Washington, DC - On Tuesday, the White House reiterated the Obama administration's support of a tool which consumer advocates say is essential to fixing the economy. A handful of Democratic senators have joined with Republicans and industry lobbyists to oppose the measure, stalling the bill's progress.
The judicial loan modification, or "cram down" provision of S. 61 - the Helping Families Save Their Homes in Bankruptcy Act of 2009 - would empower bankruptcy judges to adjust a borrower's mortgage during bankruptcy proceedings. Currently, a bankruptcy judge can change the terms of other debts such as mortgages on vacation homes, liens on boats and credit card debt, but cannot touch primary residence mortgages.
Also see: A Fight Rages Over a Tool Called "Cram Down"
According to consumer advocacy groups, the judicial loan modification power would compel banks and their middlemen to work with borrowers to adjust unsustainable mortgages before bankruptcy and would help to reduce the growing wave of foreclosures sweeping the country.
March 2009 was a record month for foreclosures. The rate of foreclosure jumped 17 percent from February and was up 46 percent from March 2008, according to RealtyTrac. Roughly 5.4 million homeowners were at least one month behind in their mortgage payments, according to a Mortgage Bankers Association report in March.
The Obama administration strongly backs giving bankruptcy judges this power.
"The President continues to support balanced bankruptcy reform to permit judicial modifications of mortgages for borrowers who have run out of options," White House spokesman Nick Shapiro told Truthout, adding, "[the president] is working with the Congress to get a bill enacted."
The fight over this legislation has been broiling behind the scenes on Capitol Hill, with key senators from the president's own party refusing to support broad judicial modification powers.
Self-styled "centrist" senators, whose votes would be needed to overcome a filibuster, continue to hold up the bill. Various compromises to narrow the scope of the bill, which are favored by industry, have been floated, but a final deal has not been worked out.
Industry lobbyists argue that the judicial modification provision would raise interest rates on future mortgages and would further destabilize a fragile credit market.
Sen. Evan Bayh (D-Indiana), the leader of a 16-member coalition of so-called "moderate" Democrats in the Senate, has been leading the opposition inside the Democratic caucus, according to press reports.
"Sen. Bayh believes it is important to alleviate the housing crisis, reduce the tide of foreclosures and provide relief to struggling homeowners. He is supportive of Sen. Durbin's efforts to reach an agreement and looks forward to seeing the proposal that eventually emerges," a spokesperson for Senator Bayh said in an emailed statement to Truthout. He declined to comment on a Business Week report that Senator Bayh has changed his position on judicial mortgage modification in the past year.
Sen. Richard Durbin (D-Illinois) has been championing judicial modification legislation and negotiating with industry and fellow senators to get a bill passed.
While a final compromise has not yet been reached, it appears that a bill granting the bankruptcy judges broad power to modify mortgages does not have the votes to pass at this time. Previous reporting by Truthout indicates that at least one of the 58 Senate Democrats, Sen. Ben Nelson of Nebraska, opposes granting such power. A report from the Capitol Hill newspaper Roll Call indicates that Republicans have not been involved in the recent negotiations.
Senate majority leader Harry Reid has so far been unwilling to force the hand of Senate Republicans who continue to threaten to filibuster every contentious piece of Democratic legislation. Congressional observers believe that Republicans would likely pay a high political price for blocking legislation aimed at aiding homeowners. The 58-member Democratic caucus has the numbers to reach the simple majority threshold needed to pass the legislation if unified.
David Berenbaum, executive vice president for the National Community Reinvestment Coalition, an association of community organizations who advocate for fair lending practices and consumer protection, has been lobbying senators in an attempt to get them to support a "strong bill."
"We believe that [judicial modification] is a very important antidote to the foreclosure crisis and we are very concerned that it is stalled right now in the Senate ... All the advocates for strong consumer protection are walking the halls of Congress now, trying to ensure a strong bill. Of course the industry representatives who outnumber the advocates are out doing the same," Berenbaum said, adding "The Senate is historically a more 'collegial' body than the House of Representatives and so they keep much of their discussion very confidential."
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