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CUNA urges House Beware of cramdown dangers
WASHINGTON (2/25/09)—Every member of the U.S. House was urged Tuesday by the Credit Union National Association (CUNA) to consider changes to mortgage “cramdown” provisions in H.R. 1106 that are overly broad in scope, application and duration. CUNA supports other provisions of H.R. 1106, which includes measures that would help families stay in their homes, including improvements to the Hope for Homeowners programs and a safe harbor for lenders that modify certain types of mortgages. The bill also includes language that makes permanent the $250,000 deposit insurance limit enacted on a temporary basis in October as part of the Emergency Economic Stabilization Act, as well as language which would allow the National Credit Union Administration (NCUA) as much as five years to replenish the National Credit Union Share Insurance Fund (NCUSIF) when the fund drops below the statutorily required level. CUNA strongly supports these provisions. The House is expected to vote Thursday on the bill. In a letter to each House member, CUNA, however, encouraged lawmakers to consider amendments that would limit the application of the bill’s cramdown proposal to the subprime and nontraditional mortgages that caused the housing crisis and that would provide a firm sunset on the authority conveyed to the bankruptcy courts through this legislation. CUNA President/CEO Dan Mica wrote that since late 2007, when the subprime mortgage crisis developed, credit unions have recognized the need for Congress to take steps to try to keep people in their homes. “In fact, credit unions were the first group of mortgage lenders to be open to legislation that would provide limited loan modifications in bankruptcy,” Mica wrote, referring to an action known as a “cramdown.” “We have worked since that time to ensure that this legislation be targeted to the mortgages that have caused the problem, and limited to address the crisis at hand,” the Mica letter said. He noted that a major housing initiative announced by President Barack Obama last week proposes a more focused approach, and views bankruptcy as borrowers’ last option to retain their house. “A lender that made a mortgage loan using good underwriting standards should not bear the risk of a decline in the house’s value. The adoption of a broad amendment could result in a number of bankruptcy filings by people who are capable of paying their current mortgages,” Mica warned the House members.


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