# Amicus Curiae Brief — Nobelman v. American Savings Bank > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0361%3A13 ## Record - **Collection:** Supreme Court brief - **Document type:** Amicus Curiae Brief - **Published:** January 1, 1993 - **Citation:** 508 U.S. 324 ## Text *ItEp t - ca No. 92-641 ! FEB 22 (995 | oemt E CLERK In The Supreme Court of the United States October Term, 1992 Suareme | wt, U.S, ( } + LEONARD NOBELMAN AND HARRIET NOBELMAN, Petitioners, V. AMERICAN SAVINGS BANK, Respondent. S On Writ Of Certiorari To The United States Court Of Appeals For The Fifth Circuit S BRIEF OF MORTGAGE BANKERS ASSOCIATION OF AMERICA AS AMICUS CURIAE IN SUPPORT OF RESPONDENT + Rocer M. WHELAN WituiamM E. CumMBERLAND VINCENT J. COLATRIANO General Counsel - SHaw, PITTMAN, Potts & MortTcace BANKERS TROWBRIDGE ASSOCIATION OF AMERICA 2300 N Street, N.W. 1125 Fifteenth Street, N.W. Washington, D.C. 20037 Washington, D.C. 20005 (202) 663-8000 (202) 861-6516 Of Counsel Counsel of Record for Amicus Curiae Mortgage Bankers Association of America a i rg PRINTING CO., bor 225 6964 L COLLECT (402) 342-283 i TABLE OF CONTENTS Ce Ge SE 6 no cc ncccsedecdsacssseuns STATEMENT OF INTEREST .............cesseeees STATEMENT OF ISSUES ADDRESSED BY AMICUS SR SAN Ce eda cede seconss cccoecedbceccessceues SEAT Memes OF Tite CASE. ... 2.0 ccccccccccccccs SUMMARY OF ARGUMENT..................0.45. PPT OTT TTT CTTCTETT TT CTT CTT TTT T TT I. IN CONSTRUING BANKRUPTCY CODE SEC- TION 1322(b)(2), THIS COURT SHOULD CON- SIDER THE MEANING AND INTENT OF CONGRESSIONAL POLICY.................... Il. THE SECTION 1322(b)(2) PROHIBITION AGAINST THE MODIFICATION OF THE RIGHTS OF A CREDITOR HOLDING A CLAIM SECURED ONLY BY A MORTGAGE ON THE CHAPTER 13 DEBTOR’S PRINCIPAL RESI- DENCE PROMOTES CONGRESS’ POLICY OF FOSTERING AFFORDABLE HOME FINANC- ED oe cccvadeccvendvanedsdesaséuseeseoretesecs A. The Section 1322(b)(2) Prohibition Against Modifying Home Mortgages is Consistent with Congress’ Support for Home Mort- gages via Mortgage Guarantees ........... B. Section 1322(b)(2)’s Prohibition Against Modifying Home Mortgages is Consistent with Congress’ Support for Home Mort- gages via the Secondary Mortgage Ps co ccnccccsévcestessceeuceesscbepsue CSE on. ceccvcevecedeonchuasendsnnsaenanen 10 10 ii TABLE OF AUTHORITIES Page Cases Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 733 CC SUGUEnekCnesee sees rvecancecccecccccccce 5 Dewsnup v. Timm, 112 S. Ct. 773 (1992).......... 6, 7, 8 Grubbs v. Houston First American Sav. Ass'n, 730 ccc d vcs conecenedeccecccces: 6 In re Bellamy, 962 F.2d 176 (2d Cir. 1992)............. 6 In re Hougland, 886 F.2d 1182 (9th Cir. 1989) ......... 6 In re Nobelman, 968 F.2d 483 (5th Cir. 1982)........ 4,5 In re Taddeo, 685 F.2d 24 (2d Cir. 1982)............... 9 Landmark Fin. Serv. v. Hall, 918 F.2d 1150 (4th Cir. CC Eeh es edbbnhbnscoecedeneccececccces: 9 United States v. Ron Pair Enterprises, Inc., 489 U.S. i Ce CRs + scr scvcccscocccccecccce 5 STATUTES Feces cecedececeedeececce. 3, 6 reece ks i Neeeesieccecncceseceses 6 5 ov ccc ccccocccccccescceces passim ic css cacdesscccccencececccesces 8, 9 Es cccccnsccccescccccceccccecess 13 ee iaid es cccccccscescecccccccess 14 7 Home Finance Act of 1970, Pub. L. No. Da-ee, OO Demet. GSO (ISTO) .... cn cccccccccccccceess 14 Housing and Urban Development Act of 1968, Pub. L. No. 90-448, 82 Stat. 476 (1968)............ 13 ne TABLE OF AUTHORITIES - Continued Page Sls Ob En occcccceccccecececececcoeseces 15 National Housing Act, Pub. L. No. 73-479, 48 Stat. Se Gn cee cccccccccsocccccescccccccesceeccces 10 Secondary Mortgage Markets Enhancement Act of 1984, Pub. L. No. 98-440, 98 Stat. 1689 (1984) ..... 14 Tax Reform Act of 1986, Pub. L. No. 99-514, 100 Be ME Ge ccccccceccecceceecesncsteuceseess 15 OTHER AUTHORITIES H.R. 8200, 95th Cong., Ist Sess. § 1322(b)(2) ......... 5 5 Lawrence P. King, Collier on Bankruptcy { 1322.09{1] (15th ed. 1992).............. 0.0 cece ee 9 S. 2266, 95th Cong., Ist Sess. § 1322(b)(2)............ Testimony of Hon. Frank Keating, U.S. Depart- ment of Housing and Urban Development, June By SEU vecaccccocenesscccseuctosescesescescccccecs VA Office of General Counsel Precedent 1-91, 56 Fed. Reg. 25,156 (June 3, 1991) ................... No. 92-641 ° In The Supreme Court of the United States October Term, 1992 . LEONARD NOBELMAN AND HARRIET NOBELMAN, Petitioners, AMERICAN SAVINGS BANK, Respondent. ° On Writ Of Certiorari To The United States Court Of Appeals For The Fifth Circuit ° BRIEF OF MORTGAGE BANKERS ASSOCIATION OF AMERICA AS AMICUS CURIAE IN SUPPORT OF RESPONDENT ° STATEMENT OF INTEREST Mortgage Bankers Association of America (“MBAA”) files this brief amicus curiae in support of respondent American Savings Bank with the consent of the parties. Copies of the letters of the parties indicating consent to the filing of this brief are being filed with this brief. MBAA is a national trade association representing mortgage banking companies, financial institutions, and other entities participating in the home mortgage market. MBAA represents the interests of its 2400 participating members through its research functions and through involvement in legislative and judicial proceedings. MBAA filed a brief amicus curiae in support of respondent with the United States Court of Appeals for the Fifth Circuit. The matter at issue in the case at bar will have a significant impact upon MBAA because the modification of home mortgages as advanced by petitioners would have serious adverse effects on the home mortgages, mortgage markets, and mortgage credit markets in which amicus’ member institutions are involved. Under peti- tioners’ interpretation of Bankruptcy Code section 1322(b)(2), amicus’ member institutions will be unable to realize the full value of their loans, and may be com- pelled to curtail investing in home mortgages or mort- gage-backed securities because of anticipated losses. e STATEMENT OF ISSUES ADDRESSED BY AMICUS CURIAE Does Bankruptcy Code section 1322(b)(2), 11 U.S.C. § 1322(b)(2) (1988), prohibit a Chapter 13 debtor from modifying the rights of a creditor holding a claim secured only by a mortgage on the debtor’s principal residence? « STATEMENT OF THE CASE Amicus adopts respondent’s Statement of the Case. Petitioners are Chapter 13 debtors in this bankruptcy case. Respondent holds the mortgage secured by peti- tioners’ primary residence. Because the value of the resi- dence has decreased, petitioners have attempted to modify respondent’s rights by bifurcating the amount owing on their home mortgage into secured and unsecured portions, so as to repay the secured portion outside of the proposed plan, and to discharge the bal- ance with unsecured debts under the proposed plan. The Court of Appeals for the Fifth Circuit affirmed the denial of petitioners’ proposed reorganization plan. S SUMMARY OF ARGUMENT Amicus will not repeat the detailed discussion of the language, structure, and history underlying Bankruptcy Code section 1322(b)(2) so ably set forth in Respondent's Brief and the Brief for Amici Curiae Federal Home Loan Mortgage Corporation and Residential Funding Corpora- tion (“FHLMC Brief”). As demonstrated in those briefs, Bankruptcy Code section 1322(b)(2) expressly prohibits a Chapter 13 debtor from modifying the rights of a creditor holding a claim secured only by a mortgage on the debtor’s principal residence. Furthermore, as the court below properly decided, section 506(a) of the Code does not alter the operation of section 1322(b)(2) to permit a Chapter 13 debtor to “cram down” a residential mortgage creditor’s secured claim to the value of the property, since such a cram down would allow the debtor to mod- ify the creditor’s rights, the very result forbidden by section 1322(b)(2). Allowing bifurcation and cram down would quite simply, as recognized by the court below, “vitiate the protection of section 1322(b)(2).” In re Nobel- man, 968 F.2d 483, 489 (5th Cir. 1992). Moreover, if there is any doubt about the plain meaning of section 1322(b)(2), the Court should interpret the provision to recognize the congressional purpose of fostering affordable home financing and insulating home mortgages from Chapter 13 modification. To permit Chapter 13 modification of claims secured by home mortgages would be contrary to the congressionally-fostered system for providing secure, affordable, and easily attainable home loans for Ameri- cans. S ARGUMENT I. IN CONSTRUING BANKRUPTCY CODE SECTION 1322(b)(2), THIS COURT SHOULD CONSIDER THE MEANING AND INTENT OF CONGRESSIONAL POLICY. For all the reasons stated in Respondent's Brief and the FHLMC Brief, amicus believes that the plain meaning of Bankruptcy Code section 1322(b)(2) forbids Chapter 13 debtors from modifying the rights of creditors secured by a mortgage on the debtor’s principal residence. More- over, even assuming the statute’s plain language did not definitely resolve the issue, the decision of the court below is the only result that can be squared with the intent and policy of Congress. It is well settled that the Court may and should take account of Congress’ pur- poses and interest when interpreting ambiguous statutes. See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 737 (1975) (when contours of statute may not be divined from statute’s text, it is proper to consider legislative policy considerations); United States v. Ron Pair Enter- prises, Inc., 489 U.S. 235, 109 S. Ct. 1026, 1031 (1989) (permissible to consider drafter’s intentions and “impor- tant state and federal interest[s]” when meaning is incon- clusive). In Bankruptcy Code section 1322(b)(2), Congress obviously meant to offer home mortgage lenders protec- tion from Chapter 13 debtors’ modification of home mort- gages. Congress’ overwhelming policy to foster affordable and easily available home mortgages compels the interpretation of section 1322(b)(2) that protects the entire amount of home mortgage loans. That section 1322(b)(2) does not permit cram downs is apparent not only from its text, but also from its legislative history. As discussed in more detail in Respon- dent’s Brief and the FHLMC Brief, under pre-Bankruptcy Code practice, and specifically under Chapter XIII of the Bankruptcy Act of 1898, an individual’s plan could not modify the rights of any creditor holding a claim secured by real property. Section 1322(b)(2) represents a compro- mise between the House of Representatives, which origi- nally proposed to allow the modification of any secured claims, H.R. 8200, 95th Cong., Ist Sess. § 1322(b)(2) (1977), and the Senate, which proposed to preserve the Chapter XIII protection to all creditors holding claims secured by real property. S. 2266, 95th Cong., Ist Sess. § 1322(b)(2) (1977). See In re Nobleman, 968 F.2d at 488-89; Grubbs v. Houston First American Sav. Ass'n, 730 F.2d 236, 246 (5th Cir. 1984) (en banc). In striking this compromise, Congress was motivated by its desire to preserve the availability of residential mortgage lending for individ- uals who could not otherwise afford to buy a home,! and by its concern, as expressed by witnesses during legisla- tive hearings, that allowing modification of the rights of residential mortgage lenders could dry up the residential mortgage market. Id. Cram downs are precisely the kind of modifications that would have such an adverse effect, and they are thus precisely the kind of modifications that section 1322(b)(2) was designed to prevent. This analysis tracks that of the Court’s decision last Term in Dewsnup v. Timm, 112 S. Ct. 773 (1992). In decid- ing that a debtor could not use section 506(d) of the Bankruptcy Code, in conjunction with section 506(a), to “strip down” a creditor’s lien on real property to the value of the collateral, the Court relied in large part on 1 Even those courts that have allowed cram downs have acknowledged the congressional purpose of protecting residen- tial real estate lenders. See, e.g., In re Bellamy, 962 F.2d 176, 181-82 (2d Cir. 1992); In re Hougland, 886 F.2d 1182, 1185 (9th Cir. 1989). 2 In Dewsnup, the Court rejected a debtor’s argument that section 506(d) of the Code allows the debtor to void any lien to the extent it exceeds the value of the property securing the debt. The Court refused to resolve the ambiguous text of section 506(d) by giving the words “allowed secured claim” in that section the same meaning those words have in section 506(a), in part because such a construction would depart from pre-Code law and in part because such a construction would give the debtor an unbargained-for windfall in the event that the property subsequently appreciated in value. [d. at 778. The same the fact that pre-Code bankruptcy law did not allow such a practice and there was “nothing in the Code’s legisla- tive history that reflects any intent to alter that law.” Id. at 777. As the Court put it, [T]o attribute to Congress the intention to grant a debtor the broad new remedy against the allowed claims to the extent that they become “unsecured” for purposes of § 506(a) without the new remedy’s being mentioned somewhere in the Code itself or in the annals of Congress is not plausible, in our view, and is contrary to basic bankruptcy principles. Id. at 779. The Court’s reasoning in Dewsnup is fully applicable here. As discussed, it is undisputed that under pre-Code bankruptcy law, a Chapter XIII debtor could not alter or in any way (including through a cram down) modify a claim that was secured by the debtor’s real property. Although in enacting the Code Congress allowed mod- ification in situations other than claims secured by the debtor’s principal residence, there is no indication in the Code’s legislative history that, with respect to claims secured by the debtor’s principal residence, Congress intended to do anything other than to preserve the pre- Code protection against modification in all of its forms. analysis applies fully here, as the cram down relief sought by petitioners clearly departs from pre-Code law and would give petitioners the same windfall discussed in Dewsnup. Furthermore, respondent's case is even stronger here than was the creditor’s in Dewsnup because section 1322(b)(2) contains an explicit prohibition against modification. Indeed, the legislative history demonstrates that Con- gress specifically intended to protect the rights of resi- dential mortgage lenders. Thus, when “Congress amends the bankruptcy laws, it does not write ‘on a clean slate,’ ” Dewsnup, 112 S. Ct. at 779 (citation omitted), and because there is no indication in the Code’s legislative history that Congress intended to permit cram downs, this Court should not attribute to Congress the intent to grant peti- tioners the “broad new remedy” they assert. Id. Finally, if the Court focuses, as it must, on the struc- ture of section 1322 as a whole, it should conclude that the Fifth Circuit’s decision was correct. The interrelation- ship among section 1322(b)’s provisions, and particularly, the interrelationship between sections 1322(b)(2) and 1322(b)(5), demonstrate an inherent weakness in peti- tioners’ proffered construction. Section 1322(b)(5) allows the debtor, when the repayment period under the original lender-borrower agreement is longer than the three to five year term of the debtor’s plan, to cure any prior default and pay arrearages on any secured or unsecured claim over a reasonable time.* By far the most common type of individual debt which has a term longer than 3 Section 1322(b)(5) provides that a plan may notwithstanding paragraph (2) of this subsection [section 1322(b)(2)], provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due. three to five years is the home mortgage.‘ Thus, section 1322(b)(5) provides a significant remedy to debtors that is not limited by section 1322(b)(2)’s prohibition on mod- ification. However, the relief provided by section 1322(b)(5) — the ability to pay arrearages over time — does not extend to allow the debtor to miss or restructure current or future payments under the original loan agree- ment.> By granting this limited relief to debtors, Congress sought to protect debtors against the loss of their homes because of non-payment of arrearages while at the same time protecting the residential mortgage industry (with the ultimate goal of facilitating home ownership) by pro- tecting against any further modification of the creditor’s rights. To allow cram downs upsets this delicate but limited remedy specifically enacted by Congress and tramples on congressional intent. 4 See 5 Lawrence P. King, Collier on Bankruptcy { 1322.09(1)] (15th ed. 1992) (“Although section 1322(b)(5) is not limited to secured or residential loans, its most common use by far is to cure defaults on residential mortgages.”). 5 Moreover, the ability of the debtor to cure a default and pay arrearages over a reasonable period of time under section 1322(b)(5) is not, in any way, deemed a modification of the secured claim within the meaning of section 1322(b)(2). See, e.g., In re Taddeo, 685 F.2d 24 (2d Cir. 1982); Landmark Fin. Serv. v. Hall, 918 F.2d 1150 (4th Cir. 1990). 10 Il. THE SECTION 1322(b)(2) PROHIBITION AGAINST THE MODIFICATION OF THE RIGHTS OF A CREDITOR HOLDING A CLAIM SECURED ONLY BY A MORTGAGE ON THE CHAPTER 13 DEBTOR’S PRINCIPAL RESIDENCE PROMOTES CONGRESS’ POLICY OF FOSTER- ING AFFORDABLE HOME FINANCING. A steady procession of congressional enactments demonstrates Congress’ policy to encourage capital investment in home ownership in order to provide affordable home financing for Americans. Congress has sought to implement this goal in two main ways: (1) by providing for mortgages guaranteed by the government, and (2) by fostering a vital, effective, and secure second- ary mortgage market. Section 1322(b)(2)’s prohibition against any modification of home mortgage liens sup- ports both mechanisms. Indeed, allowing modifications of home mortgages would seriously undermine the sys- tems Congress has so effectively created. A. The Section 1322(b)(2) Prohibition Against Modifying Home Mortgages is Consistent with Congress’ Support for Home Mortgages via Mortgage Guarantees. As early as 1934, when Congress passed the National Housing Act, Pub. L. No. 73-479, 48 Stat. 1246 (1934), establishing the Federal Housing Administration (“FHA”), Congress sought to make more home loans available by insuring home mortgages made by private lenders. During World War II, Congress again sought to make home financing available to more Americans by 11 establishing the Veteran’s Administration (now Depart- ment of Veterans Affairs (“VA”)) and the VA Home Loan Guaranty Program. In essence, the mortgage insurance programs provide the mortgage borrower and lender with a substitute for the borrower’s equity. If the borrower is not able to pay, the mortgage insurance program covers the lender’s loss. The existence of these mortgage guaranty programs, therefore, has enabled private mortgage lenders to pro- vide borrowers with loans requiring low down payments. Until Congress created the FHA Home Loan Mortgage Insurance Program, now operated by the Department of Housing and Urban Development, and the VA Home Loan Guaranty Program, mortgages were only available in amounts up to 75 or 80 percent of the value of the home, with the remaining balance of 20 to 25 percent being required as a down payment. With the use of the FHA and VA programs, and conventional (that is, non- governmental) mortgage insurance programs patterned after the FHA and VA programs, mortgages up to 95 percent of the home’s value became common. Prospective home buyers who are unable to provide a 20 or 25 per- cent down payment may now become homeowners. The success of these government programs is demon- strated by their growth. In 1992, FHA insured $48.3 Bil- lion in mortgages, and by the end of 1992 there was $321.9 Billion in FHA-insured mortgages outstanding.® In 1992, the VA guaranteed $25.2 Billion in mortgages from 6 All data set forth in this brief is from information com- piled by the Economics Department of the MBAA. 12 private lenders, and by the end of 1992 there was $159.6 Billion in outstanding VA guaranteed loans. Each of the FHA and VA programs, however, share a common characteristic — they require the lender to liqui- date the mortgage before the government will pay a claim for loss. VA Office of General Counsel Precedent 1-91, 56 Fed. Reg. 25,156 (June 3, 1991). This characteristic was present when section 1322(b)(2) was enacted and is pre- sent today.” If the Court allows modification to reduce the amount of the protection available to home mortgages, then the government will guarantee payment only to the extent of the reduced balance resulting from the modifica- tion. VA General Counsel Precedent 1-91. Because modification will affect the government's guaranty at the expense of lenders, lenders must and will respond rationally to protect themselves from being undersecured. The most effective form of such protection will be to increase the down payments required to obtain home loans, especially in geographic areas of economic uncertainty. The result will be to frustrate the policy of and incentives included in Congress’ home loan guaranty programs — to make home loans available to more Ameri- cans. If, however, section 1322(b)(2) is interpreted as the Fifth Circuit interpreted it, and as suggested by respon- dent and amicus, then Congress’ policies and programs to foster housing will remain effective. 7 Testimony of Hon. Frank Keating, U.S. Department of Housing and Urban Development, June 6, 1991, at 4. A copy of Mr. Keating’s testimony was filed with amicus’ Fifth Circuit brief. 13 B. Section 1322(b)(2)’s Prohibition Against Mod- ifying Home Mortgages is Consistent with Congress’ Support for Home Mortgages via the Secondary Mortgage Market. The secondary market for home mortgages also will be impaired if Chapter 13 modification of home mort- gages is allowed in the manner advanced by petitioners. In the secondary market, mortgages are sold by mortgage bankers and other mortgage originators® into the nation- wide (indeed, worldwide) capital markets to permanent investors. A significant aspect of the secondary mortgage market is the mortgage-backed security, which is based on pools of mortgages. Congress, through several pieces of legislation, has fostered the growth of the secondary market. For exam- ple, in the Housing and Urban Development Act of 1968, Pub. L. No. 90-448, 82 Stat. 476 (1968), Congress autho- rized the new Government National Mortgage Associa- tion (“GNMA”) to “guarantee the timely payment of principal and interest on such trust certificates or other securities as shall (i) be issued by ... any. . . issuer approved . . . by the Association, and (ii) based on and backed by a trust or pool composed of mortgages... . ” 12 U.S.C. § 1721(g)(1). GNMA’s guaranteed mortgage- backed securities program began operating in 1970, and through mid-1992 GNMA had guaranteed over $423 Bil- lion in securities based on and backed by pools of mort- gages. The Federal National Mortgage Association 8 Mortgage originators bring the mortgage into existence after negotiating, arranging, and facilitating the making of a mortgage loan. 14 (“FNMA” or “Fannie Mae”) began issuing mortgage- backed securities in 1981. Through mid-1992, FNMA had issued over $413 Billion in securities based on and backed by mortgage pools. These mortgage-backed securities complemented the $98 Billion in mortgages held by FNMA in portfolio in 1992. In 1970, Congress passed the Emergency Home Finance Act of 1970, Pub. L. No. 91-351, 84 Stat. 450 (1970), Title III of which created FHLMC (also known as “Freddie Mac”). Congress gave FHLMC authority to issue participation certificates based on and backed by pools of mortgages, and FHLMC began its Participation Certifi- cate program in 1971. Through mid-1992, FHLMC had issued over $382 Billion in participation certificates based on and backed by mortgage pools. FHLMC held $28.6 Billion in mortgages in portfolio in 1992. To facilitate the trading of mortgage-backed securi- ties in the capital markets, Congress passed the Second- ary Mortgage Markets Enhancement Act of 1984, Pub. L. No. 98-440, 98 Stat. 1689 (1984), which added an exemp- tion to the restrictions on credit extension by securities dealers for a “mortgage related security.” The Act defines a mortgage related security as including a security that “represents ownership of one or more promissory notes or certificates of interest or participation in such notes ... which notes . . . are directly secured by a first lien on a single parcel of real estate . . . or on a residential manu- factured home.” 15 U.S.C. § 78c(a)(41). In order to provide more flexibility in the issuance of mortgage-backed securities, Congress created the Real Estate Mortgage Conduit (“REMIC”) in Section 671 of the 15 Tax Reform Act of 1986, Pub. L. No. 99-514, 100 Stat. 2085 (1986). With regard to REMICs, the Act defines a “quali- fied mortgage” as “any obligation (including any partici- pation or certificate of beneficial ownership therein) which is principally secured by an interest in real prop- erty....” LR.C. § 860G(a)(3)(A). As in 1978 (when section 1322(b)(2) was enacted), today the home mortgage credit market relies heavily on the secondary market for mortgages. The size and impor- tance of this efficient market is immense. In 1978, when the Bankruptcy Code was enacted, $742.8 Billion in home mortgages were outstanding. Of these mortgages, $65.4 Billion (8.8 percent) were in mortgage pools. In mid-1992, $2.9 Trillion in home mortgages were outstanding, of which $1.3 Trillion (44.8 percent) were in mortgage pools. The secondary mortgage market and mortgage- backed securities have important benefits to prospective American homeowners. First, the secondary mortgage market enables economies of scale that, in turn, allow lenders to offer mortgages at rates and on terms that are comparable to those otherwise available only to large corporations. These attractive rates would not be avail- able to individuals if the efficiency of the home finance credit markets were not present. Second, because of mort- gage-backed securities encouraged by congressional leg- islation, mortgage bankers, and other mortgage originators, can access the investment capital market in dollar volumes far above the volumes that the capital of the mortgage banker ordinarily would support. The result of this increased access is that many more mort- gage originators are available to make loans to individ- uals seeking to buy a home. 16 The secondary mortgage market and mortgage- backed securities will continue to offer advantages to the individual home buyer, however, only if a predictable flow of principal and interest from mortgages can be maintained. Only such a predictable flow can ensure securities issuers that they will meet their obligations to their investors — to provide both interest and principal on their investors’ securities in full and in a timely manner, regardless of the performance of individual mortgages. Interpreting section 1322(b)(2) to prohibit any modifica- tion of home mortgages is a crucial aspect in ensuring the predictable flow of principal and interest from home mortgages. This is the only interpretation consistent with Congress’ years of legislation tailored to foster mortgage- backed securities. If modification were allowed, then a significant element of uncertainty would be introduced into the mortgage credit market and the mortgage-backed security market would be considerably weakened. S CONCLUSION Congress has enacted a pervasive and important leg- islative program to foster home mortgages and home ownership in America. Congress recognized the potential harmful impact on this program if modifications of home loans were allowed, and it provided special protection for home mortgages in the Bankruptcy Code. The only inter- pretation of Bankruptcy Code section 1322(b)(2) consis- tent with this congressional policy is the broad and full protection accorded by the court below - that a Chapter 13 debtor may not modify home mortgages by bifurcating those mortgages into secured and unsecured parts. For 17 the foregoing reasons, therefore, the Court should affirm the decision of the Court of Appeals for the Fifth Circuit. Dated: February 22, 1993 Respectfully submitted, Wituram E. CumMBeRLAND General Counsel Mortcace BANKERS ASSOCIATION OF AMERICA 1125 Fifteenth Street, N.W. Washington, D.C. 20005 (202) 861-6516 Counsel of Record for Amicus Curiae Mortgage Bankers Association of America Rocer M. WHELAN VINCENT J. COLATRIANO SHaw, Pittman, Potts & TROWBRIDGE 2300 N Street, N.W. Washington, D.C. 20037 (202) 663-8000 Of Counsel --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0361%3A13. Public record. Not legal advice.