NYT Supports Bill Allowing Bankruptcy Judges to Rewrite Mortgages

Bankruptcy Law

NYT Supports Bill Allowing Bankruptcy Judges to Rewrite Mortgages

Posted Feb 27, 2008, 09:56 am CDT
By Debra Cassens Weiss

The New York Times is urging passage of a law that would allow bankruptcy courts to rewrite the terms of borrowers’ mortgages.

An editorial says some big banks are getting behind other bailout proposals in an attempt to head off passage of the legislation. If the measure passes, it would give banks a much-needed incentive to modify troubled loans before a bankruptcy judge takes action, the newspaper says.

“Some big banks are supporting new proposals to rescue homeowners who owe more on their mortgages than their houses are worth, but let’s get one thing straight: The banks haven’t been struck by a sudden urge to help the needy,” the newspaper says. “Rather, by advocating bailouts, the lending industry is trying to head off a possible change in the law that would let troubled borrowers modify their mortgages in bankruptcy court—where lenders, not taxpayers, would be stuck with the losses.”

The Times acknowledges lenders’ concerns that the bill would compel them to raise the price of home mortgages for all borrowers to make up for the losses. But the paper says proposed limits—such as restricting relief to “junk mortgages” issued in the last few years—could lessen the impact.

Meanwhile, a study co-written by Georgetown law professor Adam Levitin concludes that the bill would have no more than a minor impact on interest rates.

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