posted by admin on Mar 9

By Jeffrey H. Birnbaum
Washington Post Staff Writer
Friday, February 22, 2008; D01 The nation’s largest lending institutions are lobbying hard to block a
proposal in Congress that would give bankruptcy judges greater latitude
to rewrite mortgages held by financially strapped homeowners.The proposal, which could come to a vote in the Senate as early as next
week, is being pushed by Democratic congressional leaders and a large
coalition of groups that includes labor unions, consumer advocates,
civil rights organizations and AARP, the powerful senior citizens’
lobby.

The legislation would allow bankruptcy judges for the first time to
alter the terms of mortgages for primary residences. Under the proposal,
borrowers could declare bankruptcy, and a judge would be able to reduce
the amount they owe as part of resolving their debts.

Currently, bankruptcy judges cannot rewrite first mortgages for primary
homes. This restriction was adopted in the 1970s to encourage banks to
provide mortgages to new home buyers.

The Democrats and their allies see the plan as an antidote to the recent
mortgage crisis, especially among low-income borrowers with subprime
loans. The legislation would prevent as many as 600,000 homeowners from
being thrown into foreclosure, its advocates say.

“We should be giving families every reasonable tool to ensure they can
keep a roof over their heads,” said Sen. Richard J. Durbin (Ill.), the
Senate’s second-ranking Democrat and author of a leading version of the
legislation.

But the banks argue that any help the proposal might provide to troubled
homeowners in the short run would be offset by the higher costs that
borrowers would have to pay to get mortgages in the future. The reason,
banks say, is that they would pass along the added risk to borrowers in
the form of higher interest rates, larger down payments or increased
closing costs.

If banks were unable to pass on the entire cost, they could be forced to
trim their profits.

“This provision is incredibly counterproductive,” said Edward L.
Yingling, president of the America Bankers Association. “We will lobby
very, very strongly against it.”

The Durbin measure is part of a larger housing assistance bill being
pushed by Democrats in the Senate. A separate version of the measure was
approved late last year, mostly along party lines, by the House
Judiciary Committee. The Bush administration has said that it opposes
both provisions as overly coercive and potentially detrimental to the
already strained mortgage market.

Lobbyists for major banks have made the proposal’s defeat a top
priority. They have been meeting at least weekly to coordinate their
efforts and have fanned out on Capitol Hill to meet with lawmakers and
their staffs.

At least a dozen industry associations have banded together to fight the
proposed legislation. They include the American Bankers Association, the
Financial Services Roundtable, the Consumer Bankers Association and the
Mortgage Bankers Association. These groups and others have signed joint
letters to lawmakers on the issue.

In one of their letters, sent to Senate leaders last week, the groups
wrote that the legislation would “have a very negative impact in the
financial markets, which are struggling in part because of difficulties
in valuing the mortgages that underlay securities and would greatly
increase the uncertainty that already exists.”

Bank lobbyists have also gone online to make their case. The mortgage
bankers have set up a Web site,
http://www.mortgagebankers.org/StopTheCramDown, that can calculate how
much mortgage costs might increase by state and by county if the Durbin
measure were to become law. “Cram down” is the industry term for a
forced easing of mortgage terms.

Supporters of the measure are also sending letters and meeting with
lawmakers. A letter urging a quick vote on the proposal was delivered to
Senate Majority Leader Harry M. Reid (Nev.) last week. It was signed by
19 organizations, including the Consumer Federation of America, the
AFL-CIO, the National Council of La Raza, the U.S. Conference of Mayors
and AARP.

The letter said, “The court-supervised modification provision is a
commonsense solution that will help families save their homes without
any cost to the U.S. Treasury, while ensuring that lenders recover at
least what they would in a foreclosure.”

The Center for Responsible Lending, a pro-consumer watchdog group that
backs Durbin’s effort, is trying to instigate voter e-mails to lawmakers
on the subject. The group’s Web site includes a page that allows people
to send electronic notes supporting the measure to their elected
representatives with just a few clicks of a mouse.

AARP spokesman Jim Dau said his group will also ramp up its efforts. It
may soon ask its activists to urge lawmakers to back the
mortgage-redrafting legislation. AARP, which is the nation’s largest
lobby group, has a list of 1.5 million volunteers whom it says it can
call upon to contact lawmakers on legislative matters.