Credit Union Group Opposes 'Cramdown' Legislation
The fight over legislation to allow bankruptcy judges to modify mortgage terms, including slashing the principal owed by borrowers, took another turn today, reports The Post's Renae Merle.
The National Association of Federal Credit Unions sent a letter today to Sen. Richard Durbin (D-Ill.), who has been negotiating with the financial services industry for weeks over the measure.
The credit union group had been involved in the latest round of negotiations but its board voted late yesterday to oppose to a broad version of the legislation under consideration.
“Very unfortunately, at this juncture, we cannot ‘support and defend’, as your staff has requested,” Fred Becker Jr., the group’s president said in the letter.
Becker pushed instead for a version of the bill that would essentially exempt the association’s entire membership from the measure.
The financial services industry has always opposed the measure, but is particularly upset that it would allow bankruptcy judges to cut the principal owed by borrowers, known as "cramdown."
With home prices in a free-fall in most of the country and many borrowers stuck in loans worth more than their homes, such "cramdowns" could mean steep losses for the industry.
There are still some big names at the negotiating table, including J.P. Morgan Chase & Co. and Bank of America.
But the Mortgage Bankers Association, American Bankers Association and Independent Community Bankers of America have walked away.
Supporters of the measure hope that by gaining the support of key industry officials, they can overcome Republican opposition. Citigroup has already backed the proposal, which has passed the House.
After the National Association of Federal Credit Unions released its letter, another group, the Credit Union National Association, weighed in.
In a statement, that group said it also opposed cramdowns but is “engaged in good faith negotiations aimed at good public policy and addressing the concerns of our industry. That’s why CUNA has worked in on-going discussions with Sen. Durbin and his staff to refine the legislation so that it does not punish credit unions, which did not contribute to the housing crisis. In fact, because we stayed at the table, we believe we are very close to acceptable resolutions on the two issues mentioned by NAFCU in its letter to Sen. Durbin. NAFCU would know that if they had not left the talks. The fact is, however, no deal has been made. CUNA will continue to work with Sen. Durbin and Senate leaders to develop a legislative approach that limits negative impact on credit unions. This is not the time to merely walk away; there is too much at stake for credit unions.”
Lawmakers are hoping to vote on the proposal before Memorial Day.
The Obama administration has said the measure to its housing plan, which also includes paying lenders to lower borrowers payments to affordable levels. That part of the program is still being implemented and it is expected to take months to show results.
The National Association of Federal Credit Unions sent out a follow-up to its letter to Durbin, indicating that the group wants to continue discussing the cramdown matter:
"NAFCU is continuing its efforts to work towards a compromise agreement," the reader reads. "Credit unions did not cause this crisis and we continue to support a bill that would be limited in scope to sub-prime or Alt-A (nontraditional) mortgages, an approach that the credit union industry and others had agreed to last year. We could also support a broader package of bankruptcy relief that provides a carve-out for loans made by not-for-profit lenders such as credit unions, housing associations and others who did not contribute to this current crisis. NAFCU looks forward to an ongoing dialogue with Senator Durbin and his staff regarding bankruptcy legislation. We thank the Senator and his staff for their continuing efforts."
April 22, 2009; 2:45 PM ET
Categories: The Ticker | Tags: Obama, Rick Durbin, cramdown, mortgage workouts
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