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Next Up on the Moderates' Chopping Block: Foreclosure Prevention

March 28, 2009 - by Donny Shaw

In February, President Obama announced a plan to help families with troubled mortgages stay in their home. One of the key components of the plan, giving judges the power to modify loans for homeowners in bankruptcy, requires approval from Congress (H.R. 1106), but Senate moderates are threatening to block it for now and to push for a weaker version of the provision down the road.

Congress Daily ($) reports:

Reid Might Drop Cram-Down Provision From Banking Bill

Senate Majority Leader Reid said today he would drop a cram-down provision from a House-passed banking bill if the language threatened to keep the Senate from passing the overall bill. The provision would allow a bankruptcy judge to reduce a homeowner’s mortgage principal. “If we can’t get the votes for that, and I am hopeful we can – I am semiconfident we can – then what I’ll do is take that off [the bill] and do the other banking provisions,” Reid said at a Christian Science Monitor breakfast. Reid said he would work to keep the package intact, but raising the prospect of pulling the provision seemed to acknowledge assertions by Sen. Evan Bayh, D-Ind. [pictured at right], and others that the cram-down bill cannot pass due to opposition from Republicans and some Democratic moderates.

Bayh and Judiciary ranking member Arlen Specter are pushing an alternative bill that narrows the range of borrowers who could have their mortgage principal reduced. Lobbyists tracking efforts by Senate Majority Whip Durbin to drum up industry and Senate support for a measure like the House bill said talks appear stalled. Eliminating or watering down the cram-down provision would be a win for the banking industry and Sen. Bob Corker, R-Tenn., who has pushed to move banking provisions separately from the cram-down measure. Democrats hope to move the package after the spring recess.

The “cram-down” provision is the “stick” in Obama’s plan; it is the mechanism that is designed to encourage lenders to actually modify at-risk mortgages so they are more affordable to struggling homeowners. The “carrot” in the plan is that lenders who modify loans voluntarily (making a “cram-down” unnecessary) will be given cash bonuses from the government – $1,000 for each loan modified, and more if borrowers stay current on their payments. While the carrot option is estimated to cost the government $75 billion, the cramdowns would come at no cost to the government.

The Senate moderates are probably going to push a version of the cram-down that applies only to homeowners with subprime loans. David Waldman at Congress Matters – noting the contradiction in not wanting to reward irresponsible borrowers, but limiting the bill to apply to probably the least responsible borrowers of all – provides a possible explanation for what might actually be behind this:

The answer, I think, is that the subprime problem has already done the bulk of its damage to the banking industry, so they don’t stand to lose much more if the bill is limited in that way. Plus, most people know that “subprime” is a term connected to “problem” mortgages, and if they’re paying any attention at all, they’ll simply think something that sounds good – mortgage relief – was given to people having “problems,” and they’ll never inquire any further than that.
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  • disappointed 03/29/2009 4:09am

    I am so disgusted by the Senate. I voted Democratic to help middle and lower America to stay in their homes because I believed in “change”. What do we get? Just the moderate dems getting their rewards from the financial industry.
    What do you people not understand? We are losing jobs, we are losing our homes, we are losing our health insurance. There are so many at the unemployment offices that the lines are out the door. Get out of the ivory tower known as Washington DC and see what is happening. It isn’t pretty and it’s making the average person who is losing it all very, very angry.
    Bring SB 61 to a vote! so we know who to throw out.

  • Comm_reply
    Anonymous 03/29/2009 10:17am

    Well that’s what we need to do. Bail out some more losers and leave those who make the money with just change.(chump change)

    Our Goveriment sucks and if someone loses their house because they can not pay,it’s the way the world used to work.

    Now I am working harder than ever to keep the wheels on my bus,the business world is slow, most due to the above three stooges who are in control of the the Congress and the office of the President.

    Note that this problem for the most part is being caused by President Obama, Ms Nancy Pelosi and Uncle Harry. Our current leader Obama is out to steal this country. This is Chicago politcs taking over the USA. Sorry you should have understood the change that was coming, your party has always been tax and spend.

  • Comm_reply
    Anonymous 03/30/2009 10:13am

    I am so disgusted with idiots like you who vote for democrats when they are the ones that forced the lending institutions to loan to people who couldn’t afford it. This got us in the mess we are in. Change this!

  • Anonymous 03/29/2009 6:05am

    disappointed, disappointed.
    This bill is scheduled for debate on march 29th- I hope. And keep up with hr 1106 and hr 117. There are alot of bills listed because, each time it is modified the # changes. Hence 2 bill #’s could mean 2 different things. We need to get this house done fast- remember check on march 29- Then we will be a little further along. I hope.

  • joejohnson 03/29/2009 8:12am
    Link Reply
    + -1

    It would appear that the bankruptcy (for homeowners) bill in the Senate is being blocked or stalled by Senator’s Bayd,Kyl,Specter-the three stooges-and mostly republicans with loyalties to the banking / mortgage industries. As more and more people lose their homes, they will not lose their vote so we must all remember these people next election and VOTE for the Other person

    joe johnson
    Arizona Republic
    Joe Johnson

  • Anonymous 03/29/2009 9:10am

    Wow. You mean to say that Republicans are not the only ones being bribed with campaign cash?

    Jack Lohman

  • johnpage 03/31/2009 6:11am

    Anyone that believes it is “the American way” to reward peolple for making mistakes is wrong. Congress opened the door for loans to people that should never have been allowed to take out a mortage in the first place. Greed on the part of some people in the banking and insurance industries compounded the problem. The President and Congress cannot correct the problems they have created by rewarding these same people.

  • Anonymous 04/15/2009 4:26am

    john page—
    lose your job, lose your health insurance and company benefits, use up your savings to make the mortgage payments until it too is gone. then lose the home. yes, it all makes great sense to me. Stupid. It is spreading as more and more companies lay off and is not those who got liar loans.

  • Anonymous 06/20/2009 3:02am

    You know it is downright pitiful the way upper class people keep saying the banks loaned money to people that couldn’t afford to pay it back. Well, I happen to be one of those people and when we bought our house 5 years ago, both my husband and I had really good jobs and we never dreamed that in 4 years we would lose our jobs because they moved to Mexico for cheaper labor. Now what? We file bankruptcy to try to keep furniture and a car so we have a roof over our heads and then we hear Obama is trying to help keep our homes by allowing Judges to lower mortgage rates but the Senate and Congress doesn’t approve it. Why should they? They are all sitting up there with 6 figure salaries and a nice home and most have a vacation home too. Help the middle class and the ones that lost their jobs by a great misfortune. We are people too!!!

  • FedUpWithDC 08/27/2009 4:18pm

    The reason they need to allow judges to modify loans is because the banks WON’T! Even after the recent “Acts” Obama passed, the banks are just coming up with excuse after excuse why homeowners don’t “qualify”. It was supposed to help RESPONSIBLE homeowners – not late on any payments – but the bank is telling us they cannot help us because we make all our payments on time. Go figure! We had no problem qualifying for a loan with a credit score will into the 700’s and excellent income, but my husband and I both work in retail. No one saw this coming when we bought our home. Both our incomes have taken a serious hit as well as the value of our home. It is a hard pill to swallow when the banks and other large companies are getting so much money and we are struggling so hard but cannot get help because we are too responsible.

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