In an effort protect struggling homeowners, Senate Democrats are advocating new bankruptcy laws that allow judges to alter mortgage terms, known as a "cramdown," during a Chapter 13 bankruptcy filing. Lawmakers hope the new rules will prevent foreclosures, help borrowers in danger of losing their homes, and begin to stabilize the reeling housing market.
Despite good intentions, however, these efforts will raise the cost of borrowing for everyone, reduce the availability of mortgage credit and prolong the housing market's recovery.
According to the Wall Street Journal, the proposal's backers won a major victory when Citigroup (C), which has received $45 billion government capital since last fall, withdrew its opposition. Big mortgage lenders like Citi, Wells Fargo (WFC), JPMorgan (JPM), and Bank of America (BAC) have been resistant to the changes, since courts would gain the power to force losses on altered loans. But with the government snatching up pieces of the country's biggest banks, their ability to resist such regulation is diminishing.
Democrats now hope to include the bill in President-Elect Obama's $800 billion economic stimulus package.Read the full article at: Minyanville.com