Big Lender OKs Plan to Let Bankruptcy Judges Reduce Mortgage Balances
In a move that is expected to expedite proposed federal legislation permitting bankruptcy judges to reduce the principal balance on troubled mortgages on owner-occupied properties, a major bank is supporting a plan by Democratic lawmakers to enact such a law.
Citigroup’s support for the legislation is expected to persuade other major banking institutions to withdraw their earlier opposition, reports the Washington Post.
“Senators Dick Durbin (D-Ill.), Chris Dodd (D-Conn.) and Charles Schumer (D-N.Y.) called this a breakthrough on the bankruptcy issue and said they will push to add the provision to the economic stimulus package now moving through Congress,” the newspaper writes. Dodd chairs the Senate Banking Committee.
In order to win Citigroup’s support, according to Schumer, lawmakers leading the legislative drive agreed that the principal reduction power would apply only to existing mortgage-holders, that homeowners would be required to contact lenders at least 10 days before filing for bankruptcy and that minor Truth in Lending Act violations would not void mortgage terms.
Additional coverage:
Reuters: “Citi backs mortgage bankruptcy reform-senators”
PR Newswire (press release): “5 Consumer, Civil Rights Groups Urge Action on Mortgage Modification Compromise”
