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    Possibly No Cram Down Legislation?

    Legislation to allow Judicial modificaiton of mortgages in Bankruptcy seemed like almost a done deal in February, 09.  Now it seems the opposite may ensue.  If this is the case, the housing market will surely not stabalize for quite some time.  Below is an excerpt from CQ Today on April 22, 2009:


    Compromise Not in Sight in Battle Over ‘Cramdown’ Mortgage Legislation By Phil Mattingly, CQ Staff

    Senate Democrats appear to be running out of options for finding a broadly acceptable compromise on mortgage legislation they are negotiating.

    The board of the National Association of Federal Credit Unions (NAFCU) voted unanimously Wednesday to oppose a deal on draft legislation that would allow bankruptcy judges to modify mortgage terms for troubled homeowners — a practice often referred to as “cramdown.”

    Fred R. Becker, NAFCU’s president, announced the board’s vote in a letter to Senate Majority Whip Richard J. Durbin of Illinois, the Democrats’ point man on the bankruptcy language.

    The trade association tempered its opposition in follow-up comments released Wednesday night. Pointing to two potential compromise points, “NAFCU looks forward to an ongoing dialogue with Sen. Durbin and his staff regarding bankruptcy legislation. We thank the senator and his staff for their continuing efforts,” the statement said.

    But the credit union trade group marks the second major player to walk away from the negotiating table in recent days, following the Independent Community Bankers Association’s exit last week.

    “Our members are just not in the position to go along with what is currently on the table,” said Steve Verdier, a senior vice president for ICBA.

    Without reaching an agreement with major banking groups, credit unions and community bankers, Democrats’ chances of gaining a filibuster-proof 60 votes for the bill in the Senate are even more remote.

    Despite these obstacles, top Democrats maintained Wednesday that negotiations were on track. “We’re working,” said Sen. Charles E.

    Schumer, D-N.Y. “Everything’s on the table.”

    There remain potential ways forward for a deal — most notably limiting the legislation to apply to only subprime and non-traditional mortgages, something most groups opposed to the legislation have agreed would make it more palatable to them. A bipartisan group of moderate senators pushed for such a provision early in the negotiations.

    But consumer advocates have largely dismissed that option, noting that much of the subprime market disappeared with the implosion of the mortgage market. That leaves, advocates say, a broad application of the bankruptcy provision as the only way forward.

    During the last week of the spring recess, the negotiating parties were limited primarily to Durbin’s staff and representatives from the major banks, credit unions and consumer advocate groups.

    Options on the Table

    Lawmakers have been considering several options, including instituting a sunset for the provision in 2014 and prohibiting borrowers who have participated in other aspects of the Obama administration’s $75 billion foreclosure initiative from pursuing the option.

    But short of a significant narrowing of the legislation, senators may be forced to confront the possibility of sending the legislation to the floor without a deal. A Democratic aide familiar with the negotiations, however, said that is not likely.

    A similar situation occurred last year, when Durbin, the primary Senate advocate of the cramdown provisions, offered the language as an amendment to major housing legislation. Lacking a solid deal, he watched as 10 members of his own party voted against the provision.

    “Absent a deal, this bill will not go to the floor,” the aide said, agreeing that negotiations continue and that the intention is for the bill to reach the floor before the Memorial Day recess.

    But the NAFCU pullout marks yet another break in the series of difficult relationships between parties involved with the bill. The Credit Union National Association (CUNA) has largely been on board with negotiations, splitting the two major credit union groups.

    “Because we stayed at the table, we believe we are very close to acceptable resolutions on the two issues mentioned by NAFCU in its letter to Sen. Durbin,” said Dan Mica, the president and chief executive of CUNA. “NAFCU would know that if they had not left the talks.”

    The letter advocated limiting bankruptcy relief to subprime or non-traditional mortgages, as well as exempting loans made by not-for-profit lenders — including credit unions — “who did not contribute to this current crisis.”

    NAFCU said Wednesday night that they would continue to support a deal that included those aspects.

    Not Buying ‘Sweeteners’

    Without an agreement from the major banking representatives — a group that is also split — a deal that could attract the 60 votes needed to overcome a filibuster in the Senate appears unlikely.

    Citigroup signed on to compromise bankruptcy language back in January, but other major banks have refused to go along, eschewing other provisions that Durbin and Schumer offered as “sweeteners.”

    “The negotiations feature a number of competing interests that, in addition to the negative impact to the housing market, make resolution extremely difficult,” said Scott Talbott, the senior vice president for government affairs for the Financial Services Roundtable.

    The Obama administration continues to advocate the bankruptcy provision.

    Treasury Secretary Timothy F. Geithner announced his support for a form of the language during testimony before an oversight panel on Capitol Hill on Wednesday.

    So where does that leave everyone?  Well, in Southern California, its an easy answer.  WALK AWAY.  Why on earth would anyone in their right mind try to maintain a house owing twice what it is worth?  If the house is worth $350,000 but you owe $700,000, and the lender will not voluntarily write the balance down and legislation does not pass to force modification, its absurd to try to try to keep the house.  Why pay $5k or more a month and additional upkeep monies to maintain a house you can rent for 1/3 that price?

    Heck, down the street from me a home that cost $11 million to build just foreclosed for $2.3 million.  I was petrified reading the MLS listings last night.  Homes everywhere in Southern California are crashing harder and faster than any previous appreciation. This housing bubble is nowhere near over.

    If you have other debt too, then WALK AWAY and FILE CHAPTER 7.  Clean your credit, extend the foreclosure process, avoid tax liabilities of a short sale, and eliminate all the rest of your other unsecured debt.  Then start saving up to buy all these foreclosed properties once the crash is over.

    Ask anyone what is better on your credit:  Bankruptcy or Foreclosure.  Its an easy answer.  BANKRUPTCY.  Bankruptcy gets you a much higher credit score, eliminates the rest of your debt, allows you to get future credit sooner, eliminates potential 1099A or 1099C tax liabilities, and extends the foreclosure process to recoup your equity.

    Short Sale and Foreclosures ruin credit, triggers tax liabilities, wastes time and money, and often creates lawsuits airising from loan deficiencies.

    Yes sir…..Federal Chapter 7 of Title 11 of the United States Code…..its the “biggest no brainer in the history of mankind.”

    Ive been doing this now for 15 years.  We have filed over 20,000 cases.  Do you think anyone has ever contacted us with any regrets for doing this?  NOT ONE.   The results speak for themselves.  All we get are “thank yous” and “its the best thing we hae ever done.”  If you dont believe me, just ask anyone that has filed before and see for yourself!

    Written by Michael G. Doan- Owner of the Carlsbad Bankruptcy Attorney‘s office, Michael not only manages his business, but is also a highly skilled San Diego Bankruptcy Attorney with over 17 years of experience. He specializes in many fields, such as: insolvency, bankruptcy, consumer rights, debt negotiation, creditor collection abuse, estate planning, contracts, real estate, and tax. Michael is currently concentrating his practice solely in Bankruptcy Law and is a Board Certified Specialist in Consumer Bankruptcy Law by the American Board of Certification, one of only fourteen such attorneys in all of California.

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