December 18, 2007
Mark Scarberry Testimony Before Congress
Prof. Mark Scarberry testified before the Senate on December 5, 2007 about two pending bills dealing with the problem of chapter 13 debtors trying to modify their home loans. His testimony can be found here. He argues that homeowners should not be able to strip down the loans because of the potential detrimental effect on the home lending industry.
In a subsequent email, Mark discussed the issue of whether PMI will cover the lenders losses.
"One point I brought out that seemed important to Senator Durbin was the possibility that losses to mortgage holders due to strip down of mortgages may not be covered by private mortgage insurance. Many borrowers are required to get PMI when their down payment is small (less than 20%, often), and PMI apparently pays only when there is a foreclosure. If a chapter 13 modification of a mortgage under one of the proposed bills caused the amount of the mortgage to be stripped down and also prevented a foreclosure, the mortgage holder effectively would be denied the protection of the insurance for which it bargained. I'm not a fan of foreclosure, but one of the points often made in favor of amending the law to allow strip down of home mortgages in chapter 13 is that the mortgage holder is no worse off, because on foreclosure all that the mortgagee would receive is the value of the property. The PMI issue is one reason for questioning that argument. I pointed out that I am not an expert on PMI but had been told by people in the PMI business that no payment is due under the insurance absent a foreclosure. Perhaps other list members will know more."
Finally, Mark has updated his chart tracking the various bills in Congress which can be found here.
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