Bankruptcy Judges May Gain Power With 'Cramdown' Legislation

Momentum for mortgage loan modification is building, and it looks like lawmakers may give bankruptcy judges more power to change mortgage agreements in the future.

A series of laws in the pipeline will give homeowners more leverage when requesting loan modifications. The idea is that banks will decide it's better to work with borrowers in trouble than to foreclose or stand firm on existing loan terms. If the banks don't agree to loan modifications, borrowers are more likely to declare bankruptcy. Then the banks will be up against a judge with expanded powers to modify the loan in the consumer's favor.

Citigroup led opposition to the legislation, but they've backed off. Other banks are expected to do the same as lawmakers gain the upper hand.

Further reading:

• How Loan Modification Works
• WSJ: Plan to Cut Foreclosure Rate Clears Key Hurdle