Cram-downs shot down

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The U.S. Senate has voted against giving bankruptcy judges the power to order lenders to reduce the principal amounts of troubled mortgages. Backers of the so-called ‘cram-down’ legislation could muster only 45 votes -- far short of the 60 needed for passage.

President Obama and others, including his top economic advisor, Lawrence Summers, had upheld cram-downs as one of the most effective tools for fixing the foreclosure crisis. Cram-down supporters had said distressed borrowers would be more likely to get favorable loan modifications from lenders if they had the right to pursue the matter in Bankruptcy Court, even if they never actually filed for bankruptcy. The mere possibility of a bankruptcy dispute would motivate lenders to be more accommodating, supporters had argued.

-- Peter Y. Hong