May 01 2009
U.S. Senator Mike Johanns today voted against "cram-down" legislation that would have increased the cost of mortgages, decreased lending levels, and likely pushed home ownership out of reach for millions of Americans. The cram-down amendment to the Helping Families Save Their Homes Act of 2009 also would have given bankruptcy judges the authority to modify home loans headed for foreclosure by allowing them to open valid contracts and modify their terms. The amendment ultimately failed by a vote of 40-51.
"I could not support legislation that would make it harder for Nebraskans to buy a home and harder for farmers to get a loan," said Johanns. "Many are struggling to make ends meet, and this legislation would likely worsen the overall housing market for families across the country. The federal government should not empower judges to modify valid, primary mortgage contracts, especially when doing so further undermines our economic recovery."
• This amendment would have given bankruptcy judges the authority to modify primary mortgages.
o This would mean bankruptcy judges would have the ability to open valid primary mortgages and modify the terms to benefit one party over the other.
• Mortgage companies and banks would likely factor in the estimated losses they expect to incur as a result of judge-ordered changes when setting lending levels and interest rates.
o This could result in a range of unintended negative consequences:
? Reduced lending levels for homeowners and farmers as banks and mortgage companies anticipate losses resulting from judges orders.
? Higher interest rates and larger required down payments that increase the cost of mortgages for consumers.
? Slower recovery of the housing market and the economy.
• Allowing residential mortgages to be modified by bankruptcy judges will increase mortgage interest rates by an estimated 1.5 to 2% for consumers. [Mortgage Bankers Association]
o For the average Nebraskan, this would add an estimated $107 per month or $1280 per year to their mortgage. This amounts to an increased cost of $38,400 for a 30-year fixed loan.
• Every quarter point increase in mortgage interest rates prevents 1.1 million Americans from being able to afford a home.
o This cram-down legislation could make homeownership unaffordable for 9 million Americans.