- The Washington Times - Friday, March 6, 2009

Struggling homebuyers would get new leverage to force banks to renegotiate their mortgages under a bill that passed the House on Thursday on a vote of 234-191.

The bill’s key component allows judges in bankruptcy court to change the terms of mortgages on first homes to allow homeowners a chance to meet lower principal and interest rates. The “cram-down” provision has long been opposed by major financial industry lobbies, who warn that borrowers will be tempted to use the bankruptcy courts to evade or ease their debts.

House Financial Services Committee Chairman Barney Frank, Massachusetts Democrat, said the bankruptcy law change was key to the larger effort to stop the country’s economic slide.

“If you cripple the effort to decrease mortgage foreclosures, you cripple the effort to get out of the crisis we’re in,” he said.


Centrist Democrats received concessions from Speaker Nancy Pelosi, California Democrat, on the original bill, winning changes to require borrowers to make more efforts to rework their loans and monthly payments with lenders before resorting to bankruptcy courts. The bill faces an uncertain fate in the Senate, which is expected to consider it in the coming weeks.

But in one sign of continuing unease among some Democrats, the House barely defeated an amendment by Rep. Tom Price, Georgia Republican, to allow lenders to recover some of their losses in a bankruptcy cram-down if the homeowner later sells the home for a profit. Thirty-seven Democrats supported the Price amendment, which was defeated on a 218-211 vote.

On the final vote, 24 Democrats voted against the bill while seven Republicans voted in favor.

Underscoring the extent of the housing crisis, the Mortgage Bankers Association said Thursday that nearly 12 percent of U.S. homeowners were in foreclosure or behind on their payments at the end of 2008.

The trade group said mortgage delinquencies were the highest in records dating to 1972, while loans in foreclosure rose to 3.3 percent, also an all-time high.

Senate Democrats, led by Richard J. Durbin of Illinois, recently won agreement from industry giant Citigroup for a bankruptcy “cram-down” provision even more restrictive than the House measure, but virtually no other major bank or industry lobby has signed on to the Citigroup plan.

The bill is part of the Obama administration’s push to curb a tidal wave of foreclosures, which decimated housing values and dragged down local markets across the country. But even supporters say the measure will not help many homeowners in some of the country’s most depressed markets.

House Republicans slammed the Democrats’ housing proposal as being unfair, and predicted that lenders would raise rates and fees to cover the new risk of making home loans.

“This legislation punishes the successful, taxes the responsible and it holds no one accountable,” said Texas Rep. Lamar Smith, ranking member on the House Judiciary Committee. “If we pass this legislation, what message are we sending to responsible homebuyers?”

Republicans, who offered a substitute bill to prevent taxpayer funds from going to people who lied on their mortgage applications, claimed to be on the side of the American people.

“Today’s just another example of why taxpayers are sick of how Washington works,” Minority Leader John A. Boehner, Ohio Republican, said, citing several “tea parties” that have taken place in cities to protest congressional bailouts.

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