Press Release

Title: MBA's Kittle Challenges Bankruptcy Myths At Hearing
Source:   MBA
Date: 1/29/2008

Washington, DC (January 29, 2008)  -  David G. Kittle, CMB, Chairman-elect of the Mortgage Bankers Association (MBA) testified today before the House Judiciary Committee's Subcommittee on Commercial and Administrative Law at a hearing titled, “Growing Mortgage Foreclosure Crisis:  Identifying Solutions and Dispelling Myths.” 

Kittle made the following remarks in his oral testimony before the committee:

“It is a myth that allowing cramdowns of mortgages will be a cost-free and easy way to help homeowners.  We expect that HR 3609 will cost your constituents hundreds of dollars a month and thousands of dollars a year.  Passage of this bill will encourage homeowners to file for bankruptcy, an expensive and invasive process.  Instead of encouraging homeowners to seek bankruptcy, Congress should focus on ways to keep people out of bankruptcy and in their home.

There are very real and severe consequences for consumers who declare bankruptcy.  Bankruptcy is a long, arduous, very public and expensive process, costing thousands of dollars in legal costs.  Even when people file for bankruptcy, almost two thirds of them are unable to fulfill the terms of their repayment plans.  Filing bankruptcy will allow a federally appointed trustee to scrutinize the consumer’s every expenditure.  Additionally, bankruptcy stays on a consumers’ credit report for 10 years, making it difficult to acquire future credit, buy a home, car or insurance and in some cases, even obtain employment. 

If bankruptcy judges are allowed to independently change the terms of a signed mortgage contract, lenders will face new uncertainty as to the value of the collateral - the home.  To account for the new risk, lenders will be forced to require higher down payments, higher costs at closing and higher interest rates, pushing the dream of homeownership beyond the reach of millions of families.

It is a myth that this legislation will actually be positive for the mortgage industry.  This will have an immediate and severe impact on the mortgage market, as companies book the diminished value of their loans and servicing rights.  Rates will certainly have to rise to offset the anticipated losses.  Some companies will not survive the write downs, and the market will go through another period of severe instability. 

It is a myth that the total cost of foreclosure is greater than the risk of bankruptcy.  Lenders often have mortgage insurance to protect themselves against losses.  The FHA program is one kind of credit enhancement.  Bankruptcy voids these credit enhancements in the amount of the cramdown.  The lender will have to absorb the increased risk, which it will ultimately pass on to consumers in the form of higher prices or more restrictive lending terms.

It is a myth that the preference given to primary residences is simply a loophole.  Congress acted deliberately to increase the flow of capital to homebuyers.  The House acted with broad support when it passed the final version of the Bankruptcy Code in 1978.  The Supreme Court supported this provision with a specific defense from Justice Stevens in 1993. 

Finally, Congress should not encourage Americans to walk away from their debts.  Bankruptcy is a final resort, and should be sought only in the most extreme circumstances. 

At a time when the mortgage market is already experiencing a serious credit crunch, this bill threatens to increase costs to consumers, destabilize the mortgage market and result in injury to the overall economy.  We urge Congress to finish work on a stimulus bill, modernize the FHA and pass a predatory lending bill that provides uniform protections for all consumers.  Congress should not change the bankruptcy laws and increase costs on every borrower seeking a new mortgage.”


The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 280,000 people in virtually every community in the country. Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation's residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. Its membership of over 2,200 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance companies and others in the mortgage lending field. For additional information, visit MBA's Web site: