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New Democrats Strike a Cramdown Deal

March 3, 2009 - by Donny Shaw

As I’ve been writing about recently on this blog, a group of moderate House Democrats, the New Democrats Coalition, has been holding up passage of a major component of President Obama’s foreclosure prevention plan, the Helping Families Save Their Homes Act. The New Democrats have concerns about the “cramdown” provision in the bill, which would allow the courts to modify terms and reduce the principle on primary-residence mortgages that are going into foreclosure. Like the banking industry, they worry that the provision is overly broad and that the courts new powers could result in big losses for the banks, thus discouraging them from lending in the future.

For the past few days, the New Dems and the House leadership have been engaged in behind-the-scenes negotiations over the cramdown provision, and they have finally decided on a way to move forward. A New Democrat-sponsored secondary amendment will be offered to John Conyers’ manager’s amendment, and together they will account for all the concessions to the bill that the moderates appear to be requiring for their support.

Jane Hamsher at FireDogLake has obtained a copy of a “Dear Colleague” letter being circulated on the Hill by New Democrat Chairwoman Rep. Ellen Tauscher [D, CA-10] (pictured), Blue Dog Rep. Dennis Cardoza [D, CA-18] and California Democratic Congressional Delegation Chairwoman Rep. Zoe Lofgren [D, CA-16] explaining all the concessions they have won and asking their colleagues to support the bill.

Major changes made to H.R. 1106

During Committee consideration:

1. Judicial modifications were limited to existing loans.
2. A “clawback” provision was included to specify that increases in property values over the first four years of the bankruptcy plan would be returned to the lender, based on a sliding scale.

The manager’s amendment and second-degree Lofgren-Tauscher-Cardoza amendment made a number of additional changes, including:

1. Ensuring that a judge considers whether a qualified loan modification that is consistent with President Obama’s plan was offered prior to considering a judicial modification;
2. Incorporating the Administration’s debt-to-income and interest rate limits as considerations for determining whether an interest rate reduction in lieu of a principal reduction is warranted;
3. Changes to ensure that judges use FHA appraisal guidelines in determining the fair market value of a property;
4. Improvements in the predictability of payouts by mandating that the debtor make equal monthly payments on their restructured debt;
5. Specifications in the pre-filing requirement that in addition to a phone call requesting a loan modification, the debtor must certify that he or she provided information on income, expenses, and debts to the holder of the mortgage;
6. Extending the pre-filing requirements to request a qualified loan modification from 15 days to 30 days to allow sufficient time for the loan modification process;
7. Changes to ensure that judges must deny judicial modification in cases where the debtor could otherwise afford the loan. This will prevent wealthy people from taking advantage or falling real estate prices;
8. A GAO study to determine whether Chapter 13 proceedings are working to prevent foreclosures and the effect this is having on access to credit;
9. Extending FHA, VA and rural housing assistance guarantees to adjustments as a result of judicial loan modifications.
10. Amending the “clawback” provision to increase the amount of appreciation owed to the lender in the case of a home sale during the bankruptcy.

The complete legislative text of the Lofgren-Tauscher-Cardoza amendment can also be viewed as a pdf file.

As Chris Bowers at OpenLeft notes from a CQ ($) article, the deal on the amendment was also worked out with some Senate staff, so the bill may have a better chance at getting through the Senate intact than had previously been thought.

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  • Anonymous 03/04/2009 4:09am

    Foreign aid doubles by 2010.

    50 billion x 10 = 500 billion-1/2 trillion one year. or does it double every two years on Obama’s ten year budget?

  • Dem02020 03/04/2009 8:31am

    An informative item, thank you.

  • Dem02020 03/04/2009 8:37am

    It’s funny, I posted above a simple thanks, and the comment appears without trouble: but if I try and post a comment critical of the present House leadership, the comment does not appear, and instead invites me to email OpenCongress.

    Must be a glitch of some kind I guess.

  • Comm_reply
    donnyshaw 03/04/2009 3:45pm

    Hey Dem02020,

    Really sorry about the technical glitch you experienced. I’ve made a note of it to our programers and they’ll be investigating and fixing. Is there anything you can tell me about the comment you tried to leave – was it especially lengthy or anything?

  • Comm_reply
    Dem02020 03/05/2009 9:30am

    Thank you Donny for replying. I think the comment I was trying to make may have been too long. It’s no problem, please don’t spend any time thinking about it. And while I’m here, thanks for the OpenCongress website. This is just great: only several years ago, the information you provide here would have been nearly impossible to find, without going to the extreme difficulty of wrestling with the Congressional Record (which would be hard enough in itself to have regular access to). So thanks very much, and keep up the good work.

  • Anonymous 03/04/2009 3:08pm
    Link Reply
    + -1

    That really is a glitch. You need to back out and start over so cut and paste it. What really they do is delete comments about Congressmen retiring at USIP and academies they create and blame the new bill for the deletion.

    As far as claws, Dell being the same as housebrooke, I mean Holbrooke, is too bad for the ‘AfPak/Iraq War. They are defining America’s permanent ‘death penalty for spending war dollars.’ (Just kidding about the financial ruin).

  • jfreeman 03/06/2009 7:47am

    They just don’t get it. This completely disregards the sanctity of contract. The government does not own everything – mortgages least of all. Prosecute fraud and usury – but my fair loan that someone voluntarily accepted is not yours to tamper with!

    Foreclosure exists as insurance against default. It is why mortgage interest rates can be less than credit card interest rates – there is security. Set a dangerous precedent by removing that security and people will suffer. No one will be able to afford a mortgage because they won’t be secured any more!

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