.A consortium of trade associations sent a letter to Congress today, urging its members to drop the proposal to include a bankruptcy “cram down” or the ability to allow judges to reduce the balance owed on a mortgage and to rewrite the terms of mortgages.

The implications of such a plan, they said, would increase the cost of credit and reduce its availability for consumers, as well as fuel the credit crunch by making MBS harder to value and sell.

Instead of the bankruptcy provisions, the consortium is urging Congress to work with the U.S. Treasury Department to provide “flexibility” for loan modifications for government purchased loans.

Industry organizations that signed the petition include the American Bankers Association, the Mortgage Bankers Association, the American Securitization Forum, the Securities Industry and Financial Markets Association, The Financial Services Roundtable, The Housing Policy Council, the U.S. Chamber of Commerce, the American Financial Services Association, the Consumer Bankers Association, the Independent Community Bankers of America, the Manufactured Housing Institute and the National Association of Home Builders.

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