A legislative proposal (S.61) that would allow Bankruptcy judges to modify first mortgage debt in certain bankruptcy cases appears to be losing momentum in the U.S. Senate. The so-called “Cramdown” legislation, which passed a key vote in the House of Representatives in early March, has been facing more opposition in the Senate and has forced the bill’s primary sponsor, Richard Durbin (Democratic Senator from Illinois) to not push the bill as strongly.  The Cramdown legislation would allow a bankruptcy judge to essentially shrink a consumer’s mortgage to an amount that is affordable in order to avoid foreclosure.

Two groups, the American Bankers Association and the Mortgage Bankers Association, have voiced strong opposition against the proposed legislation. Bankers have stated that the Obama administration’s Homeowners Affordability and Stability Plan, which includes provisions to modify loan payments down to 31% of a borrower’s income, makes further mortgage modification through a bankruptcy proceeding repetitive. The Bankers Associations attempted to negotiate with Senator Durbin to allow cramdowns to apply only to subprime loans, however, the Senator was not willing to negotiate such terms.

In an attempt to save the cramdown legislation, Charles Schumer (Democratic Senator from New York) is trying to tack the cramdown measure to other pending legislation being considered in the Senate.