This Selected Issues paper for the United States discusses the microeconomics of the country—household wealth and savings. Households’ consumption-saving decisions have an important bearing on the U.S. economic outlook. This paper demonstrates how households with consistently lower income, which have shown growth in the years prior to the crisis, experienced larger declines in their saving rates and a larger rise in their indebtedness before the crisis, contributing significantly to the dynamics of the mean saving rate.

Abstract

This Selected Issues paper for the United States discusses the microeconomics of the country—household wealth and savings. Households’ consumption-saving decisions have an important bearing on the U.S. economic outlook. This paper demonstrates how households with consistently lower income, which have shown growth in the years prior to the crisis, experienced larger declines in their saving rates and a larger rise in their indebtedness before the crisis, contributing significantly to the dynamics of the mean saving rate.

VII. United States Foreclosure Crisis: Can Modification Of The Personal Bankruptcy Framework Facilitate Residential Mortgage Restructuring?1

A. Introduction

1. The housing sector crisis in the United States is continuing and the foreclosure inventory remains high, notwithstanding recent reductions in the mortgage delinquency rate. A significant portion of U.S. mortgages are “underwater”; i.e., the value of the property is less than the amount owed under the mortgage loan, which makes them difficult if not impossible to refinance. In the aftermath of the economic downturn, many individual debtors find it difficult to continue to service their mortgages due to financial hardship caused by job loss, reduction in income or benefits, medical problems or other life events, as well as by higher payments on adjustable rate mortgages.

2. Foreclosure2 has so far been the instrument of choice for creditors to address distressed mortgages.3 Between March 2011 and April 2012 over 2.6 million foreclosures were initiated and over 900,000 homes were actually sold in foreclosure.4 Wide-scale foreclosures have a detrimental effect on borrowers, lenders, and the society at large: borrowers lose the value of their main asset and a primary savings vehicle and must incur the financial and emotional costs of relocation; creditors face declining property values and additional costs associated with foreclosures; and depressed residential and commercial property values, as well as the impact of foreclosures on businesses, erode state and local government tax bases and make neighborhoods less safe (Mikhlenko, 2011–12). Foreclosure sales have also additional negative externalities, because they depress prices on neighboring properties.

3. Given the negative impact of wide-scale foreclosures, restructuring distressed residential mortgages could be a better alternative for all stakeholders. Since the onset of the crisis, the U. S. government has adopted a series of programs to, inter alia, encourage voluntary mortgage modification. While these programs helped some homeowners, they have so far fallen short of expectations. The limited participation in the programs may be explained by several factors, including the large volume of distressed mortgages, the complexity of the U. S. market for housing finance that results in conflicting interests among various market players, and the voluntary nature of these programs.5 Had such restructurings been readily available, however, the likely effect would have been a slowing down of the foreclosure process and a slowdown in the impact on lender portfolios (i.e., losses would be spread out over time, while cash flows would be restored, thereby easing the impact on lenders’ balance sheets).

4. The mortgage securitization structure poses particular challenges for addressing the widespread housing crisis through voluntary modifications. The process of mortgage lending prior to the housing crisis was primarily an originate-to-distribute model, which involves multiple parties with often diverging interests.6 Under this structure, the servicer of the mortgage loan, rather than the originator of the loan or the holders of the mortgage-backed security, has the primary power to decide whether a delinquent mortgage loan goes into foreclosure or is eligible for modification. Servicers may be limited under the pooling and servicing agreements from modifying the mortgage, or may prefer foreclosures over modification to limit potential legal liability, or may have insufficient financial incentives for modification.7 In addition, the multi-party structure of mortgage securitization creates confusion among the various parties, including the homeowner, who often cannot determine which party has the power to modify the mortgage.

5. Recognizing the challenges with the voluntary approach, consideration has been given for the introduction of a mandatory framework under the U.S. Bankruptcy Code.8 Several proposals along these lines were put forward at the outset of the crisis, but were met with considerable opposition from the lending industry. This paper revisits the earlier proposals and discusses how the introduction of cramdown on claims secured solely by the debtor’s principal residence (hereinafter “first residential mortgages”) under the U.S. Bankruptcy Code could play a role in facilitating mortgage restructurings. Under the current U.S. Bankruptcy Code, only a very limited restructuring of first residential mortgages is permitted.9 This limited relief is inadequate to provide wide-scale assistance to the vast numbers of homeowners in financial distress seeking to preserve their homes. Several proposals advocate the elimination of this limitation to help deal more effectively with distressed mortgages for the short term and to facilitate voluntary restructurings “in the shadow” of the law for the longer term. In particular, the proposal being considered by the National Bankruptcy Conference discussed in this paper is designed to address some legitimate concerns of the lender community, in particular with respect to moral hazard, about the removal of special protection for first residential mortgages. As discussed in detail below, resolving the problem of mortgage restructuring via the Chapter 13 process could mitigate the housing crisis without a large risk of moral hazard, as Chapter 13 includes strict eligibility criteria, requires debtors to act cooperatively and in good faith in order to obtain debt relief upon completing the repayment plan, and potential abuses—including frivolous or fraudulent filings—are addressed through a variety of other legislative checks and the fact of a judicially-run process and ongoing monitoring by a trustee.

6. This paper is structured as follows: Section B summarizes the current treatment of first residential mortgages under the Bankruptcy Code; Section C discusses possible approaches to reforming the Bankruptcy Code to address distressed mortgages and the foreclosure crisis; and Section D concludes with staff’s views.

B. Treatment of First Residential Mortgages Under the U.S. Bankruptcy Code

7. The U.S. Bankruptcy Code provides for two bankruptcy procedures—Chapter 7 and Chapter 13—that are used by the great majority of individual debtors. Chapter 7 is essentially a liquidation procedure under which a debtor has to surrender all nonexempt property to the creditors. Secured debt is not generally subject to modification in Chapter 7, and mortgage foreclosures generally can go forward, with only a three to four months delay, despite the bankruptcy filing.10 In contrast, Chapter 13 allows debtors to retain all of their nonexempt property on the condition that they pay to their unsecured creditors (a) as much as these creditors would have received in a Chapter 7 case and (b) all of the debtors’ disposable income (i.e., income not needed either for support of the debtors and their dependents, or for production of income) that the debtors earn during the period of their Chapter 13 plan, up to the full amount of their outstanding debt.11 Both procedures, upon their completion, afford the debtor a “fresh start” whereby the debtor is released from the remaining unsecured debt. This paper focuses on Chapter 13 which, with certain significant modifications, could be a suitable mechanism to restructure first residential mortgages, while allowing debtors to retain their homes.

8. Chapter 13 provides significant flexibility to the debtor to restructure both unsecured and most secured debt. Under chapter 13, the debtor does not have to pay unsecured debts in full as long as the minimum payment conditions are satisfied. chapter 13 allows most secured debt (except for first residential mortgages as discussed in paragraph 10 below) to be modified under the repayment plan, while providing specific safeguards to secured creditors. Those secured claims are generally treated in accordance with the principle of the Bankruptcy Code that the value of secured claims is determined by the value of the collateral at the time of the filing of the bankruptcy petition. If the collateral is worth less than the secured claim, then the claim is bifurcated into a secured claim equal to the value of the collateral and an unsecured claim for the remaining amount. The secured portion of the claim must be paid in full or fully cured during the term of repayment plan confirmed by the court, i.e., within three to five years (“cramdown”),12 while the unsecured claim is paid pro-rata with other unsecured claims.13

9. Cramdown of secured claims in bankruptcy is not generally perceived as creating moral hazard or undermining the availability of credit. For secured creditors, the stripping down of secured claims to the value of the collateral reflects what the secured creditor would have received in a foreclosure if the debtor had decided not to file for bankruptcy. For unsecured creditors, their claims are protected by the general principle that they should receive, in a reorganization (with the burden on the debtor to show), at least as much as they would have received in liquidation under chapter 7. Thus, as a practical matter, they are receiving what they would likely have received had there been no bankruptcy, but with the added benefit that the creditor’s collection costs are reduced, while the debtor’s opportunity to participate in the economy is preserved. Another important safeguard is that any reorganization plan, including a chapter 13 plan, ensures equitable treatment of similarly situated creditors and is based on the debtor’s capacity to repay which is subject to strict evaluation and assessment by the court, thus limiting potential abuse of the bankruptcy system.14 Neither does the procedure create moral hazard for debtors or encourage strategic default, as chapter 13 includes strict eligibility criteria and requires debtors to act cooperatively and in good faith in order to obtain debt relief upon completing the repayment plan. Potentially abuses of Chapter 13—including frivolous or fraudulent filings—and accompanying moral hazard concerns are addressed through a variety of other legislative checks and a judicially supervised process with ongoing monitoring by a trustee.15 With respect to availability of credit, evidence (particularly with respect to chapter 12, discussed below) has suggested a minimal impact from judicial cramdowns of secured claims.

10. However, chapter 13 provides an important exception to the general principle of restructuring secured claims in that it expressly prohibits modification of claims secured solely by a mortgage on the debtor’s principal residence. As discussed above, most secured claims, including mortgages on vacation, business, rental or investment property, and on automobiles and other vehicles, can be modified in the chapter 13 procedure. However, a chapter 13 plan cannot modify the rights of holders of claims “secured only by a security interest in real property that is the debtor’s principal residence” (Section 1322(b)(2), emphasis added). This provision has been interpreted to prohibit not only modification of the terms of the original mortgage loan (e.g., by changing the interest rate that could lower the debtor’s monthly payments) but also cramdown on first residential mortgages, without the consent of the mortgage holder.16 The only remedy available to the debtor under chapter 13 with respect to a first residential mortgage is to retain the residence by curing the pre-bankruptcy payment default by paying all mortgage arrears and by remaining current on future payments during the term of the plan. 17 For the many debtors with distressed mortgages who need to reduce the actual monthly payment in order to be able to keep their home,18 chapter 13 is currently of limited use.

Chapter 13 Procedure

Chapter 13 of the U.S. Bankruptcy Code is designed for individual debtors who, while allowed to retain most of their property, can repay at least some of the debt to their creditors. To use the chapter 13 procedure, the debtor must be an individual who has regular income and whose debts do not exceed certain thresholds established by law. (The debt thresholds are revised on a regular basis. Currently, the debtor’s noncontingent, liquidated unsecured debt may not exceed $336,900 and noncontingent, liquidated secured debt may not exceed $1,010,650. Individual debtors engaged in business may file chapter 13 cases if their debts are within the debt limits for chapter 13). A chapter 13 procedure broadly consists of the following stages:

  • A debtor can initiate a chapter 13 proceeding by filing a petition in court. The petition is accompanied by a comprehensive disclosure about the debtor’s financial situation, including assets, liabilities and past and prospective income. Together with the petition or within 14 days after the petition is filed, the debtor must also submit a repayment plan.

  • The filing of the petition triggers an automatic moratorium (“stay”) on most enforcement actions by creditors, and an appointed trustee oversees the procedure.

  • Shortly after the filing of a petition a creditors’ meeting takes place, at which the trustee and creditors can examine the debtor. Following the creditors’ meeting a confirmation hearing is held at which, subject to objections by the trustee or creditors,1 the plan may be confirmed by the court. Once the plan is confirmed, it becomes binding on the debtor and all creditors.

  • After confirmation, monthly payments are made to the trustee, who distributes those payments to creditors in accordance with the confirmed plan. The debtor continues to control all of his or her property. The monthly payments are often automatically deducted from the debtor’s salary. The payments continue for the term of the plan (three to five years).

Upon the completion of the chapter 13 plan, the debtor can receive a discharge on the remaining unsecured debts covered under the plan.2 If the debtor fails to complete the plan, and cannot propose an acceptable modification, the case would normally be dismissed or converted into a chapter 7 liquidation.

The key objective of chapter 13 is to give an individual debtor who has completed a repayment plan a “fresh start” and to make the debtor an economically productive member of society. While chapter 13 is widely used, for the reasons described in the paper, it does not allow for adequately restructuring distressed mortgages secured by the debtor’s principal residence, thus making it of limited use in addressing the current foreclosure crisis.

1 The most frequent objections are that the debtor’s plan does not commit all of the debtor’s projected disposable income for the applicable commitment period or that the debtor will be unable to make the payments called for by the plan.2 Section 1328(a). Some debt, for example certain student loans and tax claims, alimony and child support obligations, and liability for injuries or death resulting from drunk driving, cannot be discharged in bankruptcy.

11. While the special protection for first residential mortgages in bankruptcy may help promote the availability of residential mortgage finance, it also limits the use of the bankruptcy process to restructure first residential mortgages. The special protection was included in the Bankruptcy Code during bankruptcy reform of 1978. At that time, the House and Senate proposals to allow modification of secured debt (including first residential mortgages) in bankruptcy were opposed by real estate lending associations who argued that allowing cramdown on such mortgages would discourage the flow of credit into the home mortgage market. As a compromise, the final bill prohibited modification of debts secured by an interest in real property that is the debtor’s principal residence (Santos, 2008–09). However, shielding first residential mortgages from cramdown under chapter 13 limits the debtor’s ability both to include in a repayment plan what is often the debtor’s largest secured debt and to avoid a foreclosure on the debtor’s principal residence. This limitation in chapter 13 thereby bars the one form of relief that many debtors today need most in order to save their homes.

12. The elimination of special protections for first residential mortgages has been debated for some time as a way to help provide appropriate relief to distressed homeowners. Even prior to the 1993 decision of the Supreme Court confirming the prohibition on bifurcation of claims for mortgages secured by the principal residence, several attempts were made to address the uncertainty of whether cramdowns on first residential mortgages were permitted. In 1991–93, several bills were introduced to clarify that issue, although no legislation was passed (Miles, 1993).19 During those discussions the lending industry remained strongly opposed to allowing any type of cramdown for first residential mortgages, arguing that this would shift the risk of loss on mortgage loans to creditors, as opposed to debtors, and this additional risk would lead to an increase in the cost of home mortgages and undermine credit availability. The industry also argued that allowing cramdown would unfairly advantage debtors by allowing them to keep their homes, cramdown their mortgages, and benefit from a windfall from future property appreciation at the expense of secured creditors.

C. Possible Approaches to Reforming the Bankruptcy Code on First Residential Mortgages

13. Given the negative impact of foreclosures and limited success with voluntary restructuring since the onset of the housing crisis, several proposals were put forward to modify the treatment of first residential mortgages in bankruptcy. 20 A number of bills proposed in 2007 through 2009 covered a spectrum of options with a range of views about amending chapter 13 to allow modification of first residential mortgages (see Box 2). These bills, which were again strongly opposed by the mortgage lending industry, triggered a robust debate on the pros and cons of the cramdowns on first residential mortgages.

Legislative Proposals to Amend the Bankruptcy Code (2007–2009)

In 2007, as the gravity of the housing crisis became clear, a number of legislative proposals were made (the proposed bills included the Specter, Durbin, Miller, Chabot, and Conyers bills) covering a range of views about amending Chapter 13 to allow modification of first residential mortgages. Key elements of several proposed bills included: (i) lowering the principal amount of the mortgage loan to reflect the fair market value (as opposed to the mortgaged-value) of the home and reamortizing principal residence mortgage debt at reasonable fixed interest rates over a period of up to 30 years; (ii) allowing a payment period for claims secured by the debtor’s principal residence to exceed the 5-year limit set out for plans under Chapter 13; (iii) eliminating a credit counseling requirement for Chapter 13 debtors facing foreclosure; (iv) clarifying that the holder of a claim maintains a lien on the property until the payment of the claim; (v) protecting against excessive fees; and (vi) including a “sunset provision” on mortgage modifications in Chapter 13.

Other proposals in the bills were to: (i) require that all fees and charges on secured debts while a chapter 13 plan is in effect be subject to objection in the bankruptcy court; (ii) codify for consumer cases that mandatory arbitration clauses need not be honored in core proceedings; and (iii) prevent use of judicial estoppel to eliminate consumer protection claims against lenders based on inadvertent nondisclosure of such claims in the borrower’s bankruptcy.

Ultimately a bill sponsored by Rep. Conyers was passed by the House in 2009 that would have allowed cramdowns. However, in light of strong opposition from the lending industry, including groups such as the American Bankers Association and the Mortgage Bankers Association, version parallel bill, sponsored by Senator Durbin, did not pass the Senate. A bill without the cramdown provisions was passed and signed into law on May 20, 2009 (Public Law 111-22).

14. Supporters of cramdown argued that the reform would not only help address the ongoing housing crisis but also address longer-term issues. In their views, there is no evidence that removal of special protections for residential mortgages in bankruptcy would significantly affect the availability or cost of mortgage financing.21 In addition, it was argued that the current law benefits those lenders who may have contributed to the housing crisis through questionable mortgage lending practices, and that removal of special protections would encourage more prudent lending, thus potentially avoiding a repeat of the subprime crisis.22 They further argued that allowing cramdowns would help convert non-performing first residential mortgages with rapidly declining market value into performing loans backed by stabilizing collateral, thereby benefiting both debtors (retaining their home) and creditors (converting a non-performing loan into a performing one). Finally, cramdowns overseen by the court would also help address the capacity, incentives and liability problems of mortgage servicers, which are key obstacles for voluntary loan modifications (see also paragraph 4 above). More generally, it was argued that enabling an individual debtor to restructure a distressed mortgage into a sustainable one is consistent with the philosophy of “fresh start” and would contribute to increased consumer spending, which is the engine of the economy.

15. The key arguments against cramdowns focused on the availability and the cost of mortgage financing and moral hazard concerns. Given the importance of securitization for mortgage finance market in the U.S., the opponents expressed concerns that allowing cramdowns could undermine the securitization market for residential mortgages, which is already under stress (Scarberry, 2009–10). They further argued that this could create incentives for “strategic defaults” and may trigger a significant increase in bankruptcy filings that could potentially overwhelm the court system: the possibility of stripping down the mortgage to the current market value would encourage debtors who are current on their mortgages to stop paying and file for bankruptcy. On a more technical level, they noted that any proposal allowing re-amortization of mortgage loans over an extended period of time at a lower interest rate would result in first mortgage holders being treated less favorably than other secured creditors and may require extending the statutory duration of the chapter 13 repayment plan.

16. A recent proposal being considered by the National Bankruptcy Conference (NBC) is designed to retain the benefits of cramdowns, while addressing the legitimate concerns of the lender community. The NBC is a non-profit, non-partisan, self-supporting organization whose membership encompasses lawyers, law professors, and bankruptcy judges who are leading scholars and practitioners in the field of bankruptcy law. Its primary purpose is to advise Congress on the operation of bankruptcy and related laws and any proposed changes to those laws. The NBC has played a prominent role in all bankruptcy reforms since the time it was established in 1938.23 The NBC is currently considering a proposal for the reform of Chapters 7 and 13 of the Bankruptcy Code as they relate to individuals that would, inter alia, eliminate the prohibition on restructuring first residential mortgages. The current version of this proposal, which builds on the earlier initiatives to amend the Bankruptcy Code (see Box 2), includes the following key elements:

  • As is the case now, the Chapter 13-type procedure would have built in safeguards against abuse, including abuse by wealthy individuals. In addition to the existing safeguards discussed above, there would be additional mechanisms to ensure that high income individuals pay a progressive share of their future income to creditors.

  • The reformed procedure would allow first residential mortgages to be stripped down to fair market value of the residence as of the bankruptcy petition date and re-amortized over a period not to exceed 30 years, payable at the rate equal to the prime rate plus some risk premium.

  • If a re-amortized mortgage results in the debtor paying more than a certain percentage of the debtor’s gross income for principal, interest, taxes, and insurance, a presumption would arise that payment of the obligation is an undue hardship on the debtor, which could be rebutted by either the debtor or the holder of the mortgage. In the event of an undue hardship, the debtor’s plan would not be feasible and the debtor would not be able to keep the principal residence.

  • Secured creditors would be in a position to recapture some equity if the property is sold or refinanced within the specified period following the restructuring in bankruptcy. For example, if the debtor sells or refinances the real property within a year after the principal is reduced at a price in excess of the reduced value (plus costs of sale and improvements), 50 percent of the difference would be payable to the lender. Another alternative under consideration is staggering the shared appreciation over several years.24

17. Allowing cramdowns on first residential mortgages would not be a completely new concept for U.S. bankruptcy law. In particular, chapter 12 of the Bankruptcy Code that deals with insolvency of family farmers and family fisherman does not contain a prohibition similar to the one in chapter 13 (see Box 3). It is therefore possible for the debtor under chapter 12 to restructure a mortgage on his or her principal residence located on a farm. Chapter 12—added to the Bankruptcy Code in response to the farm foreclosure crisis in the 1980s—has been successful in addressing the crisis and thus provides some evidence of the merits of cramdowns in this context. As mentioned in Box 3, the introduction of cramdowns in chapter 12 did not adversely affect the availability and cost of credit, nor did it create serious moral hazard problems.

The Experience with Chapter 12

Chapter 12 of the U.S. Bankruptcy Code, which was added to the Code to address the farm foreclosure crisis in the 1980s, provides some evidence of the merits of cramdowns in facilitating mortgage restructuring.

  • In the 1980s, the United States farming industry went through a classic boom-bust cycle, resulting in severe hardship. Similar to the U.S. housing market recently, the key factors were high levels of debt, declining land/property values, and a poor economic environment. In particular, small independent family farms were being increasingly subject to foreclosure. As a result, chapter 12 was introduced into the Bankruptcy Code. While similar to Chapters 13, it addresses the economic situation of family farmers and family fishermen.1

  • Importantly, chapter 12 allows modification of a mortgage on the debtor’s principal residence if it is located on the family farm.2 Though ordinarily a chapter 12 plan may not provide for payments over a period of more than three years (the court can approve, for cause, a period of no more than five years), there are no established limitations on modification of claims secured by residential mortgages.

  • A chapter 12 proceeding is similar to a chapter 13 proceeding including, inter alia, an automatic stay of most collection actions, a meeting of creditors during which the debtor is under oath, and that typically problems are resolved with a plan finalized during or shortly after the meeting. chapter 12 also requires that the plan include certain mandatory provisions, similar to chapter 13. Finally, like chapter 13, chapter 12 has debt limits. It is, for example, restricted to family farmers who have less than $3,792,650 (an amount indexed to adjust for inflation) in debt.

  • Chapter 12 was initially intended to be a short-term measure with a “sunset provision”, but it was extended twice, and in 2005 it was made permanent.

Experience indicates that chapter 12 ended up being extremely effective. The cost and availability of farm credit was essentially unaffected, and it is argued the success of chapter 12 led to a decrease in its use as lenders and borrowers were incentivized to engage in mortgage modification on their own (in the “shadow of the law”). Out of the 30,000 bankruptcy filings that the U.S. General Accounting Office was expecting, only 8,500 were filed in the first two years. In recent years, only a small percentage of farmers have filed under chapter 12.

1 See 11 U.S.C chapter 12. See also 11 U.S.C §§ 101(18) and 101(19). Dreher and Feeney (2007).2 See 11 U.S.C. § 1222(b)(2) (A plan may “modify the rights of holders of secured claims, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims.”)

18. The U.S. is not the only country dealing with excessive mortgage debt in the aftermath of a housing crisis. Unlike in the area of corporate insolvency, there are currently no international best practices in the area of personal insolvency law, including the treatment of residential mortgages in insolvency. Other countries are struggling with similar problems and have been experimenting with different approaches to address the issues of mortgage debt and related financial sector stability. Appendices I and II describe the treatment of mortgages in personal insolvency in Norway and the recent experience of dealing with personal debt distress in Ireland, respectively. While other countries’ experiences necessarily reflect specific economic and social realities of a particular country and therefore cannot offer any universal solutions, they are nevertheless instructive.

D. Staff’s Views on Bankruptcy Code Modification

19. Given the limited success of voluntary mortgage modifications, an effective court administered process would supplement the efforts to address distressed mortgages and to limit widespread foreclosures. The U.S. authorities have acknowledged that the existing programs to support the voluntary approach to mortgage modifications have so far had limited success. Consideration should be given to allowing first residential mortgages to be modified without the secured creditors’ consent in bankruptcy. Special protections for these mortgages established in the late 1970s appear no longer justified in the current economic environment, and they limit the use of personal bankruptcy as a tool to restructure distressed mortgages.

20. Staff is of the view that allowing cramdowns of first residential mortgages in bankruptcy would have significant short-and long-term benefits. While the number of bankruptcy filings could increase upon the introduction of the new legal framework, once the new rules are tested in courts and experience with their application is gained, the mere existence of such a framework would incentivize more voluntary modifications outside of bankruptcy, contributing to a more speedy resolution of the foreclosure crisis. Importantly, allowing cramdown would address the issue of capacity, potential liability and conflicts of mortgage servicers and GSEs, which hinder voluntary modifications. If properly designed, the proposed changes would minimize potential moral hazard for debtors (including strategic default), increase the likelihood of renewing cash flows for creditors, and provide a cushion against falling real estate values by reducing the number of foreclosures, thereby relaxing the downward pressure on the mortgage-backed securities still held in many bank portfolios and consequently benefiting the financial industry. The experience with the introduction of chapter 12, which allows cramdowns on residential mortgages for family farmers and family fishermen, supports many of these views. This reform, in combination with a broader reform of the mortgage lending system, would also encourage more prudent mortgage lending and a more stable system of mortgage financing in the long term.

21. Staff is also of the view that despite fears that allowing cramdowns of first residential mortgages would increase moral hazard for debtors, there is little merit to this argument. As noted above, chapter 13 already contains a number of provisions to reduce moral hazard, as well as opportunism and fraud, including debt limits for chapter 13 eligibility, the requirement that creditors must receive at least as much as they would have under chapter 7, a thorough review of a debtor’s finances and a plan designed accordingly, the ability to adjust plans if circumstances change, minimum length of repayment plans, and methods to deal with abuse. The experience with bankruptcy procedures in general, and chapter 12 in particular, has shown that the risk of abuse is limited. Debtors in general tend to file for bankruptcy as a last resort, due to the social stigma and effect on the debtor’s future ability to access credit.

22. Any change to the current legal framework to allow cramdown of first residential mortgages should be properly designed to balance the interests of debtors and creditors and to minimize moral hazard. In particular, issues that would need to be addressed would include: eligibility (e.g., whether modification would be allowed only for mortgages originated prior to a certain date, or for a particular group of debtors); whether the new rules should be temporary (as was initially the case with chapter 12) or permanent; how property valuation and interest rate would be established for the cramdown; and whether the duration of the chapter 13 plan should be modified and what happens if the plan fails. To minimize moral hazard for debtors and to make it more acceptable to lenders, the new proposal could include a mechanism that would allow creditors to share in the appreciation of the property within a specified period following the restructuring. Further analysis would also be required on issues such as consistency of any new proposal with state law and the likelihood of extensive litigation.

23. While certain stakeholders could suffer losses with the proposed changes to the Bankruptcy Code, the impact on the future securitization market would likely be limited. 25 Current holders of mortgage-backed securities face potential losses related to either holdings of mortgage-backed securities or guarantees on first residential mortgages.26 The GSEs, which guarantee a large percentage of U.S. home loans, could suffer losses due to write-downs of the mortgage principal that would cause the value of guarantees to decline.27 Although predicting the precise effects of cramdown on the future securitization market is challenging, particularly in light of the current uncertainty in the mortgage market,28 the effects will likely be limited, as the added write-down risk will likely be accounted for in the instrument governing the securitization, and the security will be priced accordingly.

24. Changes to the personal insolvency law are not a panacea or a silver bullet and will not resolve the foreclosure crisis or revive the housing market overnight. While these changes will help support the restructuring of first residential mortgages in bankruptcy, foreclosure would continue to remain the most likely outcome in cases where the debtor is unlikely to afford repaying even the restructured mortgage loan. The U. S. authorities should continue to implement other initiatives aimed at resolving the foreclosure crisis and addressing the problems that caused the collapse of the housing market. In particular, work should continue on a broad range of issues that have an impact on the housing market, including the GSE reforms, reviving securitization and developing new models for mortgage financing, encouraging prudent mortgage lending by banks without stifling home credit, addressing unemployment issues, and continuing education of consumers.

Appendix I. Norway—Treatment of Residential Mortgages in Personal Insolvency

During the banking crisis and the recession from 1987 to 1993, the number of households with unsustainable debt increased dramatically due to growing unemployment, increased rent, and other economic misfortunes. To help individuals regain their financial capacity through debt relief, the new Debt Reorganization Act (the “Act”) was adopted in 1992 and came into force in January 1993. The Act applies only to individuals and does not generally cover debt relating to their private businesses, unless the debtor’s business had closed, or business-related debt is a small share of the total debt. Relief under the Act is available only to debtors who are “permanently incapable of meeting their obligations”, and can be used only once. “Permanent incapacity” is understood as the inability to pay lasting for a “reasonable period” (approximately 5 years).

The Act provides for two types of debt relief—voluntary debt settlement and compulsory debt settlement. Both procedures are initiated by the debtor. The filing by the debtor of an application to initiate a voluntary debt settlement procedure triggers a temporary (4-month) moratorium on the enforcement of claims against the debtor. Once the administrative body “the sheriff,” that is a local Enforcement Officer, initiates the voluntary debt settlement procedure, the debtor prepares a debt settlement plan which describes how the debtor will pay his or her creditors for the duration of the plan (normally 5 years or longer in exceptional cases). The sheriff assists the debtor to create a plan in accordance with the legal conditions. The plan may provide for the suspension of payments, reduction of interest rates, full or partial write-downs of debt, or any combination of the above measures. To become effective, the plan must be accepted by all creditors. If the voluntary settlement fails, the debtor can request a compulsory debt settlement in a court-administered procedure by having the debt settlement plan—which should meet the conditions set forth in the Act for the plan under the voluntary procedure—confirmed by the court. At the successful completion of each procedure the debtor obtains a “fresh start” by receiving a discharge of most of the remaining debts.

The general assumption for a repayment plan is that the debtor should pay as much as he or she can to creditors over a fixed period of the plan, while keeping a reasonable amount of income to cover his and his household’s essential needs. Thus, as a general rule the debtor would be required to sell all his or her valuable assets to repay the creditors. The Act, however, includes special provisions concerning the debtor’s primary residence:

  • The general rule is that the debtor must sell his or her primary residence if its sale provides the best settlement for the creditors and the residence exceeds the reasonable needs of the debtor and his or her household. This assessment is made by the creditors in the voluntary debt settlement procedure, and by the court in a mandatory debt settlement procedure, based on the market value of the dwelling and the cost of providing the debtor and his family with the reasonable alternative living arrangements. If the above conditions are not met, the debtor can keep his or her home.

  • If the debtor is allowed to keep his or her residence, the Act allows for the reduction of the principal of the residential mortgage to 110 percent of the market value of the residence (as determined through official valuation) in a voluntary debt settlement plan. During the period of the plan (normally 5 years), the debtor pays interest specified in the original mortgage agreement but not on the reduced principal, and payments on the stripped down mortgage (both interest and principal) resume after 5 years. The deficiency claim is treated as an unsecured claim for purposes of the debt settlement arrangement, receiving pro-rata payments with other unsecured claims, and any residual would be discharged at the end of the arrangement.

In the first years after the introduction of the Act, most cases were resolved through the compulsory procedure in courts, as it proved difficult to achieve the required creditor consents in the voluntary debt settlement. However, this dynamics was quickly reversed. Also, concerns about courts getting overwhelmed with bankruptcy filings did not materialize.

Appendix II. Ireland—Reform of the Personal Insolvency Framework

The financial and economic crisis in Ireland has put significant financial pressure on households, mainly driven by the large rise in unemployment from 4.6 percent in 2007 to 14.4 percent in 2011. Mortgage arrears on principal private residences increased to 10.2 percent of the number of mortgage accounts and 13.7 percent of outstanding mortgage balances in March 2012. The share of mortgages that have been restructured rose to 10.4 percent at end-March 2012, but more than half of restructured loans are in arrears, indicating that deeper loan modifications are needed in some cases. Given the substantial decline in house prices, negative equity is extensive. For loans granted during 2005–2008, almost half of the owner-occupied properties are now in negative equity. However, negative equity does not imply arrears as the vast majority of negative equity borrowers, over 90 percent, were not in arrears at end-2010.

The authorities responded to the rising mortgage distress with consumer protection measures for households in arrears and a sequence of reports exploring options to resolve debt distress through bilateral engagement between lenders and borrowers. The Code of Conduct on Mortgage Arrears (Code)29 was adopted in early 2010 and applies to mortgages on principal private residences. The Code, as revised, sets out procedural protections and provides guidance on mortgage restructuring for borrowers unable to pay. In particular, it provides a moratorium on repossession for 12 months while the borrower engages with the lender. The Code seeks to encourage early and effective engagement between borrowers and lenders and mainly resulted in mortgage rescheduling (i.e., reducing payments to interest-only). Further work was undertaken by the Mortgage Arrears and Personal Debt Group towards developing a Mortgage Arrears Resolution Process. In its final report30 in 2010, the group recommended a deferred interest scheme for households with sustainable mortgages (i.e., where the household can pay at least two-thirds of the interest due). For households with unsustainable mortgages, options such as assisted sales and trading down may be less costly than formal repossession. In 2011, the Inter-Departmental Mortgage Arrears Working Group 31 explored options such as split mortgages, mortgage-to-rent, or trade-down.

The existing High Court based personal insolvency framework of judicial bankruptcy is costly, punitive, and inefficient, and the number of bankruptcy cases is very low, with 29 new adjudications in 2010 and 33 in 2011. Drawing on the recommendations by the Law Reform Commission 32 in recent years, some of the rigidities in the Bankruptcy Act of 1988 were removed in 2011. Despite these initial reforms, the comparatively long discharge period (automatic discharge after 12 years or, at the court’s discretion, subject to certain conditions, after five years) renders bankruptcy an inefficient approach for resolving personal debt issues. Although it may be feasible to consider the restructuring of secured debts in the context of an arrangement under the control of the High Court, secured creditors may opt to remain outside bankruptcy proceedings.

In the context of the broader legal reform envisaged by the authorities, an outline of the personal insolvency bill was published in January 201233 and the final Bill was published in June 2012. 34 To reduce the attraction or need for the initiation of judicial bankruptcy proceedings, three new procedures that significantly change the law and practice on personal insolvency are proposed with the aim to resolve most cases through voluntary arrangements. The three new non-judicial debt settlement procedures are as follows:

  • (i) a Debt Relief Notice to allow for the discharge of relatively small amounts of unsecured debt, subject to conditions, up to €20,000 total for persons with essentially no income or assets, subject to a supervision period of three years;

  • (ii) a Debt Settlement Arrangement (DSA) for the settlement of unsecured debt (no monetary debt limit to provide for maximum flexibility), normally over a five year period; and

  • (iii) a Personal Insolvency Arrangement (PIA) for the settlement of both secured debt up to €3 million (though this limit may be increased by agreement of the creditors) and unsecured debt (no limit), over a six-to-seven year period.

The proposed legislation would also reform the Bankruptcy Act of 1988 and provide for the automatic discharge from bankruptcy, subject to certain conditions, after three years, and permit court orders requiring payments from income for up to five years in the bankruptcy process. Further, it provides for the establishment of a new Insolvency Service of Ireland to operate the proposed new non-judicial insolvency arrangements.

For both the DSA and PIA, the debt service arrangement must be prepared by a licensed personal insolvency practitioner appointed by the debtor and the final arrangement must be approved by the debtor and—in terms of value—a qualified majority of creditors (DSA: 65 percent; PIA: 65 percent overall, as well as more than 50 percent of secured creditors and 50 percent of unsecured creditors). Upon application, a debtor will be granted a protective certificate against creditor enforcement actions for a 70-day period (with possible extension). The proposed procedures will require certain court involvement, such as court approval for the granting of the protective certificate and the approval of final arrangements, based on submissions from the Insolvency Service. It is expected that the role of the courts will be essentially supervisory, but with the provision for objections by creditors. This approach will, however, have resource and organizational impacts on the courts.

The PIA is specifically tailored to facilitate resolution of mortgage distress for debtors that are cash-flow insolvent (i.e., unable to pay debts as they fall due), and may only be engaged in once. As the PIA deals with unsecured and secured debts, creditors’ interests may differ, making it more challenging for the personal insolvency practitioner to find a solution acceptable to both the debtor and to most creditors. The aim is to resolve any unsecured debt over a period of normally six years and to restructure secured debt on a sustainable path thereafter. Where the PIA provides for sale of property the subject of security, the sale proceeds must be applied in satisfaction of the secured debt unless the relevant secured creditor agrees otherwise. Any shortfall upon such sale abates in equal proportion to the unsecured debts and is discharged with them on completion of the PIA. A PIA can include a range of mortgage restructuring options proposed in the report of the Inter-Departmental Mortgage Arrears Working Group, including split mortgages, mortgage-to-rent or trade-down (and other suitable solutions). Provisions are included for the protection of the family home unless the costs, accommodation etc. are disproportionately large, and there is no automatic write-down of secured claims. Loan principal cannot be reduced below the market value of the security (unless the relevant creditor agrees) and there will be a clawback for 20 years if the property is subsequently sold at a higher price.

The parliamentary discussions of the draft legislation are currently underway. Moreover, new infrastructure is required, including the Insolvency Service and the regime for licensing and monitoring of personal insolvency practitioners. It is expected that a Director-Designate will be appointed soon to head up the Insolvency Service.

References

  • Arnold, Chris (2012). “Fannie, Freddie Consider Mortgage Write-Downs,” National Public Radio, March 23.

  • Dreher, Nancy C. and Feeney, Joan N. (2007). Bankruptcy Law Manual, 5th Ed., Chapter 11.

  • In re Johnson, 337 B.R. 269, 273 (Bankr. M.D.N.C. 2006).

  • Duke, Elizabeth A. (2012), “Prescriptions for a Housing Recovery,” Federal Reserve Board, Speech at the National Association of Realtors Midyear Legislative Meetings and Trade Expo, Washington, D.C. (http://www.federalreserve.gov/newsevents/speech/duke20120515a.htm)

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  • Levitin, Adam J. (2009). Written testimony before the House of Representatives Committee on the Judiciary, Subcommittee on Commercial and Administrative Law “Home Foreclosures: Will Voluntary Mortgage Modification Help Families Save Their Homes? Part II,” December 11.

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  • Levitin, Adam J. and Goodman, Joshua (2008). “The Effect of Bankruptcy Strip-Down on Mortgage Markets,” Georgetown Law and Economics Research Paper No. 1087816, February 6.

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  • Mikhlenko, Liana (2011–2012). “Fighting the Foreclosure Flu: A Proposal to Amend 11 U.S.C. §1322(b)(2) to Authorize Residential Mortgage Modification in Bankruptcy,” 15 Chap. L. Rev. 227.

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  • Miles, Veryl Victoria (1993). “The Bifurcation of Undersecured Residential Mortgages Under §1322(b)(2) of the Bankruptcy Code: The Final Resolution,” 67 Am. Bankr. L.J. 207, 252269.

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  • Nobelman vs. American Savings Bank, 508 U.S. 324 (1993).

  • Santos, R. Travis (2008-2009). “The Legal Way to Defeat Optimus Subprime,” 25 Emory Bankr. Dev. J. 285, 298.

  • Scarberry, Mark. S. (2009–2010). “A Critique of Congressional Proposals to Permit Modification of Home Mortgages in Chapter 13 Bankruptcy,” 37 Pepp. L. Rev. 63.

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1

Prepared by Nadia Rendak, Andrew Giddings, Chanda DeLong, Yan Liu, Maike Luedersen, and Francis Chukwu (Legal Department).

2

In a foreclosure, the creditor usually sells the property and uses the proceeds to satisfy its claim. A mortgage may be “recourse” or “non-recourse”. In a recourse mortgage, if the proceeds from the sale of the collateral are insufficient to satisfy the outstanding debt, the debtor remains personally liable for the difference between the outstanding loan amount and the sales price (called “deficiency”). In a non-recourse mortgage, the debtor would not be liable for the deficiency. In the U.S., mortgage foreclosure is regulated at the state level. According to an IMF staff survey, mortgage loans are non-recourse in six states, while other states allow personal liability of mortgage borrowers, to a varying degree. In practice, mortgage lenders rarely seek deficiency judgments due to the cost and time involved in obtaining and enforcing such judgments and the borrower’s lack of assets to satisfy the claim.

3

In addition to foreclosure, other legal instruments are used as well. For example, the creditor can agree to take the interest in the property in satisfaction of its claim and cancel the remaining debt (also known as “deed in lieu of foreclosure”). While this procedure avoids some of the drawbacks of a foreclosure sale, its use is limited, partly due to prudential limitations applicable to financial institutions on holding real estate and the fact that while a foreclosing lender eliminates any junior liens, a lender accepting a deed in lieu of foreclosure takes the property subject to such junior liens. Another tool is a short sale, i.e., the creditor and the debtor may agree that the property will be sold and the lender would accept a discounted payoff and release the lien that is secured by the property upon receipt of less money than is actually owed. Typically the lender also releases the borrower from any deficiency claim arising from the short sale. The use of short sales has increased recently.

5

The Federal Government and State Attorneys General recently entered into a court-approved settlement with several major banks over improper foreclosure practices. The settlement provides for the allocation by banks of $10–17 billion to principal reduction on distressed mortgages. The settlement has triggered more proactive actions by banks, including principal reductions.

6

The process of lending to homeowners changed dramatically in the decade leading up to the housing crisis. The conventional mortgage market was supplanted by an originate-to-distribute model, which involved loan originators, secondary market securitizers, government sponsored entities (GSEs), mortgage-backed securities (MBS), and loan servicers. The model typically works as follows: following the origination of the mortgage to a homeowner, the lender sells the mortgage to a GSE or a private investment bank. These entities and banks securitize the mortgages (i.e., pool mortgages originated by various lenders and package them into securities for sale). The securitizer keeps a relationship with the mortgagees through a pooling and servicing agreement known as a “PSA” that binds all parties. Thereafter, a servicing agent has the responsibility of managing the homeowner’s account, collecting monthly loan payments, and communicating with borrowers regarding the loan. Thus, although the servicer remains constant, a mortgage may be reassigned many times. Eventually, investment houses began repackaging residential MBS into further investment vehicles, known as collateralized debt obligations (CDOs), and then repackaged tranches of these CDOs into further CDO issuances and even “synthetic” CDOs, which were essentially credit-default swaps.

7

Loan modification may require servicers to incur additional costs, for which they are not specifically compensated. It is also often the case that institutions both originate and service loans, and that part of their obligation under their pooling and servicing agreement is to buy back loans they originate or service that are in default.

8

The useful role of the bankruptcy framework to facilitate debt restructuring has been demonstrated in the corporate context and with respect to most individual debts in the U.S. For example, the success of corporate restructuring in the U.S. has been widely attributed to chapter 11 of the U.S. Bankruptcy Code which is viewed as incentivizing workouts “in the shadow” of the insolvency law. In the area of personal insolvency, the Bankruptcy Code allows most individual debts, including secured debts, to be restructured in the chapter 13 process (see Section B below). Both chapter 11 and chapter 13 are court-supervised procedures.

9

The law allows the debtor to pay out pre-filing unpaid monthly mortgage payments over an extended period of time. Though the debtor must stay current during the bankruptcy, and other aspects of the mortgage such as principal balance, interest rate, and maturity rate cannot be modified, this limited relief is widely used by many to try to keep their homes. In the current environment, however, this relief is often not effective.

10

The filing of bankruptcy stays foreclosure against the debtor, but only until the discharge is entered, for a period of about three to four months after most individual chapter 7 filings. While the stay technically stays in place as to the trustee, most trustees will not oppose a motion to lift the stay if the property is underwater. Also in most states, a debtor’s principal residence is only partially exempted, and so, to the extent that it is not encumbered by a mortgage it would likely be subject to sale in chapter 7.

11

These payments are funded primarily out of the debtor’s future income under a plan confirmed by the court for the duration of three to five years. Secured creditors can be repaid over time.

12

This full payment of only the secured portion of a secured creditor’s claim is also known as “lien stripping” or “strip down”. The payment would cover the current value of the collateral, i.e., what the collateral is worth on the date the bankruptcy petition is filed. Since the debtor is paying over time, the amount due to the creditor is increased by an interest rate to compensate the creditor for waiting. For long-term debts, such as most mortgages, the Bankruptcy Code does allow the debtor to pay off the debt over the term of the original mortgage, subject to certain conditions. Section 1322(b)(5).

13

This procedure for reducing secured claims to the value of the collateral supporting them was limited in 2005 by an amendment to the final paragraph of Section 1325(a), so that strip down is not applicable to certain claims secured by purchase money security interest (i.e., money lent specifically so that the debtor could buy the property). These include (i) cars purchased within a specified period (910 days) of the bankruptcy filing date, and (ii) loans for any other property purchased within one year of the filing date. These loans may, however, be modified, for example, by lowering the interest rate. See In re Johnson (2006). The maturity date and monthly payment amount on those claims can also be altered.

14

The “means test,” for example, requires a chapter 7 debtor to instead file under chapter 13 if the debtor has enough disposable income to pay all priority and secured debts, and at least 25 percent of his or her unsecured debt or a specified dollar amount, currently $11,725, over a 5 year period. 11 U.S.C. § 707(b)(2)(A)(i). The means test is intended to prevent a debtor with sufficient assets to repay creditors from abusing the bankruptcy process.

15

While there is no direct “means test” under chapter 13 as there is under chapter 7, there is a cap on the amount of individual debt (see Box 1). In addition, under chapter 13 there is a detailed review of the entire financial situation of the debtor as well as a certificate of credit counseling. A three or five-year plan is developed, requiring the debtor to live on a fixed budget for a prolonged period and not to incur new debt without court approval. A plan can be modified after confirmation, upon request by the debtor, the trustee, or the holder of an allowed unsecured claim, to address the situation where a debtor subsequently has increased income. In cases of fraud or withholding of information, the court can dismiss the proceedings and refer the case to the U.S. Attorney’s Office for criminal prosecution where appropriate.

16

This interpretation was provided by the Supreme Court in its 1993 decision in Nobleman (1993). The court held that the prohibition on modification of the mortgagee’s rights included the prohibition of cramdown. Prior to the 1993 decision the exact meaning of Section 1322(b)(2) had been subject to different interpretations by U.S. courts, with some allowing cramdowns, and others not.

17

Section 1322(b)(5) (allowing the debtor to cure defaults and maintain payments on long-term debt). The Bankruptcy Code allows mortgages on which the last payment on the original payment schedule is due before the final payment under the plan is due to be modified if they are provided for under section 1325(a)(5). As most debtors start having difficulties with servicing the mortgage in its earlier years, this provision is of limited use to such debtors.

18

There are various ways to reduce monthly payments: interest rates can be temporarily or permanently lowered, the principal balance can be reduced, interest or principal might be deferred, or the maturity date might be extended. However, all these techniques involve modifying the mortgage, which is something the current law prohibits.

19

Those bills sought, with variations, to remove the limitation on stripping down first residential mortgages.

20

This section focuses on proposals that envisage modification of the bankruptcy law. It does not discuss numerous other initiatives to address the housing crisis, including through legislation (such as a proposal by Professors Morrison and Piskorski to address wide spread foreclosures through a combination of incentive fees for servicers and legislative modification of servicing agreements to clarify the issue of servicers’ legal liability) and the proposals to introduce policies that would encourage and/or mandate the GSEs to implement principal reductions on mortgages held by such entities.

21

Levitin (2009). Also, there appears to be no evidence that, during the time when some courts allowed cramdown on first residential mortgages prior to the 1993 Supreme Court decision, cramdown affected the availability or cost of mortgage financing in areas covered by the decisions allowing cramdown.

22

However, as discussed above, mortgages often are transferred away from the original mortgage lender through the securitization process; therefore, the mortgage holder at the time of the resolution of the distressed mortgage is almost always a different entity.

23

For example, the NBC provided its views to the lawmakers on the bills discussed in 2007–09.

24

For example, if the debtor sells or refinances the real property within the first year after the principal is reduced at a price in excess of the reduced value (plus costs of sale and improvements), 80 percent of the difference would be payable to the lender; if within the second year after, 60 percent of the difference would be payable to the lender; if within the third year after, 40 percent of the difference would be payable to the lender; and if within the fourth year after, 20 percent of the difference would be payable to the lender.

25

A study by Levitin and Goodman (2008) exploits the time and cross-state variation in bankruptcy laws to study the effect of bankruptcy strip down and modification on principal home residence mortgage rates, using data from the Monthly Interest Rate Survey conducted by the Federal Housing Finance Board between 1988 and 1995. The results show that permitting strip down has no impact on originations and increases mortgage interest rates by only 10–15 basis points, a result that is statistically significant in some but not all specifications.

26

The extent of the losses to be suffered by holders depends on the structure of the original securitization transaction and the terms of the document governing the allocation of the interest and principal payments on the underlying mortgages. The primary securitization structure at risk is the “shifting interest” structure, which was used by almost all of the prime and much of the Alternative-A or “Alt-A” market, the securities generally given the highest ratings. In the “shifting interest” securitization structure, principal losses, including those from write-downs in bankruptcy, would generally be allocated to the most subordinated classes. However, in certain “shifting interest” transactions, bankruptcy losses in excess of a certain amount specified in the securitization document would be allocated pro rata among all classes of senior and subordinated certificates.

27

Note however that while the GSEs have been in the past opposed to principal reductions, recent reports appear to indicate that the GSEs are starting to view principal reductions, albeit outside of bankruptcy, as a net positive for these entities, the U.S. taxpayer, and the housing market. Arnold (2012).

28

For a discussion of the uncertainty in the mortgage market, see Duke (2012).

29

See Code of Conduct on Mortgage Arrears.

30

See Final Report of the Mortgage Arrears and Personal Debt Group.

31

See Final Report of the Inter-Departmental Mortgage Arrears Working Group.

32

See Final Report of the Law Reform Commission.

33

See Draft Scheme of the Personal Insolvency Bill.

34

See Final Personal Insolvency Bill.