Senate Rejects Bankruptcy 'Cramdown' Provision

Statement

Senate Rejects Bankruptcy 'Cramdown' Provision

Senator John Thune today issued the following statement after the U.S. Senate rejected an amendment to the Housing Bill (S.896) that would have allowed judges to rewrite mortgage terms for homes nearing foreclosure:

"The majority of South Dakotans acted responsibly by not buying houses they could never afford, and our states' lenders have exercised similar common sense. This amendment would have rewarded the bad behavior by lenders and borrowers in other states that contributed to the foreclosure crisis which has negatively impacted our economy. Rewarding bad behavior only encourages more of it, and the Senate did the right thing in rejecting the so-called `cramdown' provision."

The amendment would have authorized judges to "cramdown" mortgages by reducing interest rates and lowering the overall mortgage amounts for borrowers facing foreclosure.

The Senate failed to invoke cloture on the amendment by a vote of 45 to 51.

Although the House passed the cramdown provision as part of a separate Housing measure earlier this year, many believe that allowing judges the ability to unilaterally alter the terms of mortgage contracts, including lowering the interest rate and the overall mortgage amount, would have a negative impact on responsible borrowers because interest rates would likely rise to cover the risk associated with the threat of judges rewriting mortgage contracts.

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