Obama Plan Would Allow Bankruptcy 'Cramdowns'

President-elect Barack Obama and vice president-elect Joe Biden want to provide "immediate assistance" for struggling homeowners as part of their economic stimulus plan. They are urging Congress to enact a 90-day moratorium on foreclosures and changes to the bankruptcy code that allow judges to modify mortgages on primary residences. "Obama and Biden are calling for legislation to close the loophole in our bankruptcy code that allows bankruptcy judges to modify the terms of mortgages on investment properties and vacation homes but not on primary residences," according to "The Obama-Biden Plan" that the president elect's transition team provided congressional staffers on Monday. The mortgage industry strongly opposes such changes to the bankruptcy code, claiming it will increase mortgage rates and slow the recovery of the secondary mortgage market. The plan directs the Department of Housing and Urban Development to move "aggressively" in implementing the Hope for Homeowners Program, which uses Federal Housing Administration loans to refinance underwater mortgages. So far, the H4H program has been a flop. But the plan calls for Congress to remove any tax or legal impediments to encourage the use of shared-equity mortgages in H4H refinancings. And it calls for the Treasury Department to use its authority to guarantee newly modified loans. The Obama-Biden Plan is posted on the transition team's website: change.gov.