House Approves Mortgage Bankruptcy Overhaul

The House of Representatives passed a bill on Thursday that would allow bankruptcy judges to rewrite the terms of failing mortgages. For example, a judge could lower a homeowner's interest rate, or even slash the principle loan amount. The bill is expected to face more opposition in the Senate.

Copyright © 2009 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.


The House of Representatives passed a bill last night that would allow bankruptcy judges to rewrite the terms of failing mortgages. For example, a judge could lower a homeowner's interest rate or even slash the principal loan amount. It's a pretty controversial proposal, as NPR's Andrea Seabrook reports.

ANDREA SEABROOK: The idea is to dangle a carrot in front of banks - cash incentives to entice lenders to rework failing loans voluntarily. But if that doesn't work, this bill would provide the stick to whack the banks with -bankruptcy judges with the power to lower interest rates or even slash the amount owed.

One the House floor, George Democrat Jim Marshall argued it is a moderate approach.

Representative JIM MARSHALL (Democrat, Georgia): In essence, what this bill would do is force the parties, the lender and the borrower, without putting any taxpayer dollars in it, to deal with their circumstances that are affecting all Americans.

SEABROOK: But Republicans, like Minnesota's Michele Bachmann, said that if lenders think any given mortgage could be rewritten, they'll only raise interest rates and fees on all mortgages.

Representative MICHELE BACHMANN (Republican, Minnesota): Why would a lender make a 30-year loan if they fear the powers of the federal government will violate the very terms of that loan? They'll only make those loans at a great cost both to the borrower and to our society.

SEABROOK: With this problem in mind, moderate and conservative Democrats brokered a deal with leaders of their own party to limit these new powers only to mortgages that already exist, not future ones. Banking Committee Chairman Barney Frank said the bill won't solve the credit crisis, but it is a critical piece of the solution.

Representative BARNEY FRANK (Democrat, Massachusetts; Chairman, House Financial Services Committee): Not everybody who's being foreclosed upon can be helped or should be helped. But until we do a great deal to reduce this, you will not get an end to the current crisis.

SEABROOK: But there is still serious opposition to the bill as it's lobbed across the Capitol building to the Senate. Lawmakers there are already getting out their red pens.

Andrea Seabrook, NPR News, the Capitol.

Copyright © 2009 NPR. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to NPR. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.



Please keep your community civil. All comments must follow the Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.