	Mortgage Market Backdrop

The U.S. housing market began to slow in early 2006 and has led to what many economists believe is the worst housing finance environment since the Great Depression of the 1930s. As a result, there has been a significant rise of late mortgage payments, foreclosures, and bankruptcies nationwide. High unemployment has exacerbated these problems. However, there are a number of obstacles that have operated to discourage mortgage servicers and creditors from performing loan modifications in advance of foreclosure or a petition for bankruptcy, even in situations in which a modification would be the most economically beneficial outcome for most interested parties. There are many barriers to a successful loan modification. One notable obstacle is the way in which mortgage servicers are paid. Thus, servicers often receive more in compensation through a foreclosure than they do through loss mitigation or loan modification. This is especially true where a servicer goes through the time and effort of offering a borrower a modification only to have the borrower redefault in the near future. At least four bills that would amend Section 1322 of the U.S. Bankruptcy Code have been introduced in the 111 th Congress. 200 (the Helping Families Save Their Homes in Bankruptcy Act of 2009); H.R. 1106 (the Helping Families Save Their Homes Act of 2009); and H.R. 225 (the Emergency Home Ownership and Mortgage Equity Protection Act). Additionally, an amendment, S.Amdt. 1014 , to S. 896 (the Helping Families Save Their Homes Act of 2009; Senate companion bill to H.R. 1106 ) would allow for the judicial modification of certain mortgages in bankruptcy but was voted down 45-51 and withdrawn on April 30, 2009. 111-22 without making any changes to the Bankruptcy Code. More recently, during floor consideration of H.R. 4173 , the Wall Street Reform and Consumer Protection Act of 2009, the House voted down an amendment that would have allowed strip down of certain mortgages in bankruptcy. 018 as printed in H.Rept. 111-370 ) failed by a vote of 188-241. This report provides an overview of the general Chapter 13 process and analyzes how these pieces of legislation seek to amend Chapter 13. Overview of Chapter 13

Bankruptcy provides an avenue by which debtors may get relief from their debts. The Code provides courts some leeway to adjust the value of certain debts. For many secured debts, the court has "strip down"—also, commonly referred to as "cram down"—authority. Strip down is the power to lower, over the creditor's objections, the amount the debtor must pay the creditor for the secured claim to as low as the collateral's fair market value. Bill Comparisons

		S. 61

S. 61 (the Helping Families Save Their Homes in Bankruptcy Act of 2009), as introduced, would allow for certain modifications of debts secured by the debtor's primary residence "that is the subject of a notice that a foreclosure may be commenced." H.Amdt. 534 to H.R. S. 896 was signed into law on May 20, 2009, as P.L.
The U.S. housing market began to slow in early 2006 and has led to what many economists believe is the worst housing finance environment since the Great Depression of the 1930s. As a result, there has been a significant rise in late mortgage payments, foreclosures, and bankruptcies nationwide. High unemployment has exacerbated these problems.
Mortgage market participants may voluntarily agree to adjust mortgage terms in order to help troubled borrowers continue to stay in their homes. However, there are a number of obstacles that may discourage mortgage servicers and creditors from performing loan modifications in advance of a petition for bankruptcy, even in situations in which a modification would be the most economically beneficial outcome for the majority of interested parties. There are many barriers to a successful loan modification. One notable obstacle is the way in which mortgage servicers are paid. Servicers often receive more in compensation through a foreclosure than they do through loss mitigation or loan modification. This is especially true where a servicer goes through the time and effort of offering a borrower a modification only to have the borrower redefault in the near future.
Bankruptcy provides an avenue by which debtors may get relief from their debts. Chapter 13 of the U.S. Bankruptcy Code governs reorganizations for most individuals. The Code provides courts some leeway to adjust the value of certain debts. For many secured debts, the court has "strip down"—also, commonly referred to as "cram down"—authority. Strip down is the power to lower, over the creditor's objections, the secured claim to as low as the collateral's fair market value and treat the balance of the debt as an unsecured claim. However, Section 1322(b)(2) of the Code prohibits the strip down of debts secured by the debtor's primary residence.
At least four bills that would amend Section 1322 of the Bankruptcy Code have been introduced in the 111th Congress. These bills are S. 61 and H.R. 200 (the Helping Families Save Their Homes in Bankruptcy Act of 2009), H.R. 1106 (the Helping Families Save Their Homes Act of 2009), and H.R. 225 (the Emergency Home Ownership and Mortgage Equity Protection Act). Additionally, an amendment, S.Amdt. 1014, to S. 896 (the Helping Families Save Their Homes Act of 2009; Senate companion bill to H.R. 1106) would allow for the judicial modification of certain mortgages in bankruptcy but was voted down 45-51 and withdrawn on April 30, 2009. S. 896 was signed into law on May 20, 2009, as P.L. 111-22 without making any changes to the Bankruptcy Code. More recently, during floor consideration of H.R. 4173, the Wall Street Reform and Consumer Protection Act of 2009, the House voted down an amendment that would have allowed strip down of certain mortgages in bankruptcy. H.Amdt. 534 (Amdt. 018 as printed in H.Rept. 111-370) failed by a vote of 188-241.
This report provides an overview of the general Chapter 13 process and analyzes how these pieces of legislation would amend certain sections of Chapter 13.