NAFCU brokers deal on mortgage bankruptcy bill

Dec. 12, 2007—A managers’ amendment sought by NAFCU in recent weeks, and up through the past weekend, will be offered in a House Judiciary Committee mark-up today to limit the scope of a mortgage bankruptcy bill to certain subprime and non-traditional loans and subject those seeking relief to a means test.

Under the amendment, the bill, H.R. 3609, would expire after seven years.

The changes are the result of a compromise reached Monday among NAFCU lobbyists, key committee members such as Chairman John Conyers, D-Mich., and Rep. Steve Chabot, R-Ohio, and the Center for Responsible Lending and other consumer groups.

As originally drafted, H.R. 3609 would allow home owners at risk of foreclosure to seek a restructuring of their mortgages under Chapter 13 of the bankruptcy code. The measure would have subjected all mortgage loans to a provision that would allow bankruptcy court judges to revise the interest rate, remaining value and maturity of the loans.

The managers’ amendment, which Conyers plans to offer today, would revise the bill’s scope as follows:

• define “subprime” loan according to provisions of the House-passed H.R. 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007;
  
  
• define “non-traditional” loans according to guidance issued previously by regulators, which includes interest-only mortgages and adjustable-rate mortgages with payment options that can lead to negative amortization;
  
  
• apply only to existing sub-prime and non-traditional loans made after Jan. 1, 2000, and currently in foreclosure (when a breach letter is sent, at 61 days delinquent);
  
  
• apply the means test from the 2005 bankruptcy reform law to those seeking relief.

NAFCU still has concerns about H.R. 3609, but association President Fred Becker said the agreement effectively excludes some 95 percent of all credit union mortgages from the bill’s scope.

“We appreciate the recognition by Chairman Conyers and consumer groups that credit unions are not a part of the subprime mortgage crisis, but the solution,” said Becker.