Smart Borrower Blog

Frank Considers Reviving “Cram Down” Legislation

Jul 31st, 2009 @ 4:07 PM by Alden Smith

Barney Frank, House Financial Services Committee Chairman, is concerned that lenders aren’t doing enough to help modify home loans that are in stress. Frank is threatening to revive the “cram-down” legislation that failed to pass Congress earlier this year. Under this legislation, federal judges are given the power to cut interest rates, reduce mortgage balances and extend terms. The judges would have the authority to do this even if the lender protests. Although Congress has given the mortgage industry many tools to quickly and easily modify loans, the results have been dismal, according to Frank.

An article on Bloomberg.com tells us that foreclosures are still on the rise, even though several relief programs have been rolled out. Banking officials told the Senate Banking Committee Chairman Christopher Dodd, (D, CT), that confusion and delay is the cause of the results Frank is concerned with.

Congress does not feel that banks are moving fast enough, according to Paul Miller, a bank analyst at FBR Capital Markets in Arlington, Virginia.

Frank is threatening to attach the provisions of any new legislation requested by the banking industry, unless significant momentum is seen in loan modifications. Currently, approximately 22% of homes carry mortgages that are under water.

Nearly 4 million borrowers were targeted for modifications in February, and today only 200,000 modifications are being serviced. Loan servicers are not happy with how legislation is presented to the industry, because new programs are announced before the actual details have been hammered out.