Homeowner Affordability and Stability Plan and Bankruptcy Cram-Down Legislation

Dechert
February 2009

What the Cram-Down Legislation Means to Mortgage Lenders, Servicers and Investors

Venable
February 2, 2009   
This Update reviews Chapter 13 of the Bankruptcy Code and its cram-down feature in light of bills in the House and Senate that would allow bankruptcy judges the power to cram-down mortgages to their current value (thus effectively turning any amount of secured debt in excess of the revalued mortgage into unsecured debt) using Chapter 13. Noting that there “[t]here is a sense of inevitability that Congress will pass legislation allowing a Chapter 13 bankruptcy plan (also referred to as a wage-earner’s plan),” the Alert reviews how a cram-down will work in respect of mortgages and the likely impact of the “tsunami” of Chapter 13 filings (predictions of  2 to 3 million) on the financial services industry.