February 27, 2009
Update on Proposed Legislation
WASHINGTON -- House Democrats have pushed back until next week a vote on legislation to allow bankruptcy judges to reduce the principal balance of mortgage loans, after some in their party raised concerns about the measure.
Speaker Nancy Pelosi (D., Calif.) said the vote, which was scheduled for Thursday, will be postponed so that House Democrats can meet Monday evening with Housing Secretary Shaun Donovan to discuss the measure.
The vote is now likely to occur no earlier than Tuesday, though the House began debating the measure Thursday.
The postponement comes shortly after the legislation's Senate author, Sen. Dick Durbin (D., Ill.), said he would be open to limiting the measure to just subprime mortgages.
Some centrist Democrats began to waver after the remarks, balking at supporting a controversial bill amid signs that the Senate might pass a narrower version. The Obama administration, which backs the measure, also proposed tighter restrictions than are contained in the House legislation.
At a meeting of House Democrats Thursday, centrist Democrats raised concerns that the measure offered little help for troubled homeowners who don't want to turn to the bankruptcy courts for relief, Rep. Ellen Tauscher (D., Calif.), said.
The bulk of her constituents who are struggling with mortgage payments "want a quality government loan modification," Ms. Tauscher, a leader of the business-friendly New Democrat Coalition, said.
She added that she and other New Democrats would support the legislation, but wanted assurances from Donovan than the Obama administration was moving swiftly on its plan to offer incentives for mortgage servicers to modify loans. They also want to hear more details about the plan, Ms. Tausher said.
"As of now, we have a skeleton of a program and there still are some Gordian knots that need to be worked out," she said.
The administration is set to release the details of its plan next Wednesday.
Under the legislation, strapped borrowers could have the principal balance of their mortgage loan reduced by a bankruptcy judge -- known as cram down. Currently only vacation properties, and not primary residences, can be crammed down by a judge.
The banking industry has been lobbying fiercely against the measure, contending it would raise borrowing costs on all homeowners. The measure has nonetheless gained momentum in recent weeks due to the shift in power in Washington and the perception that mortgage servicers haven't done enough to help strapped borrowers.
The Obama administration has made it a central plank of its plan to prop up the housing market. However, officials say they view it as a last resort, to be used only when serious attempts at voluntary modifications fail.
Proponents have already made one major concession to the banking industry, limiting the cram down authority only to existing mortgages in exchange for Citigroup's backing. Industry lobbyists are pushing to add further restrictions.
Some House Democrats appear unlikely to support the measure unless it is narrowed. "The criteria judges use [to rework mortgages] needs to be tightened," Rep. Allen Boyd (D., Fla.), a leader of the Blue Dog group of conservative Democrats.
In the Senate, it is unclear if proponents have the 60 votes necessary to avoid procedural obstacles to a vote. Only one Republican, Sen. Arlen Specter of Pennsylvania, has backed the measure.
Mr. Durbin on Tuesday told the American Banker trade publication that he was willing to restrict the authority to subprime mortgages.
Aside from the bankruptcy measure, the House legislation includes provisions to erect a safe harbor against investor lawsuits for servicers that modify loans. It would also revamp the Hope for Homeowners program, started last fall to help refinance troubled borrowers into more affordable government-backed loans.
— Michael R. Crittenden contributed to this report.
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What's a subprime mortgage. Investor (or real estate speculators) can have their mortgage modified, but not homeowner. Seems a bit arbitrary. I think the crisis has gone long beyound the subprime borrowers.
Posted by: jack | Feb 27, 2009 11:39:09 AM