From Politco:
The most controversial change would allow bankruptcy judges to modify mortgages for a homeowner’s primary residence. Republicans, along with their allies in the lending industry, oppose the measure because it would reduce the amount of money owed on the house. These reductions will result in higher mortgage costs for all homeowners, opponents argue.
A primary home mortgage is the only type of debt that can’t be changed by a bankruptcy judge. That is because the mortgage company lobbyists have worked over Tom Carper and Mike Castle for years.
So if you owe …say $3 million on a beach house, a bankruptcy judge can say “That beach house is only worth $900k” and work out a payment schedule. But if you bought your fmaily house at the top of the bubble for $300k and it is only worth $150k now – tough shit.
The mortgage companies have argued that if cram-downs are allowed, the “risk premium” that lenders will have to apply to mortgages will radiate out into the market and they will have to make better lending decisions.
Somehow the “risk premium” created by $3 million beach house mortgage defaults doesn’t impact the market. (?)