rssNew Bankruptcy Fight Brews in Senate
Thursday, March 12, 2009 at 12:03 am
- 17 Comments
Sen. Richard Durbin (D-Ill.) (WDCpix)
Controversial last-minute changes to House legislation empowering bankruptcy judges to alter primary mortgages will have little effect preventing struggling homeowners from trying to save their homes through bankruptcy, according to a number of housing advocates who are following the debate. Rather, pressures to limit the scope of a similar Senate bill, expected to be considered next week, pose a greater threat to the effectiveness of the bankruptcy provision, the advocates say.
The House proposal — which would eliminate the prohibition on judges to “cram down” the interest rates and principal balances of some primary home loans — was passed last week as part of a larger anti-foreclosure package, but not before moderate Democrats insisted on changes they said would ensure that bankruptcy is homeowners’ last resort.
Illustration by: Matt Mahurin
The amendments attracted the criticism of some liberal lawmakers — and a great deal of heat from liberal bloggers — who argued that Democratic leaders had caved to the demands of the finance industry at the expense of struggling homeowners. Yet many housing advocates maintain that the changes are largely symbolic, and likely won’t block pinched homeowners from pursuing the bankruptcy option.
One central change, for example, requires judges to consider whether homeowners were offered loan modifications from their lenders before filing for bankruptcy protection — something “judges would have considered before,” according to one housing advocate who spoke only anonymously.
Another amendment asks judges to consider cutting interest rates before reducing principal balances. Both provisions put the House bill more in-line with the Obama administration’s anti-foreclosure strategy, leaving some housing advocates to downplay the controversy surrounding the House negotiations. “Does the homeowner qualify for Obama’s initiative? Frankly, that’s in the consumer’s interest,” said David Berenbaum, executive vice president of the National Community Reinvestment Coalition, a community development group.
Most of the House changes, Berenbaum added, “are fairly reasonable in our eyes. There will still be a large number of homeowners who will benefit.”
Senate lawmakers, who will take up the bill as early as next week, seem to agree. “It was certainly narrowed so that it could pass,” said Max Gleischman, spokesman for Sen. Richard Durbin (D-Ill.), who sponsored a Senate cram-down bill similar to the House-passed version. “But the general feeling is that the House sent over a pretty good bill.”
Many advocates say the larger threat to the bankruptcy provision’s effectiveness will come in the Senate. To gain the support of Citigroup — which broke ranks with others in the industry to support the Durbin bill earlier this year — Senate leaders agreed to limit the bankruptcy option only to those mortgages existing before the bill is passed.
Now the finance industry is pressuring lawmakers to limit the scope of the bankruptcy provision again to include only sub-prime mortgages — a change that housing advocates are fighting tooth and nail. “Limiting it to sub-prime doesn’t make any sense [now],” said Sharon Price, policy director at the National Housing Conference, an advocacy group. “A year ago — maybe. But at this point, most sub-prime loans are running their course, so it wouldn’t help many homeowners.”
The debate arrives as the nation’s housing market continues to tank, leaving an increasing number of homeowners struggling to retain their homes. Last year, foreclosure filings affected more than 2.3 million properties nationwide, up 81 percent from 2007 and 225 percent from 2006, according to RealtyTrac, an online foreclosure database. And the numbers are projected to rise. In December, Credit Suisse estimated that, without government intervention, the number of foreclosures could rise to 8 million by 2012.
To prevent that from happening, both Congress and the White House have stepped in with sweeping plans to stem the housing crisis. Last month, President Barack Obama unveiled a $75 billion strategy encouraging lenders and mortgage servicers to modify troubled loans voluntarily. The congressional cram-down proposal provides the stick to accompany Obama’s carrots.
House Democratic leaders — who have failed for years to pass a cram-down bill in the face of fierce opposition from Republicans and the finance industry — had prepped for an easier fight this year. But moderates in their own party — led by California Rep. Ellen Tauscher* — hinged their support on the inclusion of amendments to prevent what they feared would be a run on the bankruptcy courts.
Last month, the Congressional Budget Office estimated that over 1 million households would qualify for bankruptcy under the bill, of which about 350,000 would file for protection over the next decade.
Tauscher and other moderate Democrats also wanted assurances that the bankruptcy option is available only to homeowners for whom the mortgage is unaffordable — not merely underwater.
Their stand led House Speaker Nancy Pelosi (D-Cal.) to delay the vote on the housing package before accepting the moderates’ amendments last week.
From the liberal blogosphere, the reaction was furious. “How do they explain to their constituents that thousands of homes will go into foreclosure in each of their respective districts without this legislation, dragging the value of other properties in the area with them in an endless downward spiral?” FireDogLake founder Jane Hamsher wrote on The Huffington Post last week. “Do they really think voters won’t notice that they are aligned with the financial services industry against them?”
Some advocates echoed those concerns. David Abromowitz, a housing expert at the progressive Center for American Progress, said the House amendments place a disproportionate burden on homeowners, while letting the banks off the hook for making loans to folks who couldn’t pay them back. The provision requiring homeowners to pursue loan modifications from banks, for example “adds an additional hurdle for homeowners that tilts the advantage back to lenders,” he said.
Still, Abromowitz also has his eyes trained on the tough Senate battle ahead. “What senator would want to go through bankruptcy before going to their lender for a work-out?” he said, refuting the argument, popular among Republicans, that the cram-down legislation would inspire a flood of new bankruptcy filings. “And why do they think that the American people would act any differently?”
*An earlier version of this story wrongly claimed that California Democratic Reps. Zoe Lofgren and Dennis Cardoza also led the push for the changes. While the two were involved in the negotiations, the fight was largely Tauscher’s.
17 Comments
Comment posted March 11, 2009 @ 9:27 pm
That provision was our saving grace….we are NOT subprime borrowers..we put 40% down on our house we had built. Our only home…we can not start over…..we are 58 and 62…. We have a loan thru a small savings and loan…..we have NOT defaulted….WE BOTH LOST OUR JOBS!!! AND OUR HOME IS WORTH 125,000 LESS than it was when we built it 3 years ago….our mortgage is NOT our only expense…we pay our bills for now…we would rather have our home than credit cards……I am tired of hearing that WE are all irresponsible and SUBPRIME…and NOW they want to help SUBPRIME and not those who put REAL money down???….they will help eliminte pig stench, and save tit mouse…but not help us…..working for 40 years, paying taxes??? What the hell is wrong with these people????
Pingback posted March 12, 2009 @ 8:40 am
[...] Random Feed wrote an interesting post today onHere’s a quick excerptSen. Richard Durbin (D-Ill.) (WDCpix) Controversial last-minute changes to House legislation empowering bankruptcy judges to alter primary mortgages will have little effect preventing struggling homeowners from trying to save their homes through bankruptcy, according to a number of housing advocates who are following the debate. Rather, pressures to limit the scope of a similar Senate bill, expected to be considered next week, pose a greater threat to the effectiveness of the bankruptcy provi [...]
Pingback posted March 12, 2009 @ 10:36 am
[...] have passed the House last week, the bill moves on to the Senate, where there is reported to be a fight on tap. Many don’t like the fact that bankruptcy judges will have power over loans, and still others [...]
Pingback posted March 12, 2009 @ 10:37 am
[...] . Source: The Sun, Huffington Post, Los Angeles Times Related posts: Oprah gives up impartial New Bankruptcy Fight Brews in Senate – washingtonindependent.com 03/12/2009 Sen. Richard Durbin (D-Ill.) (WDCpix) Controversial [...]
Comment posted March 12, 2009 @ 11:00 am
People would flock to bankruptcy only because of the disingenuous lenders. They pay lip service to the press and the government and do as little as possible to help the homeowners. Look at the dramatic rise in foreclosures. Do you really think there would be so many if the banks were truly helping homeowners by modifying mortgages sensibly?
Comment posted March 12, 2009 @ 1:19 pm
This happens all the time it is just in this cash crisis time it becomes more evident and likely. Nobody wants to know the figures when we don't have a downturn on our hands.
Comment posted March 12, 2009 @ 10:04 pm
Lynda! Pay no mind to the morons that label. Its all BS.
The Naysayers believe you should have known in advance your jobs were coming to a end, AND THUS, not applied for the MTG loan. How ignorant is that?
Look…your going to get relief from this bill IF your S & L won't work with you. There is no shame.
Comment posted March 13, 2009 @ 11:24 am
just as long as the big wigs can have a judge bud take a little of there boar cars and second homes the repuplicans are fine they a sick people give them texas . and get rid of them . oh and when stemcell cures cancer lets see them turn down the cure or if they lose there job lets see if they file for help what are you dum if you not rich you cant be a gop. help people this time i payed 25000.00 in taxes a year for 15 years now i neer help to
Pingback posted March 13, 2009 @ 3:27 pm
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Comment posted March 13, 2009 @ 5:03 pm
Here you can find your Senator's number, whether they be Republican or Democrat or Independent, but be sure to contact them if you want them to not cave to the “Citi” component, to limit the “cram down” to only sub prime mortgages.
http://www.visi.com/juan/congress/index.html
Just enter your zip code and the tool will search for your 2 Senators and your 1 Dsitrict Congressional Representative, please take action because the line must be drawn at the following:
Leave the bill as it passed the House (although I'd like to see the cut off date language removed, just allow “cram downs”)
Explicitly reject the “Citi” component to limit “cram downs” to sub prime only
Comment posted March 22, 2009 @ 3:08 pm
HELP US! PLEASE PUSH THROUGH S.61 NOW…
S. 61 is consistent with the goal of offering assistance to homeowners making a good-faith effort to stay current on their mortgage payments. Judicial modification is a last resort, no-cost option to foreclosure that may keep as many as 1.8 million FAMILIES their homes, according to Credit Suisse. Granting bankruptcy judges this authority gives home mortgages on primary residences the same treatment as vacations homes, yachts or investment properties owned by wealthier borrowers. Why should those facing financial crises, whose homes are their most valued asset, by denied relief given to others?
S. 61 will help honest, hard working homeowners who may have been lured into predatory loans, suffered economic hardships, or who are overwhelmed by medical expenses, save their homes from foreclosure. Keeping people in their homes has the added benefit of helping to stabilize devastated neighborhoods and will give our economy a much need boost.
Please support S. 61 and oppose efforts to weaken it. Thank you
Comment posted April 1, 2009 @ 2:53 am
Citizens you are just wasting your time, and no one cares about you losing your home. These elected officials have homes that are already paid for by the institutions that they are now protecting. But lets at least call them what they are, and stop fooling ourselves into thinking that they are our savior, representatives or nothing close, and certainly are not SENATORS. It's very clear that we are dealing with sworn TRAITORS. So by you calling them your senators you give them respect and a title that they haven't earned nor deserve. They are just PLAIN TRAITORS to the people that voted them into office. And VERY BOLD TRAITORS to the point that they push it in our faces that they back the financial institutions and ask for their advice on how to deal with us instead of polling the people that voted them into office and get their opinion before they vote on OUR interest. So when you send in your comments to be posted on these various sites at least call these elected TRAITORS WHAT THEY ARE !!!
Comment posted April 18, 2009 @ 6:17 am
prediction: The house of Lords will not take up the cause of the commoners. Too filthy. Let them live in their tent or car cities. They can pretend to be one of the people for the months leading up to their re-election and then revert back to protecting their eliteness.
Republican or Democrat who votes against SB 61 should be tossed out. But with the millions available to campaign, and the commoners' lack of retention, it shouldn't be hard to get re-elected.
Carry on.
Comment posted April 18, 2009 @ 1:17 pm
prediction: The house of Lords will not take up the cause of the commoners. Too filthy. Let them live in their tent or car cities. They can pretend to be one of the people for the months leading up to their re-election and then revert back to protecting their eliteness.
Republican or Democrat who votes against SB 61 should be tossed out. But with the millions available to campaign, and the commoners' lack of retention, it shouldn't be hard to get re-elected.
Carry on.
Pingback posted September 2, 2009 @ 6:00 am
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Comment posted August 5, 2010 @ 1:26 pm
Republican or Democrat who votes against SB 61 should be tossed out. But with the millions available to campaign, and the commoners' lack of retention, it shouldn't be hard to get re-elected.~~~~
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