More discussion was raised in the House Financial Services Committee regarding regulatory reform to cram down mortgage loans. The legislation, if passed, would allow bankruptcy judges to retroactively cram down or modify mortgage loans to terms more affordable for the homeowner if service providers won’t perform more loan modifications.

Springing into action, the Mortgage Bankers Association (MBA) promptly responded.  David Kittle, MBA Chairman, issued a blistering statement noting that should the legislation pass, it would destabilize the mortgage industry, an industry that is sorely in need of stability right now.

Kittle advices the feds to allow the Home Affordable Modification Program (HAMP) to run its course, since Treasury officials noted that the program is on track to accomplish its stated target by November 1 for 500,000 trial mortgage modifications.  He is hoping that proponents of the cram down will take note that the industry is making great strides through HAMP and other methods used by the industry to assist homeowners in keeping their homes.

Noting that loan modifications can’t happen overnight, Kittle referenced the Treasury’s recent report showing that servicers are achieving significant progress.  Progress referenced by Kittle, however, only shows that around 12 percent of eligible homeowners have contracted for trial mortgage workout packages.  A total of $75 billion is available under the Making Home Affordable program.

Mortgage Insider guru Matthew Padilla offers an alternate solution.  Have law makers pass legislation that allows cram downs, but restrict laws to apply only to loans made after a certain starting date, say January 2010.  That way the industry would have some time to adjust.

Although cram downs could be one of the solutions to avoid another housing bust and financial meltdown, the MBA and other powerful financial groups will not, most likely, back down on their opposition of them.

It appears that note holders don’t want to adhere to legislations that will require them to make modifications with homeowners that may end up in foreclosure again, anyway.  Or, could it be that the mortgage industry just doesn’t want big government interfering?