This was a vote on an amendment offered by Rep. Marshall (D-GA) that would have allowed bankruptcy courts to modify and reduce the amount of home mortgages, extend the mortgage repayment periods, and reduce the interest rate and fees on them to prevent foreclosure. Under existing law, bankruptcy courts have the authority to modify many loans, including car loans and mortgages on vacation houses. That modification authority does not extend to first mortgages on primary residences.
The amendment was offered to H.R. 4173, a major financial reform bill which implemented the most significant changes in the regulation of the financial industry since The Great Depression.
In his statement in support of the amendment, Rep. Marshall said it “is intended to address (the) foreclosure crisis without taxpayers having to put money into the deal. It essentially forces the parties to deal with their problems without having vacancies and foreclosures in our neighborhoods. In that sense, it helps all lenders with real estate portfolios. It helps the individuals whose homes might be foreclosed upon. It actually helps the creditors, who . . . in almost every instance (would have) their portfolios improved by not having as many houses in foreclosure, and in almost every instance, they get better deals . . . than they would in the normal foreclosure process.”
Rep. Smith (R-TX) began his opposing statement by saying that the “number one cause of foreclosures today is job loss. The number two cause is homes which are mortgaged for more than they are worth (and) . . . (T)he jobless (who are losing their homes) do not have the steady incomes that are required to (continue paying on the mortgages even if their principal and interest were reduced)” Smith also argued: “Allowing bankruptcy courts to (reduce) mortgage principal will only lead to higher interest rates and tougher mortgage terms for all future homeowners.”
Rep. Marshall responded first by noting that, under his amendment: “If, in fact, you are jobless and don't have income, you are not eligible for (the reduction) . . . It is those who do have jobs and who do have income who could survive if they had the opportunity to restructure their debt. They would be eligible. It's only those folks. As far as increasing the cost of credit is concerned, this bill . . . doesn't apply to future credit. Many, many experts have looked at this and have concluded that it will not increase the cost of future credit.”
Rep. Goodlatte (R-VA), who also opposed the amendment, said that its ultimate effect would be to “make the (foreclosure) crisis deeper, longer, and wider.” He claimed that reducing the amount of mortgages “will invariably lead to higher interest rates and to less generous borrowing terms for future borrowers.” Goodlatte then claimed that “many borrowers walk away from their homes, not because they can't afford their monthly payments, but because their homes are mortgaged for more than they are worth. These borrowers should live with the responsibility of their decisions and not receive bailouts from bankruptcy courts. “
Goodlatte concluded his remarks by noting that the reductions that would be allowed as a result of the amendment “will not only impact lenders but investors as well. These investors often include pension funds, which represent the retirement savings of millions.”
The amendment was defeated by a vote of 188-241. One hundred and eighty-four Democrats, including a majority of the most progressive Members, and four Republicans voted “aye”. One hundred and seventy Republicans and seventy-one Democrats voted “nay”. As a result, language was not added to the major financial reform bill that would have allowed bankruptcy courts to modify home mortgages to prevent foreclosures.