President Barack Obama is endorsing changes to the bankruptcy code that will allow judges to modify mortgages that were made in the "past few years" and don't exceed the $417,000 conforming loan limit, according to the president's foreclosure prevention plan.
"This provision will apply only to existing mortgages under the Fannie Mae and Freddie Mac conforming loan limits, so that millionaire homes don't clog the bankruptcy courts," the summary says.
The bankruptcy legislation being proposed by the president is designed to help families that have "run out of other options." But they must certify that they tried to get a loan modification and worked with a servicer before filing for bankruptcy.
The legislation also provides authority for the Federal Housing Administration and the Department of Veterans Affairs to pay partial claims in the event of a bankruptcy or loan modification "so the holders of loans guaranteed by FHA and VA are not disadvantaged."