WASHINGTON – U.S. Senator Dick Durbin (D-Ill.) introduced legislation yesterday that would allow bankruptcy judges to modify the terms of troubled mortgages on primary residences.

NAFCU Director of Legislative Affairs Brad Thaler said the organization supports cramdowns in instances where homeowners received subprime mortgage loans. But also pointed out that the practice brings up a host of issues such as whether or not when a house under a cramdown is sold at a profit, a lender can recoup the money from the loss. In addition, cramdowns could potentially raise the cost of mortgages for all borrowers as the risk to the lender would have to be priced in.

According to NAFCU's latest Flash Report, nearly all (88.4%) credit unions responding indicated they do not support mortgage cramdowns on primary residences.

President-elect Barack Obama supports cramdowns. He has said that the current legal practice protects the subprime mortgage lending industry at the expense of homeowners and criticized the current law as it allows cramdowns on second homes but not on primary residences.

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