One of the proposals floating around Congress aimed at preventing further foreclosures would allow bankruptcy courts to modify mortgages of individuals in Chapter 13 bankruptcy. 

The current Chapter 13 bankruptcy rules are kind of strange - mortgages on primary residences cannot be modified while those on secondary or vacation homes can.  Not sure how that makes any sense. 

Marketwatch does a good job explaining why this provision is controversial.  Basically being that nearly 40% or originated mortgages have secondary notes on them that could be subordinated and end up as total losses to lenders under such rules.  It will be interesting to see how this progresses in Congress.  The Bush administration has already promised a veto.

Full story linked below:

Foreclosure Could be Avoided by Modifying Chapter 13 Bankruptcy Rules