This was a vote on final passage of H.R. 1106, legislation that, among other things, gave bankruptcy judges the ability to modify mortgages on principal residences, allowed the Departments of Veterans Affairs and Agriculture and the Federal Housing Administration to guarantee and insure mortgage loans that are modified, protected companies servicing loans that engage in loan modifications against civil claims, and made permanent what had been a temporary increase in the level of FDIC deposit insurance. The primary disagreement regarding this measure focused on its provision allowing bankruptcy judges to modify mortgages on principal residences.

Rep. Conyers (D-MI), the chair of the House Judiciary Committee, was leading the effort on behalf of the bill. He said that the legislation would limit what he called “an anomaly in the Bankruptcy Code which prohibits judicial modifications of principal residences, even though every other class of asset . . . is eligible for such treatment.” Conyers said the change would protect “honest Americans struggling to keep their homes in the midst of a once in a lifetime economic calamity” and would also “limit the downward cycle of foreclosures that are now damaging our neighborhoods, while, at the same time, protecting financial intermediaries and ensuring that judicial modification is considered only after every reasonable effort has been taken to achieve voluntary modification outside of the bankruptcy.”

Rep Smith (R-TX), the Ranking Republican on the House Judiciary Committee and one of the leaders of the Republican opposition to the expanded bankruptcy provision, acknowledged that the “serious economic recession . . . is worsened by the foreclosure crisis. Until we address the rising number of foreclosures, it will be difficult for the economy to recover.” He also agreed that “some of what is in this bill will be helpful.” Smith then went on to summarize the reason the Republicans were opposing the bill by saying: “This bankruptcy provision not only will fail to solve the foreclosure crisis, but also will make the crisis deeper, longer and wider. Allowing bankruptcy judges to rewrite mortgages will increase the overall cost of lending. Lenders and investors will hesitate to put up capital in the future if they fear that judges will rewrite the terms of their mortgage contracts. Less available capital and increased risk means that borrowers will pay higher interest rates in the future. Allowing bankruptcy judges to rewrite mortgages will also encourage borrowers to file for bankruptcy. “

Rep. Wasserman-Schultz (D-FL) responded to Rep Smith by referring to the proposed change in the bankruptcy law as a “lifeline” that must be thrown to homeowners. She said the current system of “voluntary modification” of mortgages “is just not working, and our current bankruptcy laws fail our families.” She added that she knew “some well-meaning opponents believe families will rush headlong into filing for bankruptcy. We all know, however, that the grave consequences of filing for bankruptcy means it will always be a last resort.”

The bill passed by a vote of 234-191. Two hundred and twenty-seven Democrats and seven Republicans voted “aye”. One hundred and sixty-seven Republicans and twenty-four Democrats voted “nay”. As a result, the House passed and sent on to the Senate the bill designed to prevent mortgage foreclosures and increase the availability of mortgage credit.