A Possible Breakthrough on Bankruptcy Modification « The Washington Independent
Housing advocates have been pushing for years, without success, for changes in federal law to allow bankruptcy judges to modify mortgages. The idea was a non-starter during the Bush Administration, since lenders strongly opposed it. But American Banker (subscription required) reports today that lawmakers may have reached a comprise allowing the mortgage modifications in some circumstances.
From American Banker:
Though the banking industry has opposed such a bill for two years, lawmakers have agreed to narrow the scope of the legislation to win industry support. So far, Citigroup Inc has indicated it would back the compromise. At a press conference this afternoon, lawmakers are expected to unveil a bill that would only apply to nontraditional loans originated before the law’s enactment date. The legislation would also require that borrowers made good-faith efforts to work with their lenders to rework their mortgages before initiating the bankruptcy process. Lenders who violated the Truth in lending Act would also waive certain priority creditor rights afforded under bankruptcy protection.
American Banker’s sources said Citigroup approached Sen. Charles Schumer, D-NY, with the possible compromise in December. The bank, the recipient of government bailout money, feared a tougher version would be enacted in a new Obama administration. Negotiations are ongoing, according to American Banker:
Citigroup’s negotiations continued this week with Sen. Richard Durbin, D-Ill., the primary Senate sponsor of the mortgage bankruptcy bill, and Senate Banking Committee Chairman Chris Dodd, who has been a vocal advocate of the legislation. “The senator has been in touch with Citi since last year and as recent as this week and is working together with Dodd and Durbin to try to make this happen,” said an aide to Sen. Schumer. It’s unclear how quickly the legislation could move — or whether other banks will sign on to the Citi deal. Sen. Schumer said in a statement he wants to attach the bill to the economic stimulus package.
Also there’s no word yet from housing advocates as to whether they’ll support the compromise. Still, considering the idea never had a chance of seeing daylight for the past eight years, any progress is better than nothing. The fact that banks and lawmakers are even tackling this also suggest how severe the foreclosure crisis has become.