House lawmakers reach compromise on a mortgage bankruptcy bill

A bipartisan compromise has been reached in the U.S. House of Representatives on a plan that would allow bankruptcy judges to modify home mortgages in a Chapter 13 repayment plan bankruptcy.

An earlier version of this bill was criticized by some Republicans and the banking industry because they thought the measure would be too costly for homeowners.

However, Democratic sponsors of the bill along with other lawmakers made some significant changes to the measure and won support from Rep. Steve Chabot of Ohio, a former Republican opponent of the bill, whose state has one of the highest foreclosure rates in the nation. On Wednesday, the House Judiciary Committee approved the Emergency Home Ownership and Mortgage Equity Protection Act of 2007, or H.R. 3609.

The agreement allows for bankruptcy judges to determine whether the debtor has enough income to afford the mortgage payment and if the loan should be changed. However, the judges would only be allowed to modify the terms of subprime and nontraditional mortgage products that are in foreclosure or at least 60 days overdue, and they would only be able to change terms on loans originated between 2000 and the date the act becomes law. The law includes a sunset provision which would cause it to expire after seven years.

The Financial Services Roundtable, a trade association of consumer credit and finance companies, still doesn't like the idea, reports the Associated Press, because homeowners and future homebuyers would have their interest rates hiked.

The Wall Street Journal has learned the full House of Representatives is not expected to vote on the bill until next year.

Meanwhile, lawmakers on the other side of the chamber are trying to reach a compromise on a similar plan.

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