Does the Mortgage Cramdown Bill Have a Pulse?

Several months ago, in the heart of the recession with no recognizable signs of clotting in America's collective financial blood loss, the government passed on a bill to allow millions of shaky mortgages to be subject to struggling homeowners' bankruptcy petitions. Known as the Cramdown Bill, it would have given bankruptcy judges the right to modify, or "cramdown" mortgage terms, such as interest rates and principal balances, as part of the approval of a personal bankruptcy plan. The banking lobby launched a heavy campaign to defeat the cramdown provision, leaving families with limited options to save their homes.

Said Dick Durbin (D-Ill), "After two years of efforts that rely on banks to volunteer to rework mortgages, it is time to admit that the programs that have been put in place thus far to ease the crisis are clearly not working. With a simple change to the bankruptcy code … over 1.8 million families could save their homes in this country between now and the end of 2012, if the Senate could only muster the courage to help them.â€

President Obama's effort, the Making Home Affordable Program, while sound in nature but seriously flawed in execution, calls for a nationwide cooperative effort on the part of banks and the government to jointly reduce the pain of spiking adjustable mortgages through a system of application programs and financial incentives for lending institutions. Problems have arisen in the plan's adoption because of its lack of marketing, cumbersome paperwork, and a lack of education about its benefits amongst those charged with carrying it out.

Those in 1600 Pennsylvania Avenue stated adamantly that their idea would help up to 4 million families. Yet, only 325,000 mortgages have been subject to approval under the plan and only 160,000 of those modifications are in a three-month trial period to test the families' ability to afford the new monthly payments.

In the face of the White House's plan, the number of mortgage modifications are drastically behind the rate at which foreclosures are being filed, a rate which is steadily increasing. Regardless of the evidence of increasing home sales and other signs of recovery, unemployment will remain a serious detriment to our economy's well being for the foreseeable future. Now, a few congressional leaders believe that integrating cramdown measures into the nation's recovery effort can replace a number of broken rungs on the ladder out of the economic basement.

Unfortunately, Durbin and a select few Democrats are a minority voice in the din of legislative tirades about universal health care and a slew of other polarizing, societal digressions. More pointedly, Obama has all put stamped out any lingering embers of the cramdown bill that threatened to flare up again.

Sadly, this is not a partisan issue that might be alleviated by some sort of closed-door agreement. Both The White House and Republicans are united against cramdown strategies, citing pressure from the lending industry. In response to Senator Durbin renewed call for reform, lobbying groups such as the Mortgage Bankers Association continue to insist that judicial modification is the wrong path. Meanwhile, President Obama's mortgage recovery team is blitzing the lending industry with letters of encouragement from all angles in order to cement the plan's success.

Let's hope Durbin and his band of Cramdown comrades can kick up enough dust when riding through congressional committee meetings and Beltway saloons to make the rescue of the American mortgage a success. If not, we may all be on economic lock down for another few years.