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Capito Offers Alternative To Mortgage 'Cramdown' Bill

Press Release

Date: March 5, 2009
Location: Washington, DC
Issues: Housing and Property


Capito Offers Alternative To Mortgage 'Cramdown' Bill

As the House of Representatives debates a controversial measure granting bankruptcy judges new power to force loan modifications, Rep. Shelley Moore Capito, R-W.Va., is sponsoring an alternative measure that would aid worthy borrowers without unfairly burdening the average taxpayer.

"Even a narrowly crafted cramdown bill sets a precedent that may raise interest rates and fees on borrowers across the spectrum," said Capito. "We need a plan that encourages loan modifications that keep people in their homes, but doesn't shift the burden to the renters down the street who are saving up to buy their first house."

Under ‘cramdown' proceedings, lenders would have to account for the risk associated with bankruptcy proceedings and could either raise interest rates or increase down payment requirements on other borrowers.

Instead of encouraging bankruptcy proceedings, the Fairness in Housing Recovery Act - an alternative bill co-sponsored by Capito and more than a dozen other members - would grant new flexibility to the Secretary of Housing and Urban Development (HUD) to replace the failing "Hope for Homeowners" program with an improved initiative to insure modified loans. By including a safe harbor provision for mortgage servicers who take advantage of the program, the plan would bring more lenders to the table with struggling borrowers, making successful loan modifications more likely.

"Cramdown sends the wrong message and Hope for Homeowners has been notoriously ineffective," added Capito. "We think HUD can learn from Hope for Homeowners and craft a new, more successful program that avoids the unintended consequences of cramdowns."

The legislation also expands HUD-approved housing counseling services and authorizes $32 million in additional funding to support FBI efforts to combat mortgage fraud. To revitalize the housing market, the bill would also provide a tax credit to encourage homebuying during 2009 and 2010.


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