the foreclosure crisis, a resistance that has led some legislators to attempt a coup, of sorts, and replace the agency’s acting director.
The progress of the bill will be interesting to chart, especially considering that it is not the first time Congress has attempted to amend the nation’s bankruptcy laws. Nearly three years ago, Illinois Senator Dick Durbin attempted to insert a similar measure in a Senate bankruptcy bill, and, when faced with severe opposition from both banking lobbies and Republican lawmakers, made one of the more oft-quoted proclamations of 2009.