Lenders and bondholders caught out by the US mortgage crisis must now brace themselves for the coming legislative and regulatory response. Proposals tabled last month, notably by Senator Dick Durbin (Democrat, Illinois), focus on a change to the Chapter 13 bankruptcy code that would prevent mortgage loan holders from seizing the primary residence of defaulting borrowers. Instead, a bankruptcy judge might alter the terms of a mortgage loan, based on a reduced valuation of the underlying home, and allow borrowers to repay the new debt over a longer term.
Mortgage loans would thus be crammed down, like...
