U.S. Senate rejects "Cramdown Bill"

On January 14, 2009 we posted an article titled "The Helping Families Save Their Homes In Bankruptcy Act Of 2009." Nearly five months later the U.S. Senate has finally settled the issue by rejecting the bill that was introduced earlier this year by Illinois Senator Dick Durbin. The bill sought to amend certain provisions of the Bankruptcy Code which would have allowed bankruptcy judges to modify mortgage loans on primary residences in a bankruptcy proceeding.

Those who supported the bill hoped that the judicial power of modifying loans would persuade banks to voluntarily modify mortgage loans rather than face the uncertain outcome of a modification in a bankruptcy hearing. However, the U.S. Senate firmly rejected this bills success early this May. Both republicans and democrats sided with the banking industry and against homeowners regarding this proposition including Florida Senator Mel Martinez. On the other side several Senators strongly fought for this bills success in an effort to remedy the current mortgage crisis in the U.S., especially in states such as Florida. Those supporting Senators included Florida Senator Bill Nelson, Dick Durbin who introduced the bill, and the President, Barack Obama.

With the rejection of this proposed amendment to the Bankruptcy Code the power of banks who hold mortgage loans has been reaffirmed. Loan modifications of a primary residence are, as a result, still a voluntary process which banks are not forced to provide and judges are not allowed to do on their own.