As lenders begin to implement the Obama administration's foreclosure rescue program, Senate Democrats are wrangling with the financial services industry over a key part of the plan that would permit bankruptcy judges to cut the principal owed by mortgage borrowers.

Thornburg Mortgage Inc., a large and troubled provider of "jumbo" mortgage loans, on Tuesday said it may file for Chapter 11 bankruptcy protection.

Senate expected to soon debate its own version of the 'cramdown' bill that will allow bankruptcy judges to reduce mortgage debt.

Lawmakers balk at proposal to change bankruptcy law to allow judges to adjust mortgage terms - a measure central to Obama's foreclosure effort.

Todd Zywicki has a great editorial in the Wall Street Journal this morning on why it is a terrible idea to let bankruptcy judges modify mortgages. I have excerpted on small part of it, but if you are in the real estate or mortgage business, this is a must read.