Senate thumbs nose at homeowners facing foreclosure

May 4th, 2009 by Mike Hinshaw

ForeclosureWell, the insiders who said Durbin’s pitch to help homeowners facing foreclosure would fail in the Senate were right.

In an astoundingly overt display of contempt for those facing foreclosure–and for their neighbors as well–the U.S. Senate voted 51-45 April 30 against a housing bill amendment that would have granted power to bankruptcy judges to modify terms of loans on primary residences. called it a “rare congressional setback” for President Obama in this report but also noted “Critics [who] said Mr. Obama failed to use any muscle to preserve the ‘cram-down’ provision,” while “the president’s allies in the Democrat-led Congress blamed lobbying by the banking industry for killing the bill.”

However, in the House, “lawmakers overwhelmingly passed a bill that imposes new rules on credit card companies and protects consumers from sudden interest rate increases on existing balances.”

Of course, that may be a temporary victory: the House also passed its version of the bankruptcy-relief measure in March. So even though Senate Democrats are crowing about their numbers–bolstered by Arlen Specter’s bolt from the GOP–the defeat of the bankruptcy measure shows the banking and mortgage-lending lobby is plenty strong enough to overcome any sense of party unity, not to mention common decency or logic.

Senate Majority Whip Dick Durbin (D-Ill) is credited with supporting the bankruptcy provision for the past couple of years; recognizing the lack of support for the measure as a stand-alone item, he spearheaded the move to attach it as an amendment to broader housing legislation and, after the vote, seemed determined to not let the idea die.

” ‘At some point, the senators in this chamber will decide that the bankers shouldn’t write the agenda for the United States Senate,’ [Durbin] said, arguing that the measure would save about 1.7 million homeowners from foreclosure.”

Opposing the idea to let bankruptcy judges help people save their homes came from a dozen banking industry associations, including the Mortgage Banking Association (MBA) and the American Bankers’ Association (ABA). Here’s a clip of from the MBA’s “National Policy Conference,” April 29-30, showing an ebullient group of fellas basking in anticipatory preglow of the “third defeat of the measure in two years.”

Among those shown in the clip are David Kittle, identified as MBA chairman, who addresses attendees thusly: “The cramdown vote may come tomorrow. And wouldn’t it be beautiful for it to go down to defeat while we’re up on the Hill?

“The timing just couldn’t be better–maybe a rainbow will come out tomorrow at the same time.”

In the clip, Kittle is followed by Steve O’ Connor, who ever so preciously quips, “The media’s in the room, so I might change my remarks just little bit because that wasn’t part of the plan.” O’Connor is identified as the MBA VP of Government Affairs. One wonders what he might have said without media presence.

Stephen Labaton, writing in The New York Times, says, “Bank lobbyists had maintained that the legislation, if adopted, would have resulted in higher rates for all mortgage holders. A letter signed by 12 industry organizations this week to senators warned that the legislation would ‘have the unintended consequence of further destabilizing the markets.

‘Though interest rates today are at all-time lows, this legislation would result in higher costs for future borrowers,’ the letter said.”

At, its report says, “The American Bankers’ Association said it produced 12,450 letters from its members stating their strong opposition. In addition, the ABA said it was able to jam switchboards in senators’ offices and flood their inboxes with email. The measure failed on a 51-45 vote.

‘We have consistently maintained that allowing bankruptcy judges to arbitrarily rewrite the terms of a mortgage contract — including allowing them to reduce . . . the amount owed on a mortgage, change interest rates, or stretch out the terms of the loan – would bring additional risk and uncertainty to an already volatile mortgage market and would make home loans more expensive and less available for consumers,’ said Floyd E. Stoner, the ABA’s executive director, congressional relations & public policy.”

Strangely enough, no one seems to be talking about the House version that passed in March, which contained language that would limit the so-called cramdown powers such that new mortgages would not be affected. In other words, there’s a way to make sure that mortgage lenders can not use cramdown as an excuse to raise interest rates for everybody.

And of course critics don’t want to talk about the possible unintended effects of defeating the measure. For example, defeat of cramdown almost assuredly will spur further bankruptcy filings because hard-pressed homeowners may have no other viable alternative. If cramdown powers were allowed on primary residences, mortgage lenders would be motivated to bring real offers to the table, meaningful renegotiation that could avert foreclosure and save family homes and head off further erosion of property value in neighborhoods across America.

Still, even the jubilant-for-now MBA recognizes that Senator Durbin and his allies have not thrown in the towel. At the end the clip from the MBS conference, Kittle resorts to a sports analogy:

“So tomorrow if we win, which would be the third win,” Kittle says, “we kinda’ have to consider this like the NCAA bracket: We’re not to the championship again, ’cause it’s coming back.

“So we need to keep fighting it. We need to keep giving to the PAC,” he emphasizes, “on a regular basis–this fight’s coming back.”