NY Fed Reserve Staff Paper: Prior Bankruptcy Reform Shifted Risk from Unsecured Card Holders to Secured Lenders.

Paper, Seismic Effects of the Bankruptcy Reform, is HERE :

Main thesis:

"Our specific argument is that [2005 Bankruptcy Reform Act] BAR contributed to the surge in subprime foreclosures by shifting risk from unsecured credit card lenders to secured mortgage lenders. Before BAR, any household could file Ch. 7 bankruptcy and have credit cards and other unsecured debts discharged. Sidestepping unsecured debts left more income to pay the mortgage. BAR blocked that maneuver by way of a means test that forces better-off households who demand bankruptcy to file Ch. 13, where they must continue paying unsecured lenders. When the means test binds, cash constrained mortgagors who might have saved their home by filing Ch. 7 are more likely to face foreclosure or to have to sell their home."

Later in the paper the authors state:
"The estimated impact of BAR on subprime foreclosures is substantial. For a state with average home equity exemption, the average subprime foreclosure rate over the seven quarters after BAR was 12.6 percent higher than the average subprime foreclosure rate over all states over the period before BAR. This translates to just over 32,000 more subprime foreclosures nationwide per quarter due to BAR"

Thursday U.S. Housing Related Legislative Update:1 for 2.

The Senate punted, until next week, on the 2009 Omnibus appropriations bill (H.R. 1105)

The House passed the revised bankruptcy bill (H.R. 1106)

Bankruptcy, AKA Judicial Loan Modification, Bill Set for House Vote.

Washington Post news story HERE has account of what has been changed in bill.

One of key changes is to provide a safe harbor to exclude loans where borrower was offered a "qualified loan amendment" under the March 4th guidelines.

The amendment to H.R. 1146 is HERE.

The Thomas page for the H.R. 1146 is HERE.

Bankruptcy Bill House Vote Next Week? Changes in the Works?

Housing Wire has interesting story HERE of H.R.1106 progress.

Debate started today in House, but appears that some deal making might be going on behind the scenes.

Revised Mortgage Bankruptcy Bill (with other provisions) Referred to House Committees.

A revised mortgage bankruptcy bill has been introduced in the House and referred to Judiciary, Financial Services, and VA Committees.

Former bill was H.R. 200, marked up bill is now H.R. 1106 and it's web page is HERE.

(Some other loan modification provisions and VA/FHA changes are also included in the bill).

Credit Suisse Paper Says 20% of Foreclosures Could be Avoided Via Bankruptcy Reform Bill.

Paper is HERE.

NY Times story about foreclosures HERE references the paper.

Paper also provides:

• A summary of Chapter 13 bankruptcy process,
• A side to side comparison of loan modifications, the proposed bankruptcy bill, and FHA Hope for Homeowner provisions.
• An example showing impact of bankruptcy bill provisions.

House Judiciary Passes Committee Amended Foreclosure Bankruptcy Bill.

WSJ story HERE provides some details of amendments that were made before passage in the Committee. ( I don't see a reference but my recollection is that Citigroup prior agreement referred to in the story also required that borrowers demonstrate a violation of Truth in Lending Act).

This is Thomas background for the bill, H.R. 200. (Current text of bill does not include amendments, Look for a future amended version of the bill)

Update to Citigroup Cramdown Agreement Post Includes Citigroup Letters; Mortgage Bankers Association Still Opposed.

WSJ has good follow up story this morning, including links to PDF's of letters from Citigroup President to Senate and House.

Story is HERE.

New Study from Bankruptcy Attorneys Says that Loan Modification Programs Not Working.

The National Association of Consumer Bankruptcy Attorneys (NACBA) issued press release HERE saying that new study shows loan modification programs are not working well. From their press release:

• "Less than 10 percent of the time do the voluntary programs result in a reduced principal loan balance with more than half of modifications capitalizing unpaid interest and fees into larger and more drawn out debt on the back end of the mortgage; and

• Only about a third (35 percent) of voluntary mortgage modifications reduce monthly payment burdens for homeowners, with nearly half (45 percent) actually saddling distressed homeowners with increased payments under the modifications."

Link to December 08 update to original study done in August 08 is HERE. (Link within this document will take you to the original August study).