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Progress for Foreclosure Prevention Measure

January 8, 2009 - by Donny Shaw

Atrios and Yglesias point out the absurdity of news reports tonight that Citigroup has reached a deal with members of Congress to let bankruptcy judges alter troubled mortgages. I agree; and I suppose there are two stories here, then – that Congress may finally pass this major foreclosure prevention policy into law this session and that the media now takes corporate control of lawmakers as a given.

Here’s the story as reported by Congress Daily ($):

>Citigroup Inc. agreed Thursday to changes in Democratic legislation that would allow bankruptcy judges to reduce the principal of the mortgage to a home’s market value, handing a major setback to the banking lobby that has stymied the measure’s passage for two years.
>Senate Majority Whip Durbin announced he had reached an agreement with Citigroup over three changes to his bill that would provide a stick to lenders to force them to drive down the principal of the mortgage to make it more affordable for at-risk homeowners.
>Only existing mortgages would be eligible and homeowners would have to contact their lender at least 10 days before filing.
>In addition, only major violations of the Truth In Lending Act would invalidate creditor claims during a bankruptcy proceeding, rather than those of any size.
>The banking industry has fought attempts to bring Durbin’s bill up for a vote as well as a companion bill by Rep. Brad Miller, D-N.C., in the House because it would force them to write off the losses on their books.
>The Senate last year tabled Durbin’s bill by a 58-36 vote and opposition from moderate Democrats prevented Miller’s measure from reaching the House floor last session.

In November 2007, 16 moderate Democrats sent a letter to Judiciary Chairman John Conyers expressing their opposition to the bill to let bankruptcy judges alter mortgages. Their letter caused Conyers to pull the bill out of a committee markup session that had been scheduled.

In their letter to Conyers the moderate Democrats didn’t say that their problem with the bill was that financial corporations were against it. They said there problem was that it would interfere with a different bankruptcy bill from 2005 that hadn’t been given enough time to fully take effect.

Now that Citigroup has agreed to allowing bankruptcy judges to alter troubled mortgages, it will be interesting to see if those moderate Democrats are still concerned about it messing with the 2005 bill.

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