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Homeowners Lose In Senate Bankruptcy & Mortgage Modification Vote

After months of debate, the United States Senate voted against allowing bankruptcy judges to modify mortgages and delinquent loans in bankruptcy court. Advocates of the plan said that the bill would have at least temporarily stalled the spiking number of foreclosures and helped the economy back to its feet. Alternatively, those who opposed the bill feared it would harm already-reeling banks.

The bill did not pass due to a 51-45 vote. Similar cramdown provision legislation passed in the House last month.

The Obama administration hoped that giving bankruptcy judges the power to modify loans would encourage loan sevicers to negotiate with borrowers to find a long-term payment solution and save many from facing foreclosure and bankruptcy. "Cramdowns," housing advocates said, would give lenders and banks more reason to deal with struggling homeowners.

Banks and other financial institutions lobbied against the bill, saying that giving bankruptcy judges more power would raise interest rates and make an already erratic market even less stable. Others added that it would give an unfair advantage to those who are not making loan payments, while everyone in the economy is struggling.

Although the bankruptcy reform leg of Obama's overall plan to stop foreclosures has stalled, other areas of the plan are in full swing. Three out of four mortgage servicers are participating in a loan modification program already, in which homeowner mortgages are lowered to 31% of troubled family's incomes. An estimated 134,000 home mortgages were modified in March - a much larger number than usual.

Over 8 million Americans are in danger of foreclosure currently - and scholars believed that this bill could have prevented an estimated 1.7 million families from losing their homes.

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