BREAKING NEWS: Amendment Allowing Judges to Modify Mortgages to be Included in H.R. 4173 – Wall Street Reform and Consumer Protection Act


BREAKING NEWS EXCLUSIVE: An amendment allowing judges to modify mortgages on primary residences for homeowners in bankruptcy will finally find a home as part of the Wall Street Reform and Consumer Protection Act (H.R. 4173).

The amendment, which is being offered by Representatives Conyers (D, MI), Turner (R, OH), Lofgren (D, CA), Marshall (D, GA), Cohen (D, TN), Miller (D, NC), Nadler (D, NY), Delahunt (D, MA) and Waters (D, CA), is potentially the best news homeowners and our economy have had in quite some time.

The amendment is essentially the same as H.R. 1106, a bill passed by the House on March 5, 2009, by a vote of 234-191, but subsequently defeated in the Senate by a vote of 51-45.  The measure needed 60 votes to pass over Republican objections, and 12 Democrats succumbed to pressure from the banking lobby and voted nay.

Senator Richard Durbin (D-IL) first introduced a similar bill in 2007, and after making some key compromises in order to gain the support of Citigroup and others, brought it back in 2009 only to see it defeated by the banking lobby once again.  Senator Durbin, speaking bitterly on his hometown’s radio station immediately following the defeat of H.R. 1106 said:

“It’s hard to believe in a time when we’re facing a banking crisis that many of the banks created – they are still the most powerful lobby on Capitol Hill.  And frankly, they own the place.”

At the end of the proverbial day, the battle was lost because the bill was made to stand alone, and in the end twelve Democrats signed on with the Republicans to vote for the bankers, and against the interests of families who are struggling to save their homes and might have been able to in bankruptcy. Senators Baucus, Bennett, Byrd, Carper, Dorgan, Johnson, Landrieu, Lincoln, Ben Nelson, Pryor, Specter and Tester all voted with the banking lobby.

So, in other words, and just to make sure that the message gets through to any banking types within earshot… It’s Baaack!  And this time it’s not alone.  This time it’s back with a vengeance.

About a month ago, I wrote a feature story in The Niche Report magazine titled: “A Time for Good Judgment – The jury is in and we need judges to modify the way banks behave.”  Obviously, I used up all of my best puns just writing that headline, so this time out I thought I’d be more direct and come right to the point:

We need judges to be able to write down mortgages on primary residences because the banks aren’t doing it voluntarily, the administration’s Making Home Affordable plan isn’t working, and the result continues to be millions of foreclosures that are destroying whatever equity is left in America.


The fact is, when the president’s plan was designed, it was said to differ from Bush’s Hope-4-Homeowners program because it offered a “carrot and a stick”.  The carrot was the incentive payments that would be paid to lenders and servicers who modified loans under the HAMP guidelines.  The stick was supposed to be the reform of the bankruptcy code allowing judges to modify mortgages if the banks failed to do so voluntarily.

Some people have said that the program’s failure has something to do with the inadequacy of the carrot being offered, which is another way of saying that the monetary incentives offered to lenders and servicers for modifying loans aren’t enough to get them to perform.  But personally, I’m damn tired of the answer being that we’re not paying the banks enough.  How can we judge the efficacy of the carrot when the plan has no stick whatsoever?


You want more money for the banks, try the stick first and get back to me.  And I know for a fact, that the hundreds of thousands of homeowners who have applied for a loan modification under the HAMP guidelines would all love the idea of being able to hit their respective lender or servicer with a stick, so why not give it a go?

The simple fact is that the situation has become so incomprehensibly inane that writing about it makes me want to chew on glass.  At first the banks said that they were simply overwhelmed by the number of homeowners applying for loan modifications.  It sounded kind of crazy from the start, to my ears anyway, because they hadn’t been too overwhelmed to originate millions of loans, but you’ve got to give in to a few start-up bumps in the road.  Now, it’s been two years since this foreclosure crisis began in earnest, so if Bank of America still can’t answer the phone, oh well.


Then the banks said it was the investors who were stopping loan modifications dead in their tracks, which we all bought for a month or so until we discovered that it simply wasn’t true.  Servicers have the authority to modify mortgages in at least 92% of cases, and probably more.

Lately, the banks say that it’s the 99% of borrowers not completing their paperwork properly that’s holding things up, and that’s why as of last week, out of 650,000 trial modifications there were just 1700 and change that had been permanently modified.  I’m not even going to respond to this latest bit of drivel except to say: Shut up.  Shut up.  Shut up.

The banks and mortgage servicers aren’t modifying loans for the same reason I wouldn’t modify my driving behavior if there weren’t any Highway Patrol Officers waiting to write me a ticket or take me to jail for not doing so… NO STICK.  Are there any questions?


Of course, the banking lobby doesn’t like this amendment one bit.  They say it will result in higher borrowing costs for everyone in the future, which is ridiculous because for one thing, the amendment would only grant judges the power to modify loans that are already in existence when the bill is signed.  And for another, if we don’t do something to stop the flood of foreclosures that’s destroying whatever equity is left in this country, there’s not going to be any lending in the future, so what the heck do we care about borrowing costs?

The banks and servicers also say that it will take away their control of the situation, but the amendment requires borrowers to notify their lenders or servicers at least 10 days before filing bankruptcy, so lenders and servicers could always decide to modify the loan themselves… like they’re supposed to in the first place, remember?

And in the case of TILA, or Truth in Lending Act violations, the amendment offers the exact same remedies that are offered outside bankruptcy court.  Judges wouldn’t have the power to wipe out the mortgage, as was the case in the original bill, so don’t buy anything you hear about that.

Okay, so what are we talking about?  We’re talking about a reform to the bankruptcy code that will allow judges to modify a mortgage on a homeowner’s primary residence so they can keep paying for it, as opposed to the home being foreclosed on, and therefore serving to lower the value of all the other homes in the neighborhood.  Bankruptcy judges are already allowed to modify just about any other type of loan, and this new rule would expand that power to primary residences.  Seems pretty straight forward, doesn’t it?

And here’s the real truth of the matter: If judges are allowed to modify mortgages in bankruptcy, they’d likely never be given the chance… the banks would modify the loans themselves, again… like they’re supposed to, remember.

H.R. 4173, the Wall Street Reform and Consumer Protection Act will be considered by the full House of Representatives beginning this Wednesday, December 9th.  You can read the bill here:

The Wall Street Reform and Consumer Protection Act – H.R. 4173

And you can read my much more in-depth, yet not boring in the least feature story, “A Time for Good Judgment – The jury is in and we need banks to modify the way banks behave,” here.

We need this amendment to pass as it’s written.  But don’t get lulled into a false sense of security… it’s the banks we’re up against and they’ve managed to defeat what this amendment would allow twice before.  We need to let our voices be heard LOUD & CLEAR.

You can help by taking action at three different levels:

1. Call Your Representative – Calling your elected representatives is effective, because you can count on the fact that you won’t be the only one placing such a call.  Next year is an election year and the entire House of Representatives is up for reelection.  When your representative hears from hundreds or thousands of his or her constituents, it makes a real difference because he or she knows that for every call received, there are dozens of others in your district that feel the same way you do, but didn’t take the time to place a call.

Ask to speak with the staff person who is handling H.R. 4173, the Wall Street Reform and Consumer Protection Act.  Identify yourself as being a constituent.

2. Email Your Representative – Writing to your elected representatives has even more impact that calling does.  That’s because it requires a bit more effort, and therefore your representative knows that there are hundreds of others in your district that feel the same way you do, but didn’t take the time to write and send an email.

3. Drop By and Say Hello – Writing a letter, printing it out, placing it in an envelope and delivering it to your congressional representative’s district office has even more impact than emailing, for the same reason that emailing has more impact than calling.  You don’t have to worry about your representative being there… staff members will let him or her know when a group of people all stop by to drop off a letter related to the same issue, because it’s highly likely that thousands of people in the district feel the same way.


I am writing to urge Rep. __________ to support the amendment to H.R. 4173 being offered by Reps. Conyers, Turner, Lofgren, Marshall and others that will help stabilize the housing market by helping families avoid foreclosure.

The foreclosure crisis continues to worsen and is preventing the economy from beginning its recovery. In 2009 alone there have been more than four million foreclosures, and it has been forecasted that unless something is done, there will be 14 million more over the next few years.

The Obama Administration’s Making Home Affordable plan has failed to-date because it provides a carrot, but no stick.  The stick was always intended to be judicial loan modifications.

Obviously, the banks and servicers are not going to modify loans voluntarily.  We need judges to be able to modify the mortgages on primary residences for homeowners in bankruptcy.

If you voted yes on HR 1106 this past spring, this new amendment is identical to H.R. 1106.  If you voted no on HR 1106: Please consider that in the intervening months, the foreclosure crisis has gotten much worse.  If our economy is to recover, we need the housing market to stabilize before any recovery can take hold.

Thank you.


John and Joan Q. Public

Whatever you do… DO IT TODAY… like now would be perfect.  Don’t put it off and let it go.  Our country’s economy and millions of homeowners are counting on you.  TOMORROW AT THE LATEST…





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