Compliance Blog

As you may be aware, there a legislative proposal that would give bankruptcy judges the power to "cram-down" mortgage loans and extend mortgage maturities.   (It is Senate Bill 61.)   For those unfamiliar with cram-downs, it involves reducing the outstanding balance of a loan to equal the value of the underlying collateral. 

Here's an example.  Joe Member has a mortgage loan with a $400,000 outstanding balance.  Currently, the value of the collateral is estimated to be $300,000.  If the proposed legislation were to become final, a bankruptcy judge might be able to waive his or her bankruptcy wand, and --- poof--- the member now only owes you $300,000.

Ouch.

Here at NAFCU, we're very, very concerned about how this would affect credit unions.  With that in mind, we sent this letter to Senator Richard Durbin to voice our concerns.  If your credit union does mortgage lending, make sure someone reads this letter.  Keep the cram-down issue on your radar, and know that NAFCU's lobbyists are tracking it very, very closely.