Cram Down

March 6 (Bloomberg) — At least 1 million Americans would be able to use bankruptcy to reduce mortgage payments under legislation approved by the House yesterday, part of Democratic efforts to stem a crisis that has erased more than $2.4 trillion in home values.

The so-called cram-down bill would allow federal judges to lengthen terms, cut interest rates and reduce mortgage balances of bankrupt homeowners. It also would permanently increase the Federal Deposit Insurance Corp.’s coverage of bank deposits to $250,000. The measure, which passed the House 234-191, now goes to the Senate.

The Senate on April 30th failed to pass Senate Bill 896 when 12 Democrats joined Republicans in opposing passage. The Bill would have granted bankruptcy judges authority to order lenders to reduce the principal on home mortgages to enable distressed homeowners opportunity to remain in their homes and avoid foreclosure. The banking industry lobbied heavily against the bill.