Bankruptcy Bill Would Repeal Mortgage Exception

Reps. Brad Miller, D-Calif., and Linda Sanchez, D-Calif., have introduced a bill to repeal the home mortgage exception in the bankruptcy code so homeowners filing for Chapter 13 relief can get their mortgages restructured.Mortgage industry groups are concerned that the Emergency Home Ownership and Mortgage Equity Protection Act would allow bankruptcy judges to reduce interest rates and the principal amount of a mortgage, which could scare mortgage investors and damage the secondary market. Consumer groups are pushing for the bill along with some hedge funds that are betting on a decline in the value of certain mortgage securities, according to one mortgage executive who did not want to be identified. Rep. Sanchez, who chairs a House Judiciary subcommittee, is holding a hearing Sept. 25 on how to help homeowners in financial distress. The Center for Responsible Lending, the Association of Consumer Bankruptcy Attorneys, and other groups are expected to testify. The sponsors of the bill (H.R. 3608) are also talking with Democratic leaders to see how they can expedite passage of the Emergency HOME Act, one staffer said.