“Giving judges free rein to rewrite the terms of a mortgage would further destabilize the mortgage backed securities market and will exacerbate the serious credit crunch that is currently hindering the ability of thousands of Americans to get an affordable mortgage,” said Kurt Pfotenhauer, Senior Vice President for Government Affairs and Public Policy for MBA.  “The current legislation gives no guidance as to the proper parameters for judges to modify existing loan contracts.”

By allowing judges to rewrite loan contracts and provide whatever relief they individually deem appropriate, HR 3609 would cast doubt on the value of the asset against which the mortgage loan is secured.  As a result, lenders and investors would likely demand a higher premium for offering these loans.  This premium could come in the form of higher fees, a higher interest rate or the requirement for a larger downpayment, all of which would serve to make the American dream of homeownership less attainable for many Americans.

“The reason you only pay six percent on a mortgage loan, where another type of consumer loan may cost ten percent or more, is that the mortgage loan is secured by an asset – the home,” explained Pfotenhauer.  “When a judge can unilaterally reduce the amount that the lender can get when the home is sold, it devalues the asset securing the loan and the lender and investor will either not fund a loan, or will increase the cost of the loan.  Either way, consumers are the ones who pay the price.”

In addition, the bill removes the requirement that people who go into bankruptcy receive credit counseling, removing one of primary consumer protections contained in the Bankruptcy Reform Act.

The bill will now be considered by the full House Judiciary Committee.

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The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 280,000 people in virtually every community in the country. Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation's residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. Its membership of over 2,400 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance companies and others in the mortgage lending field. For additional information, visit MBA's Web site:  www.mortgagebankers.org.