Banks Urge Senate to Reject Mortgage Relief Bill
April 29, 2009 - 4:23 PMA dozen financial groups, including the U.S. Chamber of Commerce and American Bankers Association, on Wednesday urged every member of the U.S. Senate to reject a key piece of President Barack Obama's plan to keep tens of thousands of Americans from losing their homes.
The letter to senators was the latest push by an industry that has helped stall the proposal, which would have let debt-ridden homeowners reduce their payments in bankruptcy court. The Senate was expected to defeat the measure on Thursday.
The plan faces nearly unanimous opposition by Republicans and even some Democrats who say they share industry's concerns that the forced easing, or "cram-down" of mortgage terms would ultimately drive up interest rates and further freeze credit lines.
"The housing market is already unstable and enacting cram-down legislation would make things worse by adding even more risk to the mortgage market, effectively undermining efforts by Congress and the administration to stabilize housing," the bankers wrote in a letter sent to each senator.
In February, Obama announced his plan to save some 9 million debt-ridden individuals from losing their homes by providing incentives to lenders to cut homeowners' monthly payments or refinance loans for individuals whose home's market value has sunk below what they owe.
As part of the plan, Obama said he also wanted to change bankruptcy laws so a judge can reduce a person's mortgage payment based on its market value if the homeowner had otherwise been unable to modify their loan.
While cast as a last resort, the bankruptcy option would have arguably had the most immediate impact in stemming the tide of foreclosures facing the nation.
Bankruptcy judges can already reduce loans on investment properties or personal property based on the property's current value.
Congressional Democrats championed the legislation, which passed the House in March. But the measure quickly stalled in the Senate, where a simple majority is not enough and 60 votes are needed to overcome the objections of any one senator.
Senate Majority Whip Dick Durbin has been trying to negotiate a deal with the industry under the assumption that an agreement would help secure the bill's passage.
"If we don't do something significant and specific then it's going to go from bad to worse," Durbin, D-Ill., said in an interview.
But aides acknowledged that the bill had lost momentum in recent weeks, as one association representing federal credit unions publicly rejected the measure after weeks of private talks.
Democratic leaders said they wanted to hold the vote anyway to put Republicans on record for turning their backs on Americans facing foreclosure.
The bankruptcy provision will be offered as an amendment to legislation aimed at freeing capital for banks by increasing the borrowing authority of the Federal Deposit Insurance Corp.
If it doesn't pass, Democrats say they will try again. But Durbin predicts the Senate might not be able to act in time to stem the tide of foreclosures.
"We'd continue with what we have - more and more people falling into delinquency and foreclosure with no place to turn," he said. "I think the banks have been derelict in their responsibility."
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