rssTop Dems Renew Call for Cramdown
Thursday, September 10, 2009 at 6:00 am
- 39 Comments
Sen. Richard Durbin (D-Ill.) (WDCpix)
The White House program designed to prevent foreclosures by paying banks to alter loans voluntarily isn’t doing nearly enough to keep struggling borrowers in their homes, several powerful Democrats charged Wednesday. Rep. Barney Frank (D-Mass.), who chairs the House Financial Services Committee, and Richard Durbin (Ill.), the Senate’s No. 2 Democrat, are threatening to renew the push to empower homeowners to escape foreclosure through bankruptcy — a proposal that’s anathema to the banks and their congressional defenders.
Illustration by: Matt Mahurin
In March, the Obama administration launched a program providing $75 billion in carrots to banks that make mortgages more affordable. While administration officials say the program is right on track, the number of modifications lags far behind new foreclosure filings. Indeed, the Treasury Department released figures Wednesday revealing that the voluntary initiative has encouraged roughly 360,000 trial modifications since the program began. Meanwhile, foreclosure filings topped 360,000 in July alone, according to RealtyTrac, an online foreclosure tracker. The figures, many lawmakers and consumer groups contend, are indication that leaving the modifications to the fancy of the banks won’t stem the foreclosure crisis, which was at the root of the past year’s financial meltdown and threatens to prolong it.
“Waiting for banks to ‘volunteer’ to end this foreclosure crisis is a waste of time,” Durbin said in a statement Wednesday. “Treasury’s latest report show[s] this approach has failed miserably.”
Durbin is calling on Treasury Secretary Tim Geithner “to sit down with congressional leadership and work to end this blight on our economic future.”
The comments come at a time when foreclosures continue to skyrocket, even as some other indicators suggest that the economy is on a slow rebound. Indeed, July’s 360,149 foreclosure filings represent a 7 percent jump from the month before, RealtyTrac reported. And the trend is expected to worsen as the leading cause of foreclosures shifts further from the risky subprime loans that collapsed so spectacularly in recent years to today’s rising unemployment, which is approaching 10 percent. Even the most affordable modifications, experts point out, will likely be unaffordable to folks without incomes.
“A payment of zero will never be attractive to a lender,” Paul Willen, senior economist at Boston’s Federal Reserve, said Wednesday during a hearing of the Financial Services housing subcommittee.
Michael Barr, the Treasury Department’s assistant secretary for financial institutions, told lawmakers that the administration’s anti-foreclosure program — designed to modify between 3 million and 4 million mortgage loans over the next several years — is on pace to meet that goal. The 45 servicers who are participating, Barr testified, have offered 570,000 trial modifications, with 360,000 of those underway. Under the trial system, if homeowners meet their payment obligations for three straight months, then the new mortgage terms become permanent.
Still, Barr conceded that there’s plenty of room for more bank cooperation. “We think that all the servicers can do more than they’re doing now,” he said.
Administration officials, who called representatives of the major servicers to Washington in July to urge them to do more to help struggling borrowers stay in their homes, have planned a similar meeting for Thursday.
Frank said Wednesday that he’s “disappointed at the pace” of the White House initiative. Considering the reluctance of mortgage servicers to modify loans voluntarily, he added, mortgage bankruptcy reform “has become relevant.”
“The best lobbyists we have for getting bankruptcy legislation passed are the servicers who are not doing a very good job of getting mortgages modified,” Frank said.
Under the Democrats’ reform proposal, bankruptcy judges could reduce, or “cramdown,” the terms of mortgages, including interest rates and principal balances, to make the loans more affordable for struggling homeowners — a power judges currently have over loans for vacation homes, boats and other material assets, but not over primary mortgages.
Consumer advocates say such reform would provide an important stick nudging the banks in the direction of modifications rather than foreclosures. Alys Cohen, attorney with the National Consumer Law Center, an advocacy group, told lawmakers Wednesday that servicers, aiming to maximize their profits, have been all too quick to choose the latter.
“As with all businesses,” Cohen said, “servicers add more to their bottom line to the extent that they can cut costs.”
Willen, of the Boston Fed, pointed out another reason that carrots alone won’t ensure the success of Washington’s anti-foreclosure strategy: There’s nothing, he said, preventing the banks from choosing to modify only those loans that are likely safest to begin with. “A program that offers monetary incentives to do as many modifications as possible and to minimize the probability that modified loans redefault may not in fact prevent many foreclosures,” Willen said.
Frank spokesman Steven Adamske said that, if the servicers don’t make “significant progress” on loan modifications in the coming months, the Financial Services chairman will add the cramdown provision to a larger package of finance reforms that House Democrats plan to take up later in the year.
They have a tough road. Although House lawmakers already passed mortgage bankruptcy reform legislation this year, the proposal hit a wall of bipartisan opposition in the Senate, after the Obama White House abandoned its previous support for the proposal. On top of that, the finance industry, despite its remarkable collapse, remains a powerhouse of influence on Capitol Hill, giving hundreds of millions of dollars to lawmakers each election cycle.
And Republicans, who have sided with the banks in opposing mortgage bankruptcy reform, didn’t stray from that position this week. Rep. Spencer Bachus (Ala.), senior Republican on the Financial Services panel, said the only way to reverse the rising tide of foreclosures is to curb the rising rate of unemployment. The best way to tackle unemployment, Bachus added, is to get the government out of the way and “allow the private sector to create these jobs.”
“That’s how you save these homes,” Bachus said.
Mortgage servicers, for their part, maintain that they’ve bent over backward to comply with the administration’s loan modification program in order to help homeowners. Jack Schakett, executive in charge of credit loss at Bank of America, the country’s largest mortgage servicer, told lawmakers Wednesday that BoA intends to transition 125,000 trouble loans into the trial modification phase before Nov. 1.
“Threat of bankruptcy,” Schakett said, “would not change our policies of modification.”
Yet such responses, many lawmakers say, are just further indication that, if Congress hopes to rein in foreclosures, mortgage modification decisions shouldn’t be left solely in the hands of the banks. “The servicers are not going to change,” Rep. Al Green (D-Texas) said during Wednesday’s hearing. “So if we know that [they aren't going to change], then we have to do something different.”
39 Comments
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[...] Services Committee, Loans, News Sources, Propo, Richard Durbin, Senate, Top News, White House News Sources wrote an interesting post today onHere’s a quick excerptSen. Richard Durbin (D-Ill.) (WDCpix) [...]
Pingback posted September 10, 2009 @ 7:42 am
[...] News Sources wrote an interesting post today onHere’s a quick excerptSen. Richard Durbin (D-Ill.) (WDCpix) The White House program designed to prevent foreclosures by paying banks to alter loans voluntarily isn’t doing nearly enough to keep struggling borrowers in their homes, several powerful Democrats charged Wednesday. Rep. Barney Frank (D-Mass.), who chairs the House Financial Services Committee, and Richard Durbin (Ill.), the Senate’s No. 2 Democrat, are threatening to renew the push to empower homeowners to escape foreclosure through bankruptcy — a propo [...]
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[...] Over Bankruptcy Solution to Housing Crisis. By Mike Lillis 9/10/09 6:00 AM. Read more here: The pedagogue Independent » Top Dems Renew disposition for Cramdown Posted in Uncategorized | Tags: bankruptcy, came-hours, cramdown-, debate, housing, [...]
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Comment posted September 10, 2009 @ 2:02 pm
Considering that most of the mortgages are held by the few biggest banks, you know, the ones the federal government saved after it became apparent that they ran themselves into the ground, I think it's well within their right for the federal government to tell the banks how to do business for the sake of the greater good. I don't care what the stock market climbs to, homes are 80% of Americans' primary asset, and until home values increase, the economic recovery will be nothing more than a ruse.
Comment posted September 10, 2009 @ 5:28 pm
ajm8127,
I'm not really informed about this. Question: Do you think the market was hiked by real estate agents, years before this, and do you think that it had anything to do with the present situation?
It's hard to think that the banks were solely to blame. Or am I totally off-base?
Comment posted September 10, 2009 @ 11:42 pm
Dick Durbin is my senator and has a rep here in Illinois for caring and trying to make things right for the average family.
Not getting that bill thru was a really tough for Durbin and I really hope he can push it thru this time.
Pingback posted September 11, 2009 @ 8:26 am
[...] Top Dems Renew Call for Cramdown The White House program designed to prevent foreclosures by paying banks to alter loans voluntarily isn’t doing nearly enough to keep struggling borrowers in their homes, several powerful Democrats charged Wednesday. Rep. Barney Frank (D-Mass.), who chairs the House Financial Services Committee, and Richard Durbin (Ill.), the Senate’s No. 2 Democrat, are threatening to renew the push to empower homeowners to escape foreclosure through bankruptcy — a proposal that’s anathema to the banks and their congressional defenders. [...]
Pingback posted September 11, 2009 @ 8:34 am
[...] Top Dems Renew Call for Cramdown The White House program designed to prevent foreclosures by paying banks to alter loans voluntarily isn’t doing nearly enough to keep struggling borrowers in their homes, several powerful Democrats charged Wednesday. Rep. Barney Frank (D-Mass.), who chairs the House Financial Services Committee, and Richard Durbin (Ill.), the Senate’s No. 2 Democrat, are threatening to renew the push to empower homeowners to escape foreclosure through bankruptcy — a proposal that’s anathema to the banks and their congressional defenders. [...]
Comment posted September 11, 2009 @ 10:05 pm
Banks and mortgage companies are the primary reason that the housing market collapsed, along with artifically inflated housing values created by appraisers. If the banks didn't give loans to people who obviously could not afford them, there would not be all of these defaults. Now the honest people who dumped all of their life savings into a home that they expected would increase in value over two years are stuck with a home barely worth the balance of the mortgage. If you sell, you lose everything. If you keep it you have to live to be 90 to recoup your initial investment. Banks got the money. They should reduce the principle balance of these homes to coincide with current market values. Then people will be able to afford their mortgage and start spending money again to boost this downtrodden economy. Help the people!
Comment posted September 14, 2009 @ 3:43 am
Apparently, you don't know the Fannie Mae and Freddie Mac are market makerts for the secondary mortgage market.
The private markets no more failed in healthcare than they did in the credit markets. If they practiced ANY fiduciary responsibility AT ALL, the mortgage market would never imploded, derivatives or no derivatives. The underlying assets would have not been so vulnerable. Credit wouldn't have been recklessly deployed to “kite” the whole market to kick off the derivative collapse. The volume of credit originates in the credit markets, but the destination in the mortgage industry has to pass through acceptance into the mortgage pools via FM/FM to every be a problem in the derivatives markets. But there never would have been a problem for derivatives if the income wasn't drying up due to the low quality of the underlying assets.
IF Fannie Mae and Freddie Mac had declined suspect mortgages the mortgage originators would have no market to unload their crap into and private originators would have promptly ceased underwriting mortgages no one would buy. Instead they encouraged it. Fanned the flames. Accelerate, full steam ahead. We will take damn near anything, so write away. No institution that wanted to stay in business with any integrity would have conducted their business in the manner that those institutions did. Not one crappy mortgage would have been written the minute FM/FM shut the door because nobody will underwrite a mortgage they can't get rid of…
Don't tell me FM and FM had to swallow every piece of garbage out there. Just who writes the rules? Oh that's right the government. And who sits on the Board and just who are the executives of FM and FM? Oh that's right, politicians. It's a quasi-government institution run by politicians and regulated by the politicians. And what party were those people in? As a market maker they have control over the ENTIRE credit market, which is the basis for the commercial paper market which feeds American business. Stock market makers control selected companies, not the whole market. The length and breadth of their size and impact doubly requires they practice sound policies. If you wanted to wreck something, that's the thing to pick.
The recklessness would almost make you think that it was done on purpose. It seems that all the socialists want to SCREAM out about the “failure” of the private market. If you drive the market into the ground by destabilizing the market through gross incompetency (After all what else could you call it? Competency?…) It looks a lot like loosening the lug nuts and making sure the accelerator sticks.
Comment posted September 14, 2009 @ 3:44 am
The “they” in “If they practiced ANY fiduciary responsibility AT ALL” is Freddie Mac and Fannie Mae.
Comment posted September 14, 2009 @ 1:13 pm
As this was unfolding, I don't specifically remember any mention of real estate agents contributing to hiking up prices. And I could never say that the banks were solely to blame. Consumers made poor decisions in taking out loans that they could not repay. The banks did make it really easy and incited them to do so, but at the end of the day, they are still responsible for what they signed. Thats the nature of a contract. Still I do believe that the banks made it too easy for them to make these poor decisions. If the banks had long term goals in mind, these contracts would never have been drafted in the first place.
Comment posted September 14, 2009 @ 1:21 pm
I definitely don't disagree with you that there was a major failure of oversight of the mortgage markets by the government. The government has been steadily losing power over private markets since the repeal of Glass-Steagall. But if the invisible hand was so wise, it wouldn't have allowed these crappy financial products to hit the market in the first place.
Comment posted September 14, 2009 @ 7:44 pm
This bill needs to be passed to help struggling home owners. Unfortunately the banks are being helped and not the homeowners. I was advised by my lender to be late on a payment and maybe I would be helped. It has been almost a year since my husband and I hired an attorney to try to get a loan modification through Countrywide and now B of A. We were not irresponsible, I had a significant loss of income, and now our house value has dropped by $274200.00. How in the world will that money be recouped if the economy is still in chaos. this will help the economy, not passing health care reform, get the housing market stabilized then everything else will fall into place. This bill will help the homeowners, finally something for the American people.
Pingback posted September 17, 2009 @ 1:35 am
[...] Mike Lillis wrote an interesting post today onThe Washington Independent » Top Dems Renew Call for CramdownHere’s a quick excerpt [...]
Comment posted September 17, 2009 @ 2:20 pm
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Comment posted September 23, 2009 @ 1:23 am
Maybe they should look into how WaMu/Chase doesn't ever get back to people about modifications, loses files, and simply does not modify a damned loan, but pretends to.
Comment posted October 10, 2009 @ 2:57 am
Sounds like it's time for this republican to turn democrat and get rid of all of those republicans who refuse to help these homeowners. I and many others like me have lost so much equity in our homes since this foreclosure crisis started and NO ONE is offering us a bailout of the CASH VALUE I and many others like me have lost. ..Truely at this point, it is better for me to walk away from my home as I will never recover the cash I put into it.
I am PISSED beyond measure over those senators who refuse to see the world as it really is and who keep mollifying these finanical monsters. I have spoken to the congressman and senators in my district and know that they refuse to consider cramdown, therefore I plan to vote against them and go democrate in this November election..
Pingback posted May 17, 2010 @ 5:42 pm
[...] Top Dems Renew Call for Cramdown « The Washington Independent [...]
Comment posted June 2, 2010 @ 3:17 pm
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Comment posted July 6, 2010 @ 7:50 am
Maybe they should look into how WaMu/Chase doesn't ever get back to people about modifications, loses files, and simply does not modify a damned loan, but pretends to.
Comment posted July 6, 2010 @ 7:51 am
This bill needs to be passed to help struggling home owners. Unfortunately the banks are being helped and not the homeowners. I was advised by my lender to be late on a payment and maybe I would be helped. It has been almost a year since my husband and I hired an attorney to try to get a loan modification through Countrywide and now B of A. We were not irresponsible,
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Comment posted August 4, 2010 @ 5:32 am
foreclosures means to take the house away from the owner! and i hate it! can those banks just give those house owners another chance?
Comment posted August 4, 2010 @ 8:10 am
Maybe they should look into how WaMu/Chase doesn't ever get back to people about modifications, loses files, and simply does not modify a damned loan, but pretends to.
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