Senate to Take Another Look at Cramdown

Nearly three months after the Senate killed a House-passed proposal allowing homeowners to stave off foreclosure through bankruptcy, some upper-chamber Democrats are wondering if it isn’t time to revisit the issue.

Leaders of the Senate Judiciary Committee, not satisfied that mortgage lenders and servicers have done enough to prevent foreclosure voluntarily, have scheduled a cramdown hearing for Thursday. They have good reason. Even as the nation’s largest banks are posting record second-quarter profits, the number of foreclosures continues to rise, topping 1.5 million for the year, according to RealtyTrac, including 336,000 in the month of June alone.

The Obama administration, which once supported cramdown — a proposal to allow bankruptcy judges to modify the terms of mortgages — says it doesn’t need the additional leverage to tackle the housing crisis. But if the numbers continue to rise through the year — which they could very well do as unemployment figures go up — then the pressure on Congress to take additional steps will also increase.

Sen. Richard Durbin (D-Ill.), sponsor of the Senate cramdown bill, has vowed to bring it back up at the first ready opportunity. There won’t be many of those in a year when the legislative calendar is already squeezed with big-ticket items like health care reform and climate change legislation. Then again, the housing crisis was at the root of this downturn. If there’s a bigger-ticket item than stabilizing this economy, we don’t know what it is.