Stimulus Bill May Spur Bankruptcy Filings.

Byline: Brian Collins

Washington-Cramdown legislation pending in Congress could cause a asubstantiala surge in bankruptcy filings by consumers, including mortgagors who are currently paying their loans, according to a new report by Friedman Billings Ramsey.

FBR believes that consumers - if allowed - will go the bankruptcy route to reduce their housing debt. The firm calls it an aunintended consequencea of the language being discussed.

The investment banker also notes that banks, thrifts and other large holders of second liens awould most likely be wiped out by a bankruptcy judge in the modification process.a

Banks with large HELOC portfolios that might be hurt include Bank of America, Citigroup and U.S. Bancorp, among others.

Whether cramdown powers for judges become a reality remains uncertain. A cramdown bill passed the House Judiciary Committee last week but itas unclear what major piece of legislation that bill might be attached to.

The Mortgage Bankers Association is lobbying to have cramdowns limited to subprime loans originated during the peak of the housing boom.