Cramdown Negotiations Fall Apart
Negotiations between a key Senate leader and the financial services industry over legislation to allow bankruptcy judges to modify troubled mortgages has ended without a deal, a congressional aide said today.
Senate Majority Whip Richard J. Durbin (D-Ill.) has been negotiating with Bank of America, J.P. Morgan Chase and Wells Fargo for weeks. Supporters of the provision, known as cramdown, had hoped the support of large banks would give their effort momentum going into a crucial vote tomorrow.
The negotiations broke down over issues unrelated to the bankruptcy modification provision, the aide said. The measure would have allowed a bankruptcy judge to modify a mortgage, including lowering the principal balance owed by the borrower. It is fiercely opposed by the financial services industry, including the Mortgage Bankers Association and American Bankers Association, which walked away from negotiations weeks ago.
In a statement, the president of Credit Union National Association, Dan Mica, said his group bargained in “good faith.”
“We are gratified that we influenced a number of improvements to the legislation by our commitment. However, we finally came to a point where the negotiations could not produce a bill that met everyone’s concerns and still pass the Senate. Given this, we have suspended negotiations on the judicial mortgage modification provisions. We have the utmost respect for Sen. Durbin; we look forward to working with him on many more important policy issues,” the statement said.
The Senate is expected to vote on the housing bill tomorrow with Durbin asking colleagues to attach the cramdown provision as an amendment.
A large group of supporters, from the AARP and AFL-CIO to the Center for Responsible Lending, sent out an alert to lawmakers today urging passage of the amendment. The letter said: “The amendment that will be offered on the Senate floor substantially narrows previous versions by enabling the servicer to prevent the borrower from obtaining a mortgage modification in bankruptcy simply by offering the borrower an affordable modification. Any such offer would bar judicial modification of the borrower’s mortgage forever. And, with this “stick” in place, the new voluntary modification programs have a substantially greater chance of succeeding, which would help stop foreclosures and stabilize the economy.”
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