[Senate Report 110-514]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 911
110th Congress                                                   Report
                                 SENATE
 2d Session                                                     110-514

======================================================================



 
      HELPING FAMILIES SAVE THEIR HOMES IN BANKRUPTCY ACT OF 2008

                                _______
                                

  September 26 (legislative day, September 17), 2008.--Ordered to be 
                                printed

                                _______
                                

Mr. Leahy, from the Committee on the Judiciary, submitted the following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                         [To accompany S. 2136]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to which was referred the 
bill (S. 2136), to address the treatment of primary mortgages 
in bankruptcy, and for other purposes, having considered the 
same, reports favorably thereon, with an amendment, and 
recommends that the bill, as amended, do pass.

                                CONTENTS

                                                                   Page
  I. Background and Purpose of the Helping Families Save Their Homes in 
     Bankruptcy Act of 2008...........................................2
 II. History of the Bill and Committee Consideration..................7
III. Section-by-Section Summary of the Bill...........................9
 IV. Congressional Budget Office Cost Estimate.......................13
  V. Regulatory Impact Statement.....................................16
 VI. Conclusion......................................................16
VII. Minority Views of Senators Specter, Hatch, Grassley, Kyl, 
     Brownback, Cornyn and Coburn....................................17
VIII.Changes to Existing Law Made by the Bill, as Reported...........23


 I. Background and Purpose of the Helping Families Save Their Homes in 
                         Bankruptcy Act of 2008

    As the number of foreclosures in the United States 
continues to rise to historic levels--threatening the economy 
overall and the families at risk in particular--further 
congressional action is required to help as many families as 
possible save their homes.
    Risky lending practices in the subprime mortgage market 
have put nearly two million families in danger of losing their 
homes to foreclosure before the end of 2009.\1\ These families 
are typically either trapped in ``exploding'' subprime loans 
they can no longer afford due to upward adjustments in mortgage 
interest rates, or are saddled with mortgage debts that far 
exceed the value of their homes due to rapidly declining 
housing markets.\2\ The problem is expected to continue to 
worsen throughout 2008 and 2009; noted economist Robert 
Schiller, who pioneered the Case-Schiller housing index, has 
said that housing prices could fall further than the 30% 
reduction experienced during the Depression of the 1930s.\3\
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    \1\See The Looming Foreclosure Crisis: How To Help Families Save 
Their Homes, Hearing before the S. Comm. on the Judiciary, 110th Cong. 
(December 5, 2007) (prepared statement of Mark Zandi, Chief Economist 
and Co-Founder, Moody's Economy.com) (``I expect approximately 2.8 
million mortgage loan defaults (the first step in the foreclosure 
process) in 2008 and 2009. Of these, 1.9 million homeowners will go 
through the entire foreclosure process and ultimately lose their 
homes'').
    \2\See Edmund Andrews, Relief for Homeowners Is Given to a Relative 
Few, The New York Times, March 4, 2008 (``With housing prices falling, 
analysts estimate that about 30 percent of all subprime loans written 
in 2005 and 2006 are for more than the current sales value of the homes 
that secure them'').
    \3\John Christoffersen, U.S. Housing Slump May Exceed Depression: 
Shiller, Associated Press, April 22, 2008.
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    The foreclosure crisis is threatening the overall economy 
at the same time that it strikes every neighborhood in which a 
foreclosure occurs. According to the International Monetary 
Fund, $565 billion will be lost on investments in U.S. home 
mortgages.\4\ The IMF also predicts that the overall credit 
crisis, which was instigated by and continues to be fueled by 
the rising number of foreclosures, will cause $1 trillion in 
worldwide losses.\5\ And in each neighborhood in which any 
foreclosures occur, homeowners who have never missed a mortgage 
payment will still lose $8,667 on average in the value of their 
homes; these 40.6 million homeowners who do not face 
foreclosure are expected to lose over $352 billion in value 
from their primary store of wealth.\6\
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    \4\Neil Irwin, IMF Puts Cost of Crisis Near $1 Trillion, The 
Washington Post, April 9, 2008.
    \5\Id.
    \6\Center for Responsible Lending Issue Brief, Updated Projections 
of Subprime Foreclosures in the United States and Their Impact on Home 
Values and Communities, August, 2008, available at http://
www.responsiblelending.org/pdfs/updated-foreclosure-and-spillover-
brief-8-18.pdf.
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    To respond to this crisis, it is imperative to craft 
policies that will avoid home foreclosures. Reducing the 
principal owed on mortgages to a level that the homeowners can 
afford to repay--without reducing the principal below what the 
homes are worth so that the lenders are not left with less 
collateral than the value of the debts owed on the underlying 
assets--represents one of the most effective ways to avert 
foreclosures. Federal Reserve Chairman Ben Bernanke has made 
this argument,\7\ and 71 percent of economists who responded to 
a Wall Street Journal poll agreed.\8\ A National Association of 
Realtors analyst has said that for the homeowners this 
assistance ``provides incentive not to walk away.''\9\
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    \7\Chairman Ben S. Bernanke, Chairman of the Board of Governors of 
the Federal Reserve System, Reducing Preventable Mortgage Foreclosures: 
Speech at the Independent Community Bankers of America Annual 
Convention, Orlando, Florida, March 4, 2008, available at http:// 
www.federalreserve.gov/newsevents/speech/bernanke20080304a.htm (``* * * 
principal reductions that restore some equity for the homeowner may be 
a relatively more effective means of avoiding delinquency and 
foreclosure [than interest rate reductions]).''
    \8\Phil Izzo, Real Time Economics Blog: Housing Market Has Further 
to Fall, The Wall Street Journal, March 13, 2008, available at http://
blogs.wsj.com/economics/2008/03/13/housing-market-has-further-to-fall/ 
(referring to the then-latest Wall Street Journal forecasting survey 
and stating that ``Last week, Federal Reserve Chairman Ben Bernanke 
suggested that lenders could aid struggling homeowners by reducing 
their principal--the sum of money they borrowed--to lessen the 
likelihood of foreclosure. Some 71 percent of respondents agreed with 
the suggestion''). See also The Looming Foreclosure Crisis: How To Help 
Families Save Their Homes, Hearing before the S. Comm. on the 
Judiciary, 110th Cong. (December 5, 2007) (prepared statement of Henry 
J. Sommer, President of the National Association of Consumer Bankruptcy 
Attorneys) (``Allowing homeowners to file chapter 13 plans that modify 
their mortgage debts and reduce their payments would utilize an 
existing, efficient, well-established, and predictable template to 
prevent foreclosures * * * No other legislative proposal has the 
potential to save nearly as many homes'').
    \9\Id., (citing Lawrence Yun of the National Association of 
Realtors).
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    Rather than advocating for proposals that would feature a 
reduction in principal where warranted, in response to the 
crisis the Bush Administration established the HOPE NOW 
program, through which mortgage servicers can volunteer to help 
distressed borrowers.\10\ However, meaningful assistance from 
the HOPE NOW-affiliated banks has been the exception rather 
than the rule, and the scale of the crisis dwarfs the volume of 
the voluntary response. According to a HOPE NOW official, only 
a very small group of borrowers are likely to get their 
mortgage principal reduced outright\11\ and, therefore, most of 
the homeowners who are in need of assistance will receive only 
minor changes to the mortgage rather than a restructuring that 
will help the homeowners continue to make timely payments over 
the long term. HOPE NOW refuses to provide detailed data on the 
number of loan modifications its servicers make by modification 
type; rather, it lumps loan workouts in which the principal is 
reduced with other types of workouts (which may only delay 
foreclosure rather than prevent it), such as interest rate 
changes, changes in the length of the loan, and so on.\12\
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    \10\HOPE NOW press release, HOPE NOW Alliance Created to Help 
Distressed Homeowners, October 7, 2008, available at http://
www.hopenow.com/media/press_releases/Distressed_Homeowners.html.
    \11\David Cho and Renae Merle, Merits of New Mortgage Aid Are 
Debated, The Washington Post, March 8, 2008 (citing Bill Longbrake, ``a 
veteran mortgage banker who helps run the program,'' as saying ``Only a 
very small group of borrowers could get their mortgage principal 
reduced outright'').
    \12\HOPE NOW Press Release, Mortgage Servicers Set Monthly, 
Quarterly Records For Helping Homeowners Avoid Foreclosure, July 30, 
2008, available at http://www.hopenow.com/upload/press_release/files/
June%202008%20Data%20Release.pdf (``A modification occurs any time any 
term of the original loan contract is permanently altered. This can 
involve a reduction in the interest rate, forgiveness of a portion of 
principal or extension of the maturity date of the loan'').
---------------------------------------------------------------------------
    In part, this lack of meaningful loan assistance stems from 
the fact that the interests of loan servicers and mortgage 
investors are misaligned. As reported in Inside B&C Lending, 
``Servicers are generally disincented to do loan modifications 
because they don't get paid for them but they do get paid for 
foreclosures.''\13\ Moreover, according to a Citigroup managing 
director, many loan servicers are ``scared to death'' of being 
sued by investors for making loan modifications.\14\ In 
addition, the holders of second liens (``piggyback mortgages'') 
often refuse to consent to primary mortgage changes even in 
situations in which the servicer and the borrower agree to 
terms.\15\
---------------------------------------------------------------------------
    \13\Inside Mortgage Finance's Inside B&C Lending, Subprime Debt 
Outstanding Falls, Servicers Pushed on Loan Mods, November 16, 2007.
    \14\ARM Workout Calls Trigger Fierce Debate, American Banker, 
October 9, 2007 (quoting Tim Bolger, a managing director of Citigroup, 
Inc.).
    \15\See William Launder, Second Liens Proving Hurdle on More Refis, 
American Banker, March 6, 2008.
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    Congress has taken meaningful steps to help ease this 
crisis, in particular by passing the Housing and Economic 
Recovery Act of 2008.\16\ Among its many provisions is a 
program in which approximately 400,000 homeowners could 
refinance their mortgages through the Federal Housing 
Administration, provided that loan servicers volunteer to 
reduce the principal on the loans to 85 percent of the homes' 
current value. But given how rarely servicers have agreed 
voluntarily to reduce loan principals to date, it is unclear 
whether many families will be helped by this program. Regarding 
this bill, economist Mark Zandi has commented that ``it's not 
enough, even in the best of circumstances.''\17\ As the housing 
crisis continues to deepen, reports have indicated that the 
Bush administration could take until 2009 to fully implement 
the new program, even though the legislation specifies that the 
program is effective October 1, 2008.\18\
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    \16\P.L. 110-289.
    \17\Vikas Bajaj, As Housing Bill Evolves, Crisis Grows Deeper, The 
Washington Post, June 29, 2008.
    \18\See Ron Scherer, Big Housing Bill: No Rescues Soon, The 
Christian Science Monitor, August 1, 2008.
---------------------------------------------------------------------------
    The Helping Families Save Their Homes in Bankruptcy Act (S. 
2136) would complement the Housing and Economic Recovery Act by 
providing servicers with much stronger incentives to write down 
mortgage principals and keep families in their homes, since 
servicers would know that if a loan workout is not completed 
then the homeowner could attempt to have the mortgage 
restructured by a bankruptcy judge. The Center for Responsible 
Lending estimates that the bill could help more than 600,000 
financially troubled families keep their homes.\19\
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    \19\Center for Responsible Lending, Foreclosure Prevention Act of 
2008 (S. 2636): Compromise Bill Permits Court-Supervised Modifications, 
Would Save 600,000 Homes, February 27, 2008, available at http://
www.responsiblelending.org/pdfs/senate-bankruptcy-support-brief-
feb27.pdf (referring to title IV of S. 2636, which is the same as the 
Committee-reported version of S. 2136).
---------------------------------------------------------------------------
    To help families save their homes, S. 2136, as reported by 
the Committee, would take several steps, which are summarized 
below. The bill would:
           Eliminate a provision of the bankruptcy law 
        that prohibits Chapter 13 plans from making 
        modifications to mortgage loans on a debtor's principal 
        residence, so that for homeowners who meet strict 
        income and expense criteria, primary mortgages can be 
        treated the same as vacation homes and family farms;
           extend the time frame debtors are allowed 
        for repayment, to support long-term mortgage 
        restructuring;
           waive the bankruptcy counseling requirement 
        for families whose houses are already scheduled for 
        foreclosure sale, so that precious time is not lost to 
        futile counseling that cannot help families save their 
        homes;
           reduce the possibility of future uncertainty 
        in the mortgage market and avoid moral hazard by only 
        allowing subprime and nontraditional mortgages 
        originated as of the date of enactment to be modified;
           ensure that mortgage modification benefits 
        lenders more than foreclosure by providing that 
        bankruptcy judges cannot reduce the principal on a 
        primary mortgage below the fair market value of the 
        home and cannot reduce interest rates below the prime 
        interest rate plus a reasonable premium for risk; and
           ensure that lenders are treated equitably 
        when homes are resold during the life of the bankruptcy 
        plan by returning any positive difference between the 
        sale price and the stripped-down mortgage principal to 
        the lender.
    The bill would take several additional steps to further 
help families get back on their feet financially as they go 
through bankruptcy proceedings. To summarize, the bill would:
           Ensure lenders provide proper notice when 
        assessing fees on debtors in bankruptcy;
           require mortgage bankruptcy fees to be 
        lawful and reasonable;
           allow bankruptcy judges to waive prepayment 
        penalties;
           maintain debtors' legal claims against 
        predatory lenders while in bankruptcy;
           confirm that bankruptcy judges can rule on 
        core issues rather than defer to arbitration;
           enact a higher homestead floor for 
        homeowners over the age of 55, to help older homeowners 
        who are fighting to keep their homes as they go through 
        bankruptcy but live in States with low homestead 
        exemptions; and
           reinforce that consumer protection claims 
        are still available in bankruptcy.
    The bill would not rewrite the core tenets of the 
Bankruptcy Abuse Prevention and Consumer Protection Act of 
2005. Rather, the prohibition on modifying primary mortgages 
that the bill would change dates back to 1978, when most 
mortgages were 30-year, fixed-rate loans that required a 20 
percent down payment.\20\ The bill also would not leave 
financial institutions with losses by letting families 
completely escape from their financial obligations, since the 
bill is structured to encourage families to pay their mortgages 
to the greatest extent that they are able.
---------------------------------------------------------------------------
    \20\As Judge Jacqueline Cox, Bankruptcy Judge for the United States 
Bankruptcy Court for the Northern District of Illinois, testified 
before the Committee, ``[w]hatever justification there might have been 
in 1978 for granting special protection to mortgages on a debtor's 
principal residence has evaporated as the marketplace has produced a 
baffling array of loans based more on a lender's ability to sell than 
on a borrower's ability to repay.'' See The Looming Foreclosure Crisis: 
How To Help Families Save Their Homes, Hearing before the S. Comm. on 
the Judiciary, 110th Cong. (December 5, 2007) (prepared statement of 
Judge Jacqueline P. Cox).
---------------------------------------------------------------------------
    The bill would ensure that mortgage holders receive at 
least the value they would obtain through foreclosure, since a 
foreclosure sale can only recover the market value of the home. 
Lenders would receive much more than foreclosures would 
generate when bankruptcy restructurings are successful and 
families are able to continue paying an interest-generating 
mortgage. Finally, since foreclosures are expensive to lenders, 
keeping the family in the home and paying what they can afford 
can provide substantial cost savings to the mortgage holder.
    In contrast to other legislation that has been proposed to 
address the foreclosure crisis, S. 2136 would not cost the 
Federal Government or Federal taxpayers, and, according to the 
Congressional Budget Office, would actually increase Federal 
revenues and decrease Federal spending.\21\
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    \21\See Section IV below (``CBO estimates that enacting S. 2136 
would reduce direct spending by $13 million over the 2009-2018 period 
and increase revenues by $10 million over the same period'').
---------------------------------------------------------------------------
    The bill would not raise the cost of credit to future 
borrowers. There is no credible evidence to support the 
assertion of the Mortgage Bankers Association that the mere 
possibility of a small subset of mortgages being changed in 
bankruptcy would somehow raise the cost of all mortgages by 1.5 
to 2 percentage points.\22\ To the contrary, an empirical study 
of previous changes to the treatment of primary mortgages in 
bankruptcy indicated that allowing mortgage modification 
``would have no or little impact on mortgage markets.''\23\ 
Moreover, since the bill as reported expressly excludes future 
mortgages from eligibility for modification in bankruptcy, 
there is no way credibly to claim that these same loans will be 
more expensive.
---------------------------------------------------------------------------
    \22\See e.g., Mortgage Bankers Association, Stop the Bankruptcy 
Cram Down Resource Center, available at http://www.mortgagebankers.org/
StopTheCramDown (``If this bill should become law, MBA believes that 
mortgage rates would increase by at least one and a half points''). The 
basis for the MBA's prediction of a 1.5 to 2 percent cost increase is 
the difference in interest rates for mortgages on non-owner-occupied 
investment properties, and the rates for mortgages on owner-occupied 
primary residences. The MBA attributes this difference to the fact that 
the Bankruptcy Code currently permits courts to modify mortgages on 
investment properties. The MBA's calculation disregards the widely 
acknowledged fact that mortgages on non-owner-occupied investor 
properties are riskier for lenders than those on owner-occupied 
residences. This is simply because people are more willing to walk away 
from an investment property than from the home they live in, and an 
investor is subject to risk that the tenant does not pay or damages the 
property. People have to live somewhere, so they are more motivated to 
do what they can to save their home than they are their investments.
    \23\Adam Levitin and Joshua Goodman, The Effect of Bankruptcy 
Strip-Down on Mortgage Interest Rates, Georgetown University Law Center 
Business, Economics and Regulatory Policy Working Paper Series Research 
Paper No 108781, February 6, 2008, available at http://
works.bepress.com/cgi/
viewcontent.cgi?article=1010&context=adam_levitin. From 1978 (when the 
current Bankruptcy Code was enacted) until 1993 (when the Supreme Court 
decided Nobleman v. American Savings Bank, 508 U.S. 324 (1993)), many 
courts across the country believed that bankruptcy judges had the 
authority to modify home mortgages (by treating them as secured up to 
the value of the property only). Lending experience during this 15-year 
period showed that those jurisdictions that permitted strip-downs 
experienced no adverse effects on the cost or availability of credit, 
either as compared with jurisdictions that did not permit strip-downs, 
or as compared with the period after 1993, when strip-downs were no 
longer permitted.
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    This bill enjoys the support of numerous organizations 
including the Credit Union National Association, the National 
Association of Federal Credit Unions, AARP, the Leadership 
Conference on Civil Rights, the National Association for the 
Advancement of Colored People, the National Council of La Raza, 
the Consumer Federation of America, the Center for Responsible 
Lending, ACORN, AFL-CIO, SEIU, UAW, the Central Illinois 
Organizing Project, Consumer Action, the Consumers Union, 
DEMOS, the National Association of Consumer Advocates, the 
National Association of Consumer Bankruptcy Attorneys, the 
National Community Reinvestment Coalition, the National 
Consumer Law Center, the National Fair Housing Alliance, 
National Neighborworks, the National Urban League, the National 
Women's Law Center, and the Opportunity Finance Network.
    Several assertions made in the minority views require 
clarification.
    While the minority argues that ``cram down imposes an 
immediate loss on lenders that they cannot recover when home 
values later appreciate,'' this argument assumes that there 
would still be a mortgage left in the absence of modification. 
To the contrary, for the homeowners who would qualify for this 
bankruptcy provision, the alternatives are not either paying 
the existing mortgage or restructuring it in bankruptcy; the 
alternatives are modifying the mortgage or foreclosure. Lenders 
would be far better off in the long run with a modified 
mortgage from which income can be generated than no mortgage at 
all and a property that must be disposed of via a foreclosure 
sale.
    The minority's claim that ``a consensus exists among 
experts that allowing cram down in bankruptcy would increase 
the cost of borrowing for future homeowners'' is simply false. 
Only one credible statistical analysis has been conducted on 
this question, and as cited in this committee report, that 
analysis concludes that ``permitting bankruptcy modification of 
mortgages would have no or little impact on mortgage markets.''
    The Administration's proposal to stabilize the financial 
markets does indeed raise the stakes for this provision. 
Contrary to the minority's claims, however, allowing judges to 
modify mortgages complements the plan because it raises the 
value of the mortgage-backed assets that the government might 
purchase. If the government begins purchasing $700 billion in 
illiquid assets, most of which will be related to underlying 
mortgages, the government would be better off if the assets 
perform and contribute ongoing revenue, even if that revenue is 
slightly lower than the original mortgages might have provided. 
This is far better for taxpayers than mortgage failure and 
foreclosure, which renders that portion of the mortgage-backed 
security worthless.
    This provision will also complement congressional efforts 
to respond to the current economic crisis because it will allow 
for a quicker assessment of the true value of these illiquid 
assets. As mortgages are modified they turn from nonperforming 
to performing and therefore clarify the value of the mortgage 
and the securities that are derived from it. Since the 
underlying logic to the bailout is to reinvigorate the mortgage 
and credit markets, anything that aids this price discovery 
process is a meaningful addition to the proposal.
    The core of the current economic crisis is the record high 
level of foreclosures. Until the foreclosure crisis is 
addressed, our economy will not recover. The Helping Families 
Save Their Homes in Bankruptcy Act will alleviate our 
foreclosure crisis to the benefit of our homeowners, our 
communities, our economy and our nation.

          II. History of the Bill and Committee Consideration


                      A. INTRODUCTION OF THE BILL

    On October 3, 2007, Senator Durbin introduced the Helping 
Families Save Their Homes in Bankruptcy Act of 2007 as S. 2136. 
It was cosponsored by Senator Schumer (D-NY). After 
introduction, Senators Biden (D-DE), Boxer (D-CA), Brown (D-
OH), Clinton (D-NY), Dodd (D-CT), Feinstein (D-CA), Harkin (D-
IA), Kerry (D-MA), Menendez (D-NJ), Obama (D-IL), Reed (D-RI) 
and Whitehouse (D-RI) joined as cosponsors.

                       B. COMMITTEE CONSIDERATION

    On December 5, 2007, the Senate Committee on the Judiciary 
held a hearing on the bill chaired by Senator Durbin. The 
hearing was titled ``The Looming Foreclosure Crisis: How To 
Help Families Save Their Homes.'' The hearing was attended by 
Senator Durbin, Ranking Member Specter, and Senator Sessions. 
The witnesses testifying at the hearing were Nettie McGee, a 
homeowner from Chicago, IL; Mark Zandi, Chief Economist of 
Moody's Economy.com, Inc.; Professor Joseph Mason of Drexel 
University; Professor Mark Scarberry, Professor of Law at 
Pepperdine School of Law and Resident Scholar of the American 
Bankruptcy Institute; The Honorable Jacqueline P. Cox, United 
States Bankruptcy Judge for the United States Bankruptcy Court 
for the Northern District of Illinois in Chicago, IL; The 
Honorable Thomas Bennett, United States Bankruptcy Judge for 
the United States Bankruptcy Court for the Northern District of 
Alabama in Birmingham, AL; and Henry J. Sommer, President of 
the National Association of Consumer Bankruptcy Attorneys.
    The Senate Committee on the Judiciary, with a quorum 
present on March 6, 2008, began consideration of S. 2136. On 
that date, the Committee adopted without objection a substitute 
amendment offered by Senator Durbin. The substitute amendment 
modified the bill as introduced to provide that:
           Only loans originated prior to the date of 
        the bill's enactment would be eligible for modification 
        in bankruptcy;
           only subprime and nontraditional loans would 
        be eligible for modification in bankruptcy;
           the maximum revised loan term would equal 
        the longer of 30 years or the time remaining under the 
        original mortgage;
           if the borrower were to sell the home during 
        the life of the bankruptcy plan, the lender would 
        receive any profit derived from the difference between 
        the marked-down mortgage value and the appreciated sale 
        price up to the original value of the mortgage; and
           no fees could be assessed within bankruptcy 
        without proper notice by the creditor (this provision 
        would no longer be contingent on the value of the home 
        being greater than the principal debt outstanding).
    The Committee did not complete consideration of S. 2136 on 
March 6. On April 3, 2008, the Committee reconvened and resumed 
debate on S. 2136, as amended by the Durbin substitute. The 
Committee considered an amendment offered by Senator Specter, 
which would have struck the text of S. 2136 and replaced it 
with the text of Senator Specter's bill, S. 2133. S. 2133 would 
have permitted modification in bankruptcy court of mortgages on 
primary residences, but with certain restrictive exclusions and 
conditions including the following:
           Families would not be eligible for mortgage 
        modification in bankruptcy court if their income 
        exceeded certain thresholds linked to state median 
        income, meaning that families in high-cost of living 
        areas in many states would likely be excluded from 
        eligibility;
           only mortgages obtained prior to September 
        26, 2007 would be eligible for modification; and
           any modification ordered by the bankruptcy 
        judge to the principal amount of the mortgage would 
        have to be agreed upon in writing by the holder of the 
        mortgage in order to become effective, meaning that 
        lenders would have effective veto power over any 
        principal modification ordered by a bankruptcy judge.
    Senator Specter's amendment was rejected on a roll call 
vote.
    The vote record is as follows:

                         TALLY: 9 YEAS, 10 NAYS

    Yeas (9): Brownback (R-KS), Coburn (R-OK), Cornyn (R-TX), 
Graham (R-SC), Grassley (R-IA), Hatch (R-UT), Kyl (R-AZ), 
Sessions, (R-AL), Specter (R-PA).
    Nays (10): Biden (D-DE), Cardin (D-MD), Durbin (D-IL), 
Feingold (D-WI), Feinstein (D-CA), Kennedy (D-MA), Kohl (D-WI), 
Leahy (D-VT), Schumer (D-NY), Whitehouse (D-RI).
    The Committee then voted to report the Helping Families 
Save Their Homes in Bankruptcy Act, as amended, favorably to 
the Senate. The Committee proceeded by roll call vote as 
follows:

                         TALLY: 10 YEAS, 9 NAYS

    Yeas (10): Biden (D-DE), Cardin (D-MD), Durbin (D-IL), 
Feingold (D-WI), Feinstein (D-CA), Kennedy (D-MA), Kohl (D-WI), 
Leahy (D-VT), Schumer (D-NY), Whitehouse (D-RI).
    Nays (9): Brownback (R-KS), Coburn (R-OK), Cornyn (R-TX), 
Graham (R-SC), Grassley (R-IA), Hatch (R-UT), Kyl (R-AZ), 
Sessions, (R-AL), Specter (R-PA).
    On April 3, 2008, with a quorum present, the Committee 
ratified without objection the vote to pass S. 2136, as 
amended.

              III. Section-by-Section Summary of the Bill


Section 1. Short title

    This section provides that the legislation may be cited as 
the Helping Families Save Their Homes in Bankruptcy Act of 
2008.

                    TITLE I--MINIMIZING FORECLOSURES

Section 101

    This section amends title 11, section 101 of the U.S. Code 
to provide definitions for the terms ``nontraditional 
mortgage'' and ``subprime mortgage''.
    ``Nontraditional mortgage'' is defined as a security 
interest in the debtor's principal residence that secures a 
debt for a loan that at any period during the term of the loan 
provides for the deferral of payment of principal or interest 
through permitting periodic payments that do not cover the full 
amount of interest due or that cover only the interest due. The 
term is defined to exclude the following: (A) A loan that at 
any period during the term of the loan provides for the 
deferral of payment of principal through permitting periodic 
payments that cover only the interest due, if the creditor 
demonstrates that it determined in good faith at the time the 
loan was consummated, after undergoing a full underwriting 
process based on verified and documented information, that the 
debtor had a reasonable ability to repay at the full interest 
and principal payment amount (assuming an initial 30-year full 
amortization), and payments under the loan resulted in a debt-
to-income ratio of the debtor in an amount equal to or less 
than that which would have been permitted under guidelines and 
directives established by the Secretary of Housing and Urban 
Development pursuant to section 203.33 of title 24, Code of 
Federal Regulations, for loans subject to such section; (B) a 
home equity line of credit that is in a subordinate lien 
position; and (C) a reverse mortgage.
    ``Subprime mortgage'' is defined as a security interest in 
the debtor's principal residence that secures a debt for a loan 
that has an annual percentage rate that is greater than: (A) 
the sum of 3 percent plus the yield on United States Treasury 
securities having comparable periods of maturity, if the loan 
is secured by a first mortgage or first deed of trust; or (B) 
the sum of 5 percent plus the yield on United States Treasury 
securities having comparable periods of maturity, if the loan 
is secured by a subordinate mortgage or subordinate deed of 
trust.
    The definition of ``subprime mortgage'' also provides that 
regardless of whether such loan is subject to or reportable 
under the Home Mortgage Disclosure Act, the difference between 
the annual percentage rate of such loan and the yield on United 
States Treasury securities having comparable periods of 
maturity shall be determined using the procedures and 
calculation methods applicable to loans that are subject to the 
reporting requirements of such Act, except that such yield 
shall be determined as of the 15th day of the month preceding 
the month in which a completed application is submitted for 
such loan. The definition further states that if such loan 
provides for a fixed interest rate for an introductory period 
and then resets or adjusts to a variable interest rate, the 
determination of the annual percentage rate shall be based on 
the greater of the introductory rate and the fully indexed 
rate. For purposes of this definition, the term ``fully indexed 
rate'' is defined as the prevailing index rate on a residential 
mortgage loan at the time the loan is made plus the margin that 
will apply after the expiration of an introductory interest 
rate.

Section 102

    This section amends title 11, section 1322(b) of the U.S. 
Code to create special rules for the modification of loans 
secured by primary residences.
    Section 1322(b)(2) of the bankruptcy code provides an 
exception to the general bankruptcy principle that secured 
debts can be modified. Under 1322(b)(2), a bankruptcy plan may 
modify the rights of holders of secured claims ``other than a 
claim secured only by a security interest in real property that 
is the debtor's principal residence''. This 1322(b)(2) 
exception has prevented mortgages on principal residences from 
being treated like virtually all other secured debts.
    Section 102(a) of S. 2136 would create a new 1322(b)(11) 
providing that notwithstanding Sec. 1322(b)(2) and otherwise 
applicable nonbankruptcy law, a bankruptcy plan may modify an 
allowed secured claim for certain debts secured by a 
nontraditional mortgage or a subprime mortgage (or secured by a 
lien subordinate to such claims) on the debtor's principal 
residence. Such modification is permitted only for secured 
claims for debts that were incurred prior to the effective date 
of S. 2136, meaning that such modification would not be 
available for debts incurred after the effective date. Also, 
such modification is permitted only if the debtor's current 
monthly income (after subtracting the expenses permitted for 
debtors under title 11, section 1325(b)(3), other than amounts 
contractually due to creditors holding such allowed secured 
claims and additional payments as are necessary to maintain 
possession of the residence) is insufficient to enable the 
debtor to retain possession of the principal residence by 
curing a default and maintaining payments while the case is 
pending. This means that only debtors who, after allowance for 
expenses permitted by the means test established by the 
Bankruptcy Abuse Prevention and Consumer Protection Act of 
2005, cannot afford to use the traditional bankruptcy cure 
remedy would be eligible for such modification.
    Section 102(a) would permit reduction of the principal of 
subprime or nontraditional mortgage on primary residences only 
to the fair market value of the residence, by making that value 
the value of the secured portion of the allowed claim.
    Section 102(a) would also permit Chapter 13 debtors to 
modify the length of subprime and nontraditional mortgages on 
primary residences. Specifically, 102(a) would permit a Chapter 
13 bankruptcy plan to provide for the payment of a secured 
claim described in Sec. 1322(b)(11) for a period that is the 
longer of 30 years (reduced by the period for which the loan 
has been outstanding) or the remaining term of the existing 
mortgage as of the date of the order for bankruptcy relief.
    Section 102(a) would further provide that a Chapter 13 
bankruptcy plan may provide for payment of a subprime or 
nontraditional mortgage on a primary residence at an interest 
rate equal to the interest rate for conventional mortgages plus 
a reasonable premium for risk. Specifically, Sec. 102(a) would 
permit a Chapter 13 bankruptcy plan to provide for the payment 
of a secured claim described in Sec. 1322(b)(11) at a rate of 
interest accruing after such date calculated at a fixed annual 
percentage rate in an amount to the Federal Reserve System's 
conventional mortgage rate plus a reasonable premium for risk.
    Section 102(a) also would ensure that if a claim has been 
modified to an amount below the original principal of the loan 
and the debtor's principal residence is sold during the term of 
the plan, the creditor would be entitled to receive, in 
addition to the unpaid portion of the allowed secured claim, 
the net proceeds of the sale or the amount of the creditor's 
allowed unsecured claim, whichever is less.
    Section 102(b) makes a conforming change to section 
1325(a)(5).

Section 103

    This section amends title 11, section 109(h) to waive the 
pre-bankruptcy credit counseling briefing requirement where a 
foreclosure sale has been scheduled against the debtor's 
principal residence. The requirement of a pre-bankruptcy credit 
counseling briefing often causes a delay that borrowers facing 
bankruptcy cannot afford, and because credit counseling can do 
nothing to prevent an impending foreclosure, the purpose of the 
requirement--to give debtors information on alternatives that 
might address their problems--simply does not apply. Since 
mortgages on primary residences could not be modified in 
bankruptcy when the credit counseling requirement was added by 
the Bankruptcy Abuse Prevention and Consumer Protection Act of 
2005, it is clear that the requirement was not intended to 
prohibit debtors from responding to imminent foreclosure. 
Debtors facing foreclosure would remain subject to the 
requirements of title 11, sections 727(a)(11) and 1328(g), 
which require that they complete an instructional course in 
personal financial management.

              TITLE II--PROVIDING OTHER DEBTOR PROTECTIONS

Section 201

    This section amends title 11, section 1322(c) to give 
bankruptcy judges greater flexibility in reviewing fees 
assessed by the creditor in connection with a claim secured by 
the debtor's principal residence. Mortgage companies frequently 
charge unauthorized or excessive fees to debtors before and 
during Chapter 13 filings, sometimes failing to disclose the 
fees until the debtor is no longer in bankruptcy after having 
successfully completed the Chapter 13 case, or until the debtor 
seeks to pay off the mortgage balance. These fees and charges 
further impede the debtor's effort to stabilize financially. 
The bill revises section 1322(c) to provide that with regard to 
bankruptcy fees, costs or charges that arise in connection with 
a claim secured by the debtor's principal residence, the debtor 
shall not be liable for such fees unless the creditor has filed 
notice of the fee with the court and served notice on the 
debtor and the trustee, and has done so before the earlier of 
either 1 year after the event that gives rise to the fee or 60 
days before the closing of the case. The bill further requires 
that, in order for the debtor to be liable for such fees, the 
fees must be lawful, reasonable, and provided for in the 
agreement under which the claim or security interest arose. 
These provisions will enable debtors or trustees to object to 
fees in bankruptcy court if the fees are unlawful, undisclosed 
or unreasonable. It is anticipated that the Federal Rules of 
Bankruptcy Procedure would be amended to delay the closing of a 
Chapter 13 case until a time after the discharge that would 
permit a final notice of fees to be filed shortly after the 
discharge and then an opportunity to object to those fees.
    This section also allows judges to waive prepayment 
penalties on claims secured by the principal residence of the 
debtor. Prepayment penalties exist in many subprime and other 
mortgage contracts, and restrict many lower-income families 
from completing a loan modification.

Section 202

    This section amends title 11, section 554(e) to deal with 
the problem of consumers who are sometimes inadvertently 
deprived of the legal claims they have against predatory 
lenders or others because they are not aware that such claims 
are considered assets of the bankruptcy estate and therefore do 
not list them among their scheduled assets when the bankruptcy 
case is filed. The amendment protects the bankruptcy estate and 
creditors by affording the bankruptcy trustee an opportunity to 
request joinder or substitution as the real party in interest 
in an action with respect to a claim or defense asserted by an 
individual debtor. If the trustee does not request joinder or 
substitution, this section permits the debtor to proceed as the 
real party in interest in the action but prevents a defendant 
from using theories of judicial estoppel or standing to obtain 
a windfall defense to the claim.

Section 203

    This section amends title 28, section 1334 to confirm the 
longstanding practice whereby bankruptcy judges can rule on 
core proceedings rather than referring them to arbitration, 
even when mortgage contracts contain mandatory arbitration 
clauses. Two recent court rulings had brought this practice 
into question, and so this addition to section 1334 in title 28 
would reconfirm the normal practice.

Section 204

    This section enacts a bankruptcy homestead exemption floor 
for homeowners 55 years of age or older by adding a new title 
11, section 522(b)(3)(D) and amending title 11, section 
522(d)(1). A significant number of debtors facing foreclosure 
are elderly and have nonexempt equity in their properties 
because of low homestead exemptions in some States. They cannot 
save their homes, which often represent their life savings, 
under Chapter 13 because current law requires paying the value 
of the nonexempt equity to unsecured creditors. They cannot get 
Chapter 7 relief because Chapter 7 would cause them to lose 
their homes. This amendment would create a modest homestead 
exemption floor of $75,000 for principal residences for all 
bankruptcy debtors over age 55.

Section 205

    This section amends title 11, section 502(b) to reinforce 
and clarify the fact that all protections available under the 
Truth in Lending Act and other consumer protection laws are 
still available in bankruptcy.

             IV. Congressional Budget Office Cost Estimate

    The Committee sets forth, with respect to the bill, S. 
2136, the following estimate and comparison prepared by the 
Director of the Congressional Budget Office under section 402 
of the Congressional Budget Act of 1974:

                                                       May 2, 2008.
Hon. Patrick J. Leahy,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman:  The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 2136, the Helping 
Families Save their Homes in Bankruptcy Act of 2008.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Leigh Angres.
            Sincerely,
                                                  Peter R. Orszag. 
    Enclosure.

S. 2136--Helping Families Save their Homes in Bankruptcy Act of 2008

    Summary: S. 2136 would authorize bankruptcy courts to 
modify the terms of certain nontraditional and subprime 
mortgages during Chapter 13 bankruptcy proceedings. CBO 
estimates that enacting S. 2136 would reduce direct spending by 
$13 million over the 2009-2018 period and increase revenues by 
$10 million over the same period. Although CBO estimates that 
the bill would add to court costs to adjudicate bankruptcies, 
we expect that such costs would not be significant and would be 
subject to the availability of appropriated funds.
    S. 2136 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would impose no 
costs on state, local, or tribal governments.
    S. 2136 would impose private-sector mandates, as defined in 
UMRA, on some creditors in bankruptcy proceedings. Because of 
uncertainty about the number of bankruptcy plans that would be 
modified and how those changes would affect holders of secured 
claims, CBO cannot determine whether the aggregate cost of 
complying with the mandates would exceed the annual threshold 
specified in UMRA ($136 million in 2008, adjusted annually for 
inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of S. 2136 is shown in the following table. 
The costs of this legislation fall within budget function 750 
(administration of justice).

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       By fiscal year, in millions of dollars--
                                                             -------------------------------------------------------------------------------------------
                                                               2009   2010   2011   2012   2013   2014   2015   2016   2017   2018  2009-2013  2009-2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               CHANGES IN DIRECT SPENDING

Estimated Budget Authority..................................     -2     -2     -2     -1     -1     -1     -1     -1     -1     -1        -8        -13
Estimated Outlays...........................................     -2     -2     -2     -1     -1     -1     -1     -1     -1     -1        -8        -13

                                                                   CHANGES IN REVENUES

Estimated Revenues..........................................      1      1      1      1      1      1      1      1      1      1         5         10
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Basis of estimate: CBO assumes that S. 2136 will be enacted 
near the end of 2008.

Direct spending

    S. 2136 would allow bankruptcy courts to modify the terms 
of certain nontraditional and subprime mortgages (as defined in 
the bill) for a primary residence during Chapter 13 bankruptcy 
proceedings. Generally, the bill would apply to debtors whose 
income, after several deductions, is insufficient to pay their 
mortgage and maintain all other debt payments. Under current 
law, bankruptcy courts can establish a payment plan for overdue 
mortgage payments but cannot change the amount, timing, or 
interest rate terms of mortgage payments. In 2007, around 
310,000 individuals filed for bankruptcy under Chapter 13.
    Information from the Administrative Office of the United 
States Courts (AOUSC) indicates that a significant portion of 
the individuals who are delinquent in their mortgage payments 
seek bankruptcy protection under Chapter 13. CBO expects this 
pattern to continue for individuals with all types of 
mortgages, including those that are subprime and 
nontraditional. We also expect that the bill could encourage 
some individuals to file for Chapter 13 bankruptcy who 
otherwise would not seek such protection, resulting in a small 
percentage increase (about 5 percent) in annual filings over 
the number expected under current law.
    Fees collected for bankruptcy filings ($235 per Chapter 13 
filing) are distributed among several government entities. 
About half of the amounts collected are used to cover the 
judiciary's and U.S. Trustees's costs, and thus have no net 
effect on federal spending. A portion of those filing fees, 
however, is recorded as an offsetting receipt (a credit against 
direct spending) in the federal budget and deposited into a 
special fund in the Treasury; those amounts are not available 
for spending unless provided in an appropriation act. CBO 
estimates that enacting the legislation would increase such 
offsetting receipts by $13 million over the 2009-2018 period. 
(In 2007, $135 million was collected from all bankruptcy filing 
fees.)

Revenues

    Another portion of Chapter 13 filing fees is deposited into 
the general fund of the Treasury and recorded as revenues. CBO 
estimates that enacting S. 2136 would increase such revenues 
from additional Chapter 13 bankruptcy filing fees by $10 
million over the 2009-2018 period.

Spending subject to appropriation

    Based on information from the AOUSC, CBO expects that 
enacting the bill could increase the workload of court staff; 
spending for that purpose would be subject to the availability 
of appropriated sums, and we estimate that any increase in such 
spending would be insignificant. Similarly, the bill could 
increase the workload of the United States Trustees; CBO 
estimates that cost also would be insignificant.
    Estimated impact on State, Local, and Tribal Governments: 
S. 2136 contains no intergovernmental mandates as defined in 
UMRA and would impose no costs on State, Local, or Tribal 
Governments.
    Estimated impact on the private sector: S. 2136 would 
impose private-sector mandates, as defined in UMRA, on certain 
creditors in bankruptcy proceedings. The bill would allow 
bankruptcy judges to modify the rights of holders of certain 
claims on mortgage debt by making changes to the terms of home 
mortgage agreements during bankruptcy proceedings. The bill 
also would require such claimholders to give timely notice to 
both the debtor and the bankruptcy trustee before adding fees, 
costs, or charges while a bankruptcy case is pending. In 
addition, if a debtor is age 55 or older, the bill would exempt 
from the estate in bankruptcy up to $75,000 of the debtor's 
aggregate equity in his or her principal residence in states 
that allow such exemptions. This provision would impose a 
mandate on some creditors by limiting the amount of a debtor's 
assets available to creditors under bankruptcy.
    The cost of those mandates would depend on the number of 
Chapter 13 bankruptcy plans that judges would choose to modify, 
how changes in home mortgage agreements would affect holders of 
secured claims, and the number of claims affected by the higher 
exemption. The amount recovered by a claimholder through a 
bankruptcy proceeding relative to the amount that can be 
recovered through foreclosure would vary depending on market 
conditions. In some cases, claimholders might not incur 
incremental costs compared with those under current law from 
changes that would aid debtors in preventing foreclosure on 
their homes. Because of those uncertainties, CBO cannot 
determine whether the aggregate cost of complying with all of 
the mandates in the bill would exceed the annual threshold 
($136 million in 2008, adjusted annually for inflation).
    Previous CBO estimate: On February 5, 2008, CBO transmitted 
a cost estimate for H.R. 3609, the Emergency Home Ownership and 
Mortgage Equity Protection Act of 2007, as ordered reported by 
the House Committee on the Judiciary on December 12, 2007. The 
two bills are similar; however, the provision of S. 2136 that 
would allow bankruptcy judges to modify mortgages would be in 
effect indefinitely. (Under H.R. 3609, that provision would 
sunset seven years after enactment). CBO's cost estimate for S. 
2136 reflects that difference.
    CBO determined that H.R. 3609 contained new private-sector 
mandates but could not determine whether the costs would exceed 
the annual threshold. The two bills contain the same mandates 
regarding modifying the rights of claimholders by making 
changes to the terms of certain home mortgage agreements during 
bankruptcy proceedings and requiring claimholders to give 
timely notice to both the debtor and the bankruptcy trustee 
before adding fees.
    Estimate prepared by: Federal Costs: Leigh Angres. Impact 
on State, Local, and Tribal Governments: Melissa Merrell. 
Impact on the Private Sector: Paige Piper/Bach.
    Estimate approved by: Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                     V. Regulatory Impact Statement

    In compliance with rule XXVI of the Standing Rules of the 
Senate, the Committee finds that no significant regulatory 
impact will result from the enactment of S. 2136.

                             VI. Conclusion

    The foreclosure crisis our country faces threatens 
America's families, communities, financial institutions, and 
overall economic strength. As a result of the foreclosure 
crisis, our nation faces an economic crisis as severe as any we 
have seen since the Great Depression. Until the foreclosure 
crisis is addressed, our economy will not begin to recover.
    In light of our nation's economic circumstances, the need 
to provide homeowners with means to effectively save their 
homes is urgent. The Helping Families Save Their Homes in 
Bankruptcy Act would help approximately 600,000 families save 
their homes from foreclosure, help neighboring homeowners and 
communities avoid massive economic losses, and help mortgage 
lenders avoid significant foreclosure-related costs and fees--
all without imposing any burden on American taxpayers. The 
Committee-reported version of the bill would take a significant 
step toward alleviating the foreclosure crisis and its harmful 
impact on our Nation.

                          VII. MINORITY VIEWS

                              ----------                              


Minority Views From Senators Specter, Hatch, Grassley, Kyl, Brownback, 
                           Cornyn and Coburn

    In 1978, President Carter and a Congress under Democratic 
control enacted significant bankruptcy reforms. In doing so, 
the Congress allowed bankruptcy judges to modify certain 
secured claims in bankruptcy. However, Congress specifically 
retained a bar on bankruptcy judges modifying mortgages on 
principal residences. Congress did so to encourage home 
mortgage lending. Justice Stevens explained this in his 
concurrence in Nobleman v. American Savings,\1\ a case in which 
the Supreme Court reaffirmed that Chapter 13 prohibited 
modification of mortgages on principal residences:
---------------------------------------------------------------------------
    \1\508 U.S. 324 (1993).

          At first blush it seems somewhat strange that the 
        Bankruptcy code should provide less protection to an 
        individual's interest in retaining possession of his or 
        her home than of other assets. The anomaly is, however, 
        explained by the legislative history indicating that 
        favorable treatment of residential mortgagees was 
        intended to encourage the flow of capital into the home 
        lending market.\2\
---------------------------------------------------------------------------
    \2\Id. at 332 (citing Grubbs v. Houston First American Sav. Ass'n, 
30 F.2d 236 (C.A.Tex., 1984)).

    Justice Stevens and the 95th Congress knew that giving 
bankruptcy judges free rein to re-write mortgages would only 
increase the risk that lenders take on when they issue 
mortgages. Lenders would respond to increased risk by insisting 
on higher rates of return. That would only make it more 
difficult for Americans who wished to become homeowners in the 
future. Although a multitude of factors affect interest rates, 
we would note that, in the years following the decision in 
Nobleman clarifying that bankruptcy judges could not modify 
mortgages on principal residences, interest rates declined.\3\
---------------------------------------------------------------------------
    \3\Freddie Mac Primary Mortgage Market Survey, available at http://
www.freddiemac.com/pmms/pmms15.htm.
---------------------------------------------------------------------------
    No one would deny that U.S. housing markets are in the 
midst of a crisis. The number of Americans who are past due on 
their mortgages is higher than it has been in a generation. 
Many homeowners who can no longer afford their mortgages--due 
in many cases to rapidly increasing monthly payments--face 
foreclosure. Some argue that the ability to securitize large 
numbers of mortgages led lenders to offer new types of loans to 
riskier borrowers. Pressure from Fannie Mae during the late 
1990s to ease credit requirements on loans in order to help 
increase home ownership rates among minorities and low-income 
consumers may also have led banks to issue such mortgages.\4\ 
These new loans were often designed to keep monthly payments 
low or to make an expensive home affordable--at least in the 
short term. Frequently, lenders issued adjustable rate 
mortgages (``ARMs'') with low introductory ``teaser'' interest 
rates that later increase substantially. Among these new types 
of loans were no-down-payment and interest-only mortgages, 
which also feature low initial payments that later increase. In 
at least some cases, lenders made inadequate disclosures 
warning borrowers that their monthly payments could increase.
---------------------------------------------------------------------------
    \4\Steven A. Holmes, Fannie Mae Eases Credit To Aid Mortgage 
Lending, N.Y. Times, Sept. 30, 1999.
---------------------------------------------------------------------------
    In the face of this crisis, Congress should take, and has 
taken, affirmative steps to provide relief to distressed 
homeowners. However, S. 2136, the Helping Families Save Their 
Homes in Bankruptcy Act, takes a broad approach that will only 
further destabilize the housing market as well as the financial 
markets by reducing predictability and transparency. Most 
importantly, the bill would allow bankruptcy judges to reduce, 
or ``cram down'' the principal value of a mortgage. Cram down 
imposes an immediate loss on lenders that they cannot recover 
when home values later appreciate. And, historically speaking, 
home values generally have increased over time.\5\ Obviously, 
this potential loss adds to the risk mortgage lenders face when 
considering whether to issue a mortgage. To account for such 
increased risk, mortgage lenders charge higher interest rates 
and issue mortgages on more restrictive terms.
---------------------------------------------------------------------------
    \5\See Office of Federal Housing Oversight, House Price Index 
Quarterly Data (2008) accessed at http://www.ofheo.gov/
hpi_download.aspx (select 2Q 2008 Manipulatable Data) (showing 
consistent increases in the sale price of single family homes over the 
last three decades).
---------------------------------------------------------------------------
    A consensus exists among experts that allowing cram down in 
bankruptcy would increase the cost of borrowing for future 
homeowners. In a hearing before the Senate Judiciary Committee, 
Professor Joseph Mason of Drexel University testified that ``it 
is straightforward to conclude'' that cram downs will increase 
the cost of mortgage credit.\6\ In its analysis of economic 
stimulus options earlier this year, the Congressional Budget 
Office noted that one of the costs of cram down proposals 
``could be higher mortgage interest rates.''\7\ Even the 
experts that have advocated in favor of the bill acknowledge 
that cram down will increase the cost of borrowing: In their 
paper, The Effect of Bankruptcy Strip-Down on Mortgage Interest 
Rates, Georgetown law professor Adam Levitin and Columbia 
University Ph.D. candidate Joshua Goodman acknowledged that 
permitting bankruptcy judges to cram down mortgage payments 
will increase mortgage interest rates. Even the Federal Reserve 
Chairman, who does not normally opine on legislation, has 
acknowledged that allowing bankruptcy judges to modify 
mortgages could restrict the credit available for mortgages.\8\
---------------------------------------------------------------------------
    \6\The Looming Foreclosure Crisis: Hearing Before the S. Comm. On 
the Judiciary, 110th Congress (2007) (statement of Joseph R. Mason, 
Associate Professor, Drexel University) accessed at http://
judiciary.senate.gov/hearings/testimony.cfm?id=3046&wit_id=6812.
    \7\Congressional Budget Office, Options for Responding to Short-
Term Economic Weakness at 24 (2008).
    \8\The Economic Outlook: Hearing Before the Joint Economic Comm., 
110th Cong. (In response to question posed by Sen. Brownback, Member, 
Joint Economic Comm.).
---------------------------------------------------------------------------
    While the provision in S. 2136 allowing cram down would 
only apply to mortgages issued prior to the effective date, the 
probability that Congress would eventually eliminate that 
limitation would be calculated into the price of every mortgage 
issued to future homebuyers. Furthermore, allowing cram down 
would only exacerbate instability in the broader financial 
markets. The credit markets that are the lifeblood of American 
businesses large and small have almost ceased functioning 
because lenders cannot place a value on the mortgage-backed 
securities they hold. Allowing cram down will only make it more 
difficult for the financial markets to assess their losses and 
begin extending credit again.
    Furthermore, while allowing cram down would make it more 
difficult for homeowners and businessmen alike to get credit, 
it goes far beyond the core of the current problem. Of those 
homeowners threatened with foreclosure, most have an adjustable 
rate mortgage that has reset and which they can no longer 
afford. Delinquencies and foreclosures among homeowners with 
ARMs have risen dramatically. The percentage of homeowners with 
subprime ARMs who are seriously delinquent--those who are 
either more than 90 days past due or in foreclosure--more than 
quadrupled, from 6.5 percent in the second quarter of 2006 to 
26.7 percent in the second quarter of 2008.\9\ Among homeowners 
with prime ARMs, the percentage who are seriously delinquent 
has grown sevenfold.\10\ As a result, while ARMs only represent 
about 20 percent of outstanding mortgages, they represent a 
majority of foreclosures.\11\ Thus, the bulk of the foreclosure 
problem appears to be mortgages with increasing monthly 
payments. Allowing cram down goes far beyond that problem.
---------------------------------------------------------------------------
    \9\Mortgage Bankers Association, National Delinquency Survey: 
Second Quarter 2008 11 (Sept. 2008).
    \10\Id. at 10.
    \11\Id. at 4-9.
---------------------------------------------------------------------------
    The current debate regarding the Administration's 
proposal--that the federal government acquire securities backed 
by distressed mortgages at taxpayer expense--raises the stakes 
even higher. If a bankruptcy judge crams down a mortgage, 
American taxpayers suffer an immediate loss in the value of the 
asset they have acquired. In addition, if the home recovers its 
value after a bankruptcy judge crams down a mortgage--which 
happens eventually in most cases--that appreciation inures to 
the benefit of the homeowner without any compensation to 
taxpayers. If the Administration's proposal moves forward, the 
federal government would appear to be in a better position than 
a bankruptcy judge to balance the interests of homeowners 
against those of taxpayers when making modifications.
    Proponents of the bill have argued that primary residences 
should be crammed down in bankruptcy just as second homes, 
family farms and boats are. But there are good reasons why 
principal residences are treated differently. Interest rates 
and down payments for vacation homes are significantly higher 
than for primary homes--if we start treating primary homes the 
same as vacation homes, then interest rates will rise to the 
levels of those offered for mortgages on second homes. With 
respect to farms, cram down applies only to very small 
commercial farming and ranching operations, not all farms and 
ranches--there are very specific requirements that need to be 
met. Moreover, it took Congress over two decades to make 
Chapter 12 a permanent part of the Bankruptcy Code. Because 
people were concerned about possible negative consequences to 
allowing cram down for family farms, Chapter 12 was initially 
only enacted as a temporary provision.\12\ Finally, cram down 
is allowed for boats because boats are like cars--their value 
diminishes rather than increases, which is very different than 
real property, where values are expected to rise in the long 
term.
---------------------------------------------------------------------------
    \12\For example, one study by the United States Department of 
Agriculture estimated that cram downs raise the interest rates on farm 
real estate loans by 25 basis points to 100 basis points. See ``Do 
farmers Need a Separate Chapter in the Bankruptcy Code?'' Issues in 
Agricultural and Rural Finance, United States Department of 
Agriculture, Economic Research Service, October 1997.
---------------------------------------------------------------------------
    The majority also argues that bankruptcy judges should have 
the power to modify mortgages, and particularly the power to 
reduce the principal value of a mortgage, because mortgage 
servicers have not provided meaningful assistance in the form 
of mortgage modifications. However, in cases where it makes 
sense, mortgage servicers are modifying mortgages and allowing 
homeowners to stay in their homes. In the second quarter of 
2008 alone, mortgage servicers participating in the 
Administration's HOPE NOW program modified in excess of 155,000 
mortgages.\13\ As the chart below demonstrates, that number 
only continues to grow.
---------------------------------------------------------------------------
    \13\Hope Now Alliance, July State Data 2008, http://
www.hopenow.com/site_tools/data.php (select ``July State Data 2008'' 
hyperlink). 


    Modifications include a reduction in interest rate, 
forgiveness of a portion of principal or extension of the 
maturity date of the loan. All of these modifications 
permanently reduce the amount that homeowners pay each month on 
their mortgages. While the majority argues that the only 
meaningful modification is a reduction in principal, the 
results belie that argument. Since the inception of HOPE NOW, 
servicers have modified over 450,000 mortgages.\14\ Taken 
together, modifications and repayment plans offered by 
servicers have saved over two million homeowners from 
foreclosure.\15\
---------------------------------------------------------------------------
    \14\Id.
    \15\Press Release, Hope Now Alliance, Over 2 Million Foreclosures 
Prevented In Past Year By Hope Now Alliance Members (August 27, 2008) 
(http://www.hopenow.com/media/press_release.php, select ``July 2008 
Data Release'' hyperlink).
---------------------------------------------------------------------------
    Recent action by Congress will only increase the assistance 
provided to homeowners. Although the majority contends that 
loan servicers are ``scared to death'' of being sued by 
investors for making loan modifications, Congress has already 
taken action to eliminate this concern. On July 30, 2008, the 
President signed into law the Housing and Economic Recovery Act 
of 2008, which provides lenders that modify mortgages immunity 
from liability in suits brought by investors.\16\ This new law 
should eliminate servicer concerns about liability to investors 
and increase the number of modifications, keeping even more 
homeowners in their homes.
---------------------------------------------------------------------------
    \16\Pub. L. No. 110-140 Sec. 1403.
---------------------------------------------------------------------------
    In addition to these overly broad amendments to the 
bankruptcy code that would harm more borrowers than it helps, 
the bill would make harmful changes to other areas of the law 
as well. For example, the bill would vitiate existing 
agreements to arbitrate and instead allow a bankruptcy court to 
resolve any dispute involving a debtor's consumer debt. Under 
current law, most courts have concluded a bankruptcy court has 
no discretion to refuse to enforce an arbitration agreement 
unless arbitration would ``seriously jeopardize'' the 
objectives of the Bankruptcy Code.\17\ The bill would permit 
bankruptcy courts to decide disputes involving consumer debt 
even when arbitration would not conflict with the purposes of 
the Bankruptcy Code. This provision represents yet another 
attempt by special interests in the plaintiffs bar to eliminate 
arbitration in a piecemeal manner and prevent private parties 
from entering into enforceable agreements to arbitrate. For 
over 80 years--since Congress enacted the Federal Arbitration 
Act in 1925--federal law has encouraged the use of arbitration 
as a fair, efficient, and effective alternative to our 
overburdened court system. There are significant benefits for 
individuals who just want a solution to their problems without 
spending months in bankruptcy court or thousands of dollars on 
attorneys' fees.
---------------------------------------------------------------------------
    \17\Cooley v. Wells Fargo Financial (In re Cooley), 362 B.R. 514, 
519-20 (Bankr. N.D. Ala. 2007).
---------------------------------------------------------------------------
    Another provision of the bill would increase the cost of 
borrowing for consumers by significantly increasing risk 
associated with lending, particularly home lending. In essence, 
the bill would wipe out any debt where the creditor has 
violated a state or federal consumer protection law and is 
subject to damages. Even where the violation is less serious 
and the damages are minimal, the lender would be prevented from 
asserting a claim in bankruptcy to recover the debt. And, this 
is despite the fact that consumer protection laws already 
provide significant penalties for violations.
    In sum, S. 2136, as passed by the Committee, represents 
public policy that will exacerbate the current crisis in the 
housing and credit markets. As witnesses testifying before the 
Committee made clear, increased risk leads to increases in 
borrowing costs. This economic reality is ignored by proponents 
of the current legislation. This bill proposes the wrong 
solutions for the nation. The Committee should instead 
concentrate its efforts on measures that will preserve access 
to credit for consumers and ensure that terms of such credit 
are fully and honestly disclosed.

                                   Arlen Specter.
                                   Orrin G. Hatch.
                                   Chuck Grassley.
                                   Jon Kyl.
                                   Sam Brownback.
                                   John Cornyn.
                                   Tom Coburn.

                     VIII. Changes in Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
S. 2136, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in brackets, new matter is 
printed in italic, and existing law in which no change is 
proposed is shown in roman):

                           UNITED STATES CODE

                          TITLE 11--BANKRUPTCY

CHAPTER 1--GENERAL PROVISIONS

           *       *       *       *       *       *       *


Sec. 101. Definitions

           *       *       *       *       *       *       *


    (40) The term ``municipality'' means political subdivision 
or public agency or instrumentality of a State.
    (40A) The term ``nontraditional mortgage'' means a security 
interest in the debtor's principal residence that secures a 
debt for a loan that at any period during the term of the loan 
provides for the deferral of payment of principal or interest 
through permitting periodic payments that do not cover the full 
amount of interest due or that cover only the interest due, 
except that such term excludes--
          (A) a loan that at any period during the term of the 
        loan provides for the deferral of payment of principal 
        through permitting periodic payments that cover only 
        the interest due, if the creditor demonstrates that it 
        determined in good faith at the time the loan was 
        consummated, after undergoing a full underwriting 
        process based on verified and documented information, 
        that the debtor had a reasonable ability to repay at 
        the full interest and principal payment amount 
        (assuming an initial 30 year full amortization), and 
        payments under the loan resulted in a debt-to-income 
        ratio of the debtor in an amount equal to or less than 
        that which would have been permitted under guidelines 
        and directives established by the Secretary of Housing 
        and Urban Development pursuant to section 203.33 of 
        title 24, Code of Federal Regulations, for loans 
        subject to such section;
          (B) a home equity line of credit that is in a 
        subordinate lien position; and
          (C) a reverse mortgage.
    [(40A)] (40B) The term ``patient'' means any individual who 
obtains or receives services from a health care business.
    [(40B)] (40C) The term ``patient records'' means any 
written document relating to a patient or a record recorded in 
a magnetic, optical, or other form of electronic medium.

           *       *       *       *       *       *       *

    (53) The term ``statutory lien'' means lien arising solely 
by force of a statute on specified circumstances or conditions, 
or lien of distress for rent, whether or not statutory, but 
does not include security interest or judicial lien, whether or 
not such interest or lien is provided by or is dependent on a 
statute and whether or not such interest or lien is made fully 
effective by statute.
    (53A) The term ``stockbroker'' means person--
          (A) with respect to which there is a customer, as 
        defined in section 741 of this title; and
          (B) that is engaged in the business of effecting 
        transactions in securities--
                  (i) for the account of others; or
                  (ii) with members of the general public, from 
                or for such person's own account.
    (53B) The term ``subprime mortgage'' means a security 
interest in the debtor's principal residence that secures a 
debt for a loan that has an annual percentage rate that is 
greater than--
          (A) the sum of 3 percent plus the yield on United 
        States Treasury securities having comparable periods of 
        maturity, if the loan is secured by a first mortgage or 
        first deed of trust; or
          (B) the sum of 5 percent plus the yield on United 
        States Treasury securities having comparable periods of 
        maturity, if the loan is secured by a subordinate 
        mortgage or subordinate deed of trust.
Without regard to whether such loan is subject to or reportable 
under the Home Mortgage Disclosure Act, the difference between 
the annual percentage rate of such loan and the yield on United 
States Treasury securities having comparable periods of 
maturity shall be determined using the procedures and 
calculation methods applicable to loans that are subject to the 
reporting requirements of such Act, except that such yield 
shall be determined as of the 15th day of the month preceding 
the month in which a completed application is submitted for 
such loan. If such loan provides for a fixed interest rate for 
an introductory period and then resets or adjusts to a variable 
interest rate, the determination of the annual percentage rate 
shall be based on the greater of the introductory rate and the 
fully indexed rate. For purposes of this paragraph, the term 
``fully indexed rate'' means the prevailing index rate on a 
residential mortgage loan at the time at which the loan is 
made, plus the margin that will apply after the expiration of 
an introductory interest rate.
    [(53B)] (53C) The term ``swap agreement''--
          (A) means--
                  (i) any agreement, including the terms and 
                conditions incorporated by reference in such 
                agreement, which is--
                          (I) an interest rate swap, option, 
                        future, or forward agreement, including 
                        a rate floor, rate cap, rate collar, 
                        cross-currency rate swap, and basis 
                        swap;
                          (II) a spot, same day-tomorrow, 
                        tomorrow-next, forward, or other 
                        foreign exchange, precious metals, or 
                        other commodity agreement;
                          (III) a currency swap, option, 
                        future, or forward agreement;
                          (IV) an equity index or equity swap, 
                        option, future, or forward agreement;
                          (V) a debt index or debt swap, 
                        option, future, or forward agreement;
                          (VI) a total return, credit spread or 
                        credit swap, option, future, or forward 
                        agreement;
                          (VII) a commodity index or a 
                        commodity swap, option, future, or 
                        forward agreement; or
                          (VIII) a weather swap, option, 
                        future, or forward agreement;
                          (IX) an emissions swap, option, 
                        future, or forward agreement; or
                          (X) an inflation swap, option, 
                        future, or forward agreement;
                  (ii) any agreement or transaction that is 
                similar to any other agreement or transaction 
                referred to in this paragraph and that--
                          (I) is of a type that has been, is 
                        presently, or in the future becomes, 
                        the subject of recurrent dealings in 
                        the swap or other derivatives markets 
                        (including terms and conditions 
                        incorporated by reference therein); and
                          (II) is a forward, swap, future, 
                        option or spot transaction on one or 
                        more rates, currencies, commodities, 
                        equity securities, or other equity 
                        instruments, debt securities or other 
                        debt instruments, quantitative measures 
                        associated with an occurrence, extent 
                        of an occurrence, or contingency 
                        associated with a financial, 
                        commercial, or economic consequence, or 
                        economic or financial indices or 
                        measures of economic or financial risk 
                        or value;
                  (iii) any combination of agreements or 
                transactions referred to in this subparagraph;
                  (iv) any option to enter into an agreement or 
                transaction referred to in this subparagraph;
                  (v) a master agreement that provides for an 
                agreement or transaction referred to in clause 
                (i), (ii), (iii), or (iv), together with all 
                supplements to any such master agreement, and 
                without regard to whether the master agreement 
                contains an agreement or transaction that is 
                not a swap agreement under this paragraph, 
                except that the master agreement shall be 
                considered to be a swap agreement under this 
                paragraph only with respect to each agreement 
                or transaction under the master agreement that 
                is referred to in clause (i), (ii), (iii), or 
                (iv); or
                  (vi) any security agreement or arrangement or 
                other credit enhancement related to any 
                agreements or transactions referred to in 
                clause (i) through (v), including any guarantee 
                or reimbursement obligation by or to a swap 
                participant or financial participant in 
                connection with any agreement or transaction 
                referred to in any such clause, but not to 
                exceed the damages in connection with any such 
                agreement or transaction, measured in 
                accordance with section 562; and
          (B) is applicable for purposes of this title only, 
        and shall not be construed or applied so as to 
        challenge or affect the characterization, definition, 
        or treatment of any swap agreement under any other 
        statute, regulation, or rule, including the Gramm-
        Leach-Bliley Act, the Legal Certainty for Bank Products 
        Act of 2000, the securities laws (as such term is 
        defined in section 3(a)(47) of the Securities Exchange 
        Act of 1934) and the Commodity Exchange Act.
    [(53C)] (53D) The term ``swap participant'' means an entity 
that, at any time before the filing of the petition, has an 
outstanding swap agreement with the debtor.
    [(56A)] (53E) The term ``term overriding royalty'' means an 
interest in liquid or gaseous hydrocarbons in place or to be 
produced from particular real property that entitles the owner 
thereof to a share of production, or the value thereof, for a 
term limited by time, quantity, or value realized.
    [(53D)] (53F) The term ``timeshare plan'' means and shall 
include that interest purchased in any arrangement, plan, 
scheme, or similar device, but not including exchange programs, 
whether by membership, agreement, tenancy in common, sale, 
lease, deed, rental agreement, license, right to use agreement, 
or by any other means, whereby a purchaser, in exchange for 
consideration, receives a right to use accommodations, 
facilities, or recreational sites, whether improved or 
unimproved, for a specific period of time less than a full year 
during any given year, but not necessarily for consecutive 
years, and which extends for a period of more than three years. 
A ``timeshare interest'' is that interest purchased in a 
timeshare plan which grants the purchaser the right to use and 
occupy accommodations, facilities, or recreational sites, 
whether improved or unimproved, pursuant to a timeshare plan.

           *       *       *       *       *       *       *


Sec. 109. Who may be a debtor

           *       *       *       *       *       *       *


    (h)(1) Subject to paragraphs (2) and (3), and 
notwithstanding any other provision of this section, an 
individual may not be a debtor under this title unless such 
individual has, during the 180-day period preceding the date of 
filing of the petition by such individual, received from an 
approved nonprofit budget and credit counseling agency 
described in section 111(a) an individual or group briefing 
(including a briefing conducted by telephone or on the 
Internet) that outlined the opportunities for available credit 
counseling and assisted such individual in performing a related 
budget analysis.
    (2)(A) Paragraph (1) shall not apply with respect to a 
debtor who resides in a district for which the United States 
trustee (or the bankruptcy administrator, if any) determines 
that the approved nonprofit budget and credit counseling 
agencies for such district are not reasonably able to provide 
adequate services to the additional individuals who would 
otherwise seek credit counseling from such agencies by reason 
of the requirements of paragraph (1).
    (B) The United States trustee (or the bankruptcy 
administrator, if any) who makes a determination described in 
subparagraph (A) shall review such determination not later than 
1 year after the date of such determination, and not less 
frequently than annually thereafter. Notwithstanding the 
preceding sentence, a nonprofit budget and credit counseling 
agency may be disapproved by the United States trustee (or the 
bankruptcy administrator, if any) at any time.
    (3)(A) Subject to subparagraph (B), the requirements of 
paragraph (1) shall not apply with respect to a debtor who 
submits to the court a certification that--
          (i) describes exigent circumstances that merit a 
        waiver of the requirements of paragraph (1);
          (ii) states that the debtor requested credit 
        counseling services from an approved nonprofit budget 
        and credit counseling agency, but was unable to obtain 
        the services referred to in paragraph (1) during the 5-
        day period beginning on the date on which the debtor 
        made that request; and
          (iii) is satisfactory to the court.
    (B) With respect to a debtor, an exemption under 
subparagraph (A) shall cease to apply to that debtor on the 
date on which the debtor meets the requirements of paragraph 
(1), but in no case may the exemption apply to that debtor 
after the date that is 30 days after the debtor files a 
petition, except that the court, for cause, may order an 
additional 15 days.
    (4) The requirements of paragraph (1) shall not apply with 
respect to a debtor whom the court determines, after notice and 
hearing, is unable to complete those requirements because of 
incapacity, disability, or active military duty in a military 
combat zone. For the purposes of this paragraph, incapacity 
means that the debtor is impaired by reason of mental illness 
or mental deficiency so that he is incapable of realizing and 
making rational decisions with respect to his financial 
responsibilities; and ``disability'' means that the debtor is 
so physically impaired as to be unable, after reasonable 
effort, to participate in an in-person, telephone, or Internet 
briefing required under paragraph (1).
    (5) Paragraph (1) shall not apply with respect to a debtor 
who files with the court a certification that a foreclosure 
sale of the debtor's principal residence has been scheduled.

           *       *       *       *       *       *       *


            CHAPTER 5--CREDITORS, THE DEBTOR, AND THE ESTATE


Subchapter I--Creditors and Claims

           *       *       *       *       *       *       *



Sec. 502. Allowance of claims or interests

           *       *       *       *       *       *       *


    (b) Except as provided in subsections (e)(2), (f), (g), (h) 
and (i) of this section, if such objection to a claim is made, 
the court, after notice and a hearing, shall determine the 
amount of such claim in lawful currency of the United States as 
of the date of the filing of the petition, and shall allow such 
claim in such amount, except to the extent that--
          (1) such claim is unenforceable against the debtor 
        and property of the debtor, under any agreement or 
        applicable law for a reason other than because such 
        claim is contingent or unmatured;
          (2) such claim is for unmatured interest;
          (3) if such claim is for a tax assessed against 
        property of the estate, such claim exceeds the value of 
        the interest of the estate in such property;
          (4) if such claim is for services of an insider or 
        attorney of the debtor, such claim exceeds the 
        reasonable value of such services;
          (5) such claim is for a debt that is unmatured on the 
        date of the filing of the petition and that is excepted 
        from discharge under section 523(a)(5) of this title;
          (6) if such claim is the claim of a lessor for 
        damages resulting from the termination of a lease of 
        real property, such claim exceeds--
                  (A) the rent reserved by such lease, without 
                acceleration, for the greater of one year, or 
                15 percent, not to exceed three years, of the 
                remaining term of such lease, following the 
                earlier of--
                          (i) the date of the filing of the 
                        petition; and
                          (ii) the date on which such lessor 
                        repossessed, or the lessee surrendered, 
                        the leased property; plus
                  (B) any unpaid rent due under such lease, 
                without acceleration, on the earlier of such 
                dates;
          (7) if such claim is the claim of an employee for 
        damages resulting from the termination of an employment 
        contract, such claim exceeds--
                  (A) the compensation provided by such 
                contract, without acceleration, for one year 
                following the earlier of--
                          (i) the date of the filing of the 
                        petition; or
                          (ii) the date on which the employer 
                        directed the employee to terminate, or 
                        such employee terminated, performance 
                        under such contract; plus
                  (B) any unpaid compensation due under such 
                contract, without acceleration, on the earlier 
                of such dates;
          (8) such claim results from a reduction, due to late 
        payment, in the amount of an otherwise applicable 
        credit available to the debtor in connection with an 
        employment tax on wages, salaries, or commissions 
        earned from the debtor; [or]
          (9) proof of such claim is not timely filed, except 
        to the extent tardily filed as permitted under 
        paragraph (1), (2), or (3) of section 726(a) of this 
        title or under the Federal Rules of Bankruptcy 
        Procedure, except that a claim of a governmental unit 
        shall be timely filed if it is filed before 180 days 
        after the date of the order for relief or such later 
        time as the Federal Rules of Bankruptcy Procedure may 
        provide, and except that in a case under chapter 13, a 
        claim of a governmental unit for a tax with respect to 
        a return filed under section 1308 shall be timely if 
        the claim is filed on or before the date that is 60 
        days after the date on which such return was filed as 
        required[.]; or
          (10) the claim is subject to any remedy for damages 
        or rescission due to failure to comply with any 
        applicable requirement under the Truth in Lending Act 
        (15 U.S.C. 1601 et seq.), or any other provision of 
        applicable State or Federal consumer protection law 
        that was in force when the noncompliance took place, 
        notwithstanding the prior entry of a foreclosure 
        judgment.

           *       *       *       *       *       *       *


Subchapter II--Debtor's Duties and Benefits

           *       *       *       *       *       *       *



Sec. 522. Exemptions

           *       *       *       *       *       *       *


    (b)(1) Notwithstanding section 541 of this title, an 
individual debtor may exempt from property of the estate the 
property listed in either paragraph (2) or, in the alternative, 
paragraph (3) of this subsection. In joint cases filed under 
section 302 of this title and individual cases filed under 
section 301 or 303 of this title by or against debtors who are 
husband and wife, and whose estates are ordered to be jointly 
administered under rule 1015(b) of the Federal Rules of 
Bankruptcy Procedure, one debtor may not elect to exempt 
property listed in paragraph (2) and the other debtor elect to 
exempt property listed in paragraph (3) of this subsection. If 
the parties cannot agree on the alternative to be elected, they 
shall be deemed to elect paragraph (2), where such election is 
permitted under the law of the jurisdiction where the case is 
filed.
    (2) Property listed in this paragraph is property that is 
specified under subsection (d), unless the State law that is 
applicable to the debtor under paragraph (3)(A) specifically 
does not so authorize.
    (3) Property listed in this paragraph is--
          (A) subject to subsections (o) and (p), any property 
        that is exempt under Federal law, other than subsection 
        (d) of this section, or State or local law that is 
        applicable on the date of the filing of the petition at 
        the place in which the debtor's domicile has been 
        located for the 730 days immediately preceding the date 
        of the filing of the petition or if the debtor's 
        domicile has not been located at a single State for 
        such 730-day period, the place in which the debtor's 
        domicile was located for 180 days immediately preceding 
        the 730-day period or for a longer portion of such 180-
        day period than in any other place;
          (B) any interest in property in which the debtor had, 
        immediately before the commencement of the case, an 
        interest as a tenant by the entirety or joint tenant to 
        the extent that such interest as a tenant by the 
        entirety or joint tenant is exempt from process under 
        applicable nonbankruptcy law; [and]
          (C) retirement funds to the extent that those funds 
        are in a fund or account that is exempt from taxation 
        under section 401, 403, 408, 408A, 414, 457, or 501(a) 
        of the Internal Revenue Code of 1986[.]; and
          (D) if the debtor, as of the date of the filing of 
        the petition, is 55 years or older, the debtor's 
        aggregate interest, not to exceed $75,000 in value, in 
        real property or personal property that the debtor or a 
        dependent of the debtor uses as a principal residence, 
        or in a cooperative that owns property that the debtor 
        or a dependent of the debtor uses as a principal 
        residence.

           *       *       *       *       *       *       *

    (d) The following property may be exempted under subsection 
(b)(2) of this section:
          (1) The debtor's aggregate interest, not to exceed 
        $15,000 in value, or, if the debtor is 55 years of age 
        or older, $75,000 in value, in real property or 
        personal property that the debtor or a dependent of the 
        debtor uses as a residence, in a cooperative that owns 
        property that the debtor or a dependent of the debtor 
        uses as a residence, or in a burial plot for the debtor 
        or a dependent of the debtor.

           *       *       *       *       *       *       *


Subchapter III--The Estate

           *       *       *       *       *       *       *



Sec. 554. Abandonment of property of the estate

           *       *       *       *       *       *       *


    (e) In any action in State or Federal court with respect to 
a claim or defense asserted by an individual debtor in such 
action that was not scheduled under section 521(a)(1) of this 
title, the trustee shall be allowed a reasonable time to 
request joinder or substitution as the real party in interest. 
If the trustee does not request joinder or substitution in such 
action, the debtor may proceed as the real party in interest, 
and no such action shall be dismissed on the ground that it is 
not prosecuted in the name of the real party in interest or on 
the ground that the debtor's claims were not properly scheduled 
in a case under this title.

           *       *       *       *       *       *       *


  CHAPTER 13--ADJUSTMENT OF DEBTS OF AN INDIVIDUAL WITH REGULAR INCOME


Subchapter II--The Plan

           *       *       *       *       *       *       *



Sec. 1322. Contents of Plan

           *       *       *       *       *       *       *


    (b) Subject to subsections (a) and (c) of this section, the 
plan may--

           *       *       *       *       *       *       *

          (10) provide for the payment of interest accruing 
        after the date of the filing of the petition on 
        unsecured claims that are nondischargeable under 
        section 1328(a), except that such interest may be paid 
        only to the extent that the debtor has disposable 
        income available to pay such interest after making 
        provision for full payment of all allowed claims; [and]
          (11) notwithstanding paragraph (2) and otherwise 
        applicable nonbankruptcy law--
                  (A) modify an allowed secured claim for a 
                debt incurred prior to the effective date of 
                this paragraph secured by a nontraditional 
                mortgage, or a subprime mortgage, and any lien 
                subordinate to such claim, on the debtor's 
                principal residence, as described in 
                subparagraph (B), if, after deduction from the 
                debtor's current monthly income of the expenses 
                permitted for debtors described in section 
                1325(b)(3) of this title (other than amounts 
                contractually due to creditors holding such 
                allowed secured claims and additional payments 
                necessary to maintain possession of that 
                residence), the debtor has insufficient 
                remaining income to retain possession of the 
                residence by curing a default and maintaining 
                payments while the case is pending, as provided 
                under paragraph (5)
                  (B) provide for payment of such claim--
                          (i) in an amount equal to the amount 
                        of the allowed secured claim;
                          (ii) for a period that is the longer 
                        of 30 years (reduced by the period for 
                        which the loan has been outstanding) or 
                        the remaining term of such loan, 
                        beginning on the date of the order for 
                        relief under this chapter; and
                          (iii) at a rate of interest accruing 
                        after such date calculated at a fixed 
                        annual percentage rate, in an amount 
                        equal to the most recently published 
                        annual yield on conventional mortgages 
                        published by the Board of Governors of 
                        the Federal Reserve System, as of the 
                        applicable time set forth in the rules 
                        of the Board, plus a reasonable premium 
                        for risk; and
                  (C) if a claim has been modified to an amount 
                below the original principal of the loan 
                pursuant to paragraph (B)(i) and the debtor's 
                principal residence is sold during the term of 
                the plan, the holder of the claim shall be 
                entitled to receive, in addition to the unpaid 
                portion of the allowed secured claim, the net 
                proceeds of the sale, or the amount of the 
                holder's allowed unsecured claim, whichever is 
                less; and
          [(11)] (12) include any other appropriate provision 
        not inconsistent with this title.

           *       *       *       *       *       *       *

    (c) Notwithstanding subsection (b)(2) and applicable 
nonbankruptcy law--
          (1) a default with respect to, or that gave rise to, 
        a lien on the debtor's principal residence may be cured 
        under paragraph (3) or (5) of subsection (b) until such 
        residence is sold at a foreclosure sale that is 
        conducted in accordance with applicable nonbankruptcy 
        law; [and]
          (2) in a case in which the last payment on the 
        original payment schedule for a claim secured only by a 
        security interest in real property that is the debtor's 
        principal residence is due before the date on which the 
        final payment under the plan is due, the plan may 
        provide for the payment of the claim as modified 
        pursuant to section 1325(a)(5) of this title[.];
          (3) the plan need not provide for the payment of, and 
        the debtor, the debtor's property, and property of the 
        estate shall not be liable for, any fee, cost, or 
        charge, notwithstanding section 506(b), that arises in 
        connection with a claim secured by the debtor's 
        principal residence if the event that gives rise to 
        such fee, cost, or charge occurs while the case is 
        pending but before the discharge order, except to the 
        extent that--
                  (A) notice of such fees, costs or charges is 
                filed with the court, and served on the debtor 
                and the trustee, before the expiration of the 
                earlier of
                          (i) 1 year after the event that gives 
                        rise to such fee, cost, or charge 
                        occurs; or
                          (ii) 60 days before the closing of 
                        the case; and
                  (B) such fees, costs, or charges are lawful, 
                reasonable, and provided for in the agreement 
                under which such claim or security interest 
                arose;
          (4) the failure of a party to give notice described 
        in paragraph (3) shall be deemed a waiver of any claim 
        for fees, costs, or charges described in paragraph (3) 
        for all purposes, and any attempt to collect such fees, 
        costs, or charges shall constitute a violation of 
        section 524(a)(2) of this title or, if the violation 
        occurs before the date of discharge, of section 362(a) 
        of this title; and
          (5) a plan may provide for the waiver of any 
        prepayment penalty on a claim secured by the principal 
        residence of the debtor.

           *       *       *       *       *       *       *


Sec. 1325. Confirmation of plan

    (a) Except as provided in subsection (b), the court shall 
confirm a plan if--

           *       *       *       *       *       *       *

          (5) except as otherwise provided in section 
        1322(b)(11) of this title, with respect to each allowed 
        secured claim provided for by the plan--

           *       *       *       *       *       *       *


               TITLE 28--JUDICIARY AND JUDICIAL PROCEDURE

                     PART IV--URISDICTION AND VENUE

CHAPTER 85--DISTRICT COURTS; JURISDICTION

           *       *       *       *       *       *       *



Sec. 1334. Bankruptcy cases and proceedings

    (a) Except as provided in subsection (b) of this section, 
the district courts shall have original and exclusive 
jurisdiction of all cases under title 11.
    (b) Except as provided in subsection (e)(2), and 
notwithstanding any Act of Congress that confers exclusive 
jurisdiction on a court or courts other than the district 
courts, the district courts shall have original but not 
exclusive jurisdiction of all civil proceedings arising under 
title 11, or arising in or related to cases under title 11.
    (c)(1) Except with respect to a case under chapter 15 of 
title 11, nothing in this section prevents a district court in 
the interest of justice, or in the interest of comity with 
State courts or respect for State law, from abstaining from 
hearing a particular proceeding arising under title 11 or 
arising in or related to a case under title 11.
    (2) Upon timely motion of a party in a proceeding based 
upon a State law claim or State law cause of action, related to 
a case under title 11 but not arising under title 11 or arising 
in a case under title 11, with respect to which an action could 
not have been commenced in a court of the United States absent 
jurisdiction under this section, the district court shall 
abstain from hearing such proceeding if an action is commenced, 
and can be timely adjudicated, in a State forum of appropriate 
jurisdiction.
    (d) Any decision to abstain or not to abstain made under 
subsection (c) (other than a decision not to abstain in a 
proceeding described in subsection (c)(2)) is not reviewable by 
appeal or otherwise by the court of appeals under section 
158(d), 1291, or 1292 of this title or by the Supreme Court of 
the United States under section 1254 of this title. Subsection 
(c) and this subsection shall not be construed to limit the 
applicability of the stay provided for by section 362 of title 
11, United States Code, as such section applies to an action 
affecting the property of the estate in bankruptcy.
    (e) The district court in which a case under title 11 is 
commenced or is pending shall have exclusive jurisdiction--
          (1) of all the property, wherever located, of the 
        debtor as of the commencement of such case, and of 
        property of the estate; and
          (2) over all claims or causes of action that involve 
        construction of section 327 of title 11, United States 
        Code, or rules relating to disclosure requirements 
        under section 327.
Notwithstanding any agreement for arbitration that is subject 
to chapter 1 of title 9, in any core proceeding under section 
157(b) of this title involving an individual debtor whose debts 
are primarily consumer debts, the court may hear and determine 
the proceeding, and enter appropriate orders and judgments, in 
lieu of referral to arbitration.

                                  
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