Mortgage Relief Bill Set For House Vote

Debt-strapped homeowners facing foreclosure could resort to bankruptcy to force reductions in their monthly mortgage payments under a measure awaiting a House vote.

The bill set for a vote Thursday would let bankruptcy judges reduce the principal and interest rates on home loans. But the measure has been watered down since Democrats first proposed it, due in large part to mortgage industry lobbying to limit the cost for banks.

The plan is part of a broader housing package that also would raise the Federal Deposit Insurance Corporation's borrowing authority and take other steps to prevent foreclosures.

President Barack Obama called for the bankruptcy measure last week as part of his housing rescue plan. Democrats and consumer advocates regard it as crucial to slowing the rapid rate of foreclosures.

The mortgage industry contends the measure will impose steep and unpredictable costs on its companies, which will be forced to raise fees and interest rates for borrowers. The industry spent millions last year on a successful lobbying effort to kill the bill, which almost all Republicans oppose. Opponents call it the "cram-down."

This year, with Obama in the White House and Democrats enjoying a broader majority, a rift has emerged in the industry. One major player, Citigroup Inc., has bowed to the new political reality and moved to grab a seat at the negotiating table.

It cut a deal last month with Democrats to back the plan in return for some key concessions. The measure now in the House only applies to existing loans made before enactment and is limited to homeowners who have tried working with their lenders to adjust their loans before seeking relief in bankruptcy.

Other banks say they oppose the plan, but have changed their strategy. As they push to squash the legislation, they are stepping up their bid to gut key provisions. Among their goals: restrict the measure to a shorter time-period, certain kinds or sizes of home loans, certain borrowers, or situations where the mortgage holder — known as the loan servicer — agrees to the changes.

"I don't see a scenario where we can ever support this, but we're trying to make it the least-worst way to do the wrong thing," said Scott Talbott, a lobbyist for the Financial Services Roundtable, a trade group representing large banks. The group spent $7.8 million last year lobbying on this and other issues.

The change in tactics has paid off for the banks, now actively bargaining with top Democrats on the details of the legislation.

House Democrats agreed late Wednesday to strengthen the requirement that borrowers prove they tried other ways of modifying their mortgages before resorting to bankruptcy. They also restricted the measure to people who could not otherwise afford to make their home loan payments.

A Senate version of the measure by Sen. Dick Durbin of Illinois, the No. 2 Democrat, is expected to see a vote within weeks.

"We continue to be opposed to the bill and that hasn't changed, but we do live in the real world, and we do understand that this is very likely to happen, and we owe it to our members to recognize that reality and to limit the damage as much as possible," said Francis Creighton, a lobbyist for the Mortgage Bankers Association, which spent $4.2 million on lobbying last year. "We're encouraged by the fact that the bill is moving to limit the damage of cram-down rather than make it worse."

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  • by Raider Location: Winterville on Feb 26, 2009 at 06:25 AM
    Kimo, it seems as though I mistyped earlier. I am for reducing the interest rate, but do it across the board so that everyone benifits from it and not just a certin group of the population. Go with a low fixed rate for the extra five years, and tack it onto the first five year so that it helps now. I just want a way to put their own money back into their pockets instead of our money, and this WILL do it.
  • by what Location: gvegas on Feb 26, 2009 at 05:19 AM
    why should homeowners file bankruptcy to get help? I for one hang on to a house that i have vested interest in "its our home".I will never file bankruptcy to save or get a reduced payment.Filing would mean ten years to dig out of bad credit where paying high interest in other areas would make up for the difference that I'm supposedly saving.As homeowners struggling to hang on to our homes we should be given a better option instead this is just a slap in the face.
  • by Kimo Location: Belhaven on Feb 26, 2009 at 04:56 AM
    Raider is right!! Extend the mortgage without changing anything else. Before we bail out anyone's mortgage, lets look at the the car they drive, how much their cell phone bill is, how ofter they go out to dinner, etc. Get my point??? Endoutriging irresponsibility is not the answer!!!
  • by Raider Location: Winterville on Feb 26, 2009 at 04:20 AM
    I COMPLETLY disagree with the reduction of the principal, and the need to resort to bankruptcy to force reductions in their monthly mortgage payments. I don’t understand why, for EVERYONE with a current loan trouble or not so that it is fair across the board, they don’t reduce and fix the interest rate, leave the principal alone, but get away from a traditional 30 yr. and extend the loan term, make it a 35-40 yr. loan. This WILL reduce the monthly mortgage rate for ALL individuals, the banks will NOT lose money on their current outstanding mortgages and will probably make more, but most importantly it will put more of the homeowner’s money back into their own pocket at the end of each month. Why wouldn’t this be an option to help with the relief of those with mortgages?

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