Will Senate Spit or Swallow the Cramdown Bill?

Struggling homeowners who've been considering filing Chapter 13 bankruptcy may soon receive good news. A new piece of legislation referred to formally as the "Helping Families Save Their Home Act," or more commonly as the "cram down bill," is on its way to the Senate.

Designed to complement President Obama's strategies to quell the nation's foreclosure and economic crises, the cram down bill would allow bankruptcy judges to modify the terms of a person's mortgage if they face losing their property to foreclosure.

Under the proposed bill, judges could reduce the loan's interest rate, lengthen the loan term, and decrease the principal amount owed. All of these actions would ultimately result in lower monthly payments for the homeowner, and allow him and his family to remain in the home.

Loan modification is not a new solution for distressed homeowners, but lenders currently only modify loans on a voluntarily basis. Lenders have all the power, and homeowners are subject to whatever agreement the bank sets out. With the new cram down legislation however, bankruptcy judges will be able to override stubborn lenders, and help families save their homes

While the cram down bill would certainly help those who are facing bankruptcy and foreclosure, the bill also has the potential to strengthen our economy as a whole.

Wherever there is a foreclosure, the property value of every home on the street is affected. This in turn upsets the economic viability of entire neighborhoods and communities, then states, then the nation.

With global markets in such dire straits as they're currently in, it's critical that the number of foreclosures in this country is quelled. The cram down bill is but one measure planned to help achieve this goal.

Mortgage companies, some moderate Democrats, and a large number of Republicans are opposed to the cram down bill, arguing that it'll only make matters worse. Not only do lenders face the prospect of losing money on these modified loans, but some believe that a proposal like this only serves to reward the financially irresponsible, and punish those who practiced fiscal restraint.

While it is certainly true that many Americans purchased homes that were beyond their means, it is also true that lenders must own their share of the responsibility for issuing loans to people who had no reasonable hope of affording them. Regardless of who is to blame, the time has come to look forward. No one can change what happened, so it's time to pull together and come up with practical solutions.

Banks and major corporations have received bail-out funds, so perhaps it's time to bail out those who truly feel the brunt of the economic crisis—the average homeowner.

With layoffs occurring in record numbers and property values continuing to plummet in some regions, many Americans are feeling this recession with acuity. People are struggling to feed their families, fear is setting in, and the economy is slowing down even further. Perhaps the cram down bill will give desperate homeowners a much-needed break—a bail out if you will, so that they won't end up on the streets. Perhaps with their new monthly savings, they can pump money back into the system, and invigorate this slumping economy. How novel a concept—economic revival from the bottom up.

The cram down bill is slated to be taken up by Senate after the April recess.