Obama loses against banks in Congress

Senate Democrats handed President Obama a rare congressional setback Thursday by helping to scrap his plan to give bankruptcy judges the power to force banks to reduce mortgages payments for struggling homeowners.

Critics said Mr. Obama failed to use any muscle to preserve the “cram-down” provision, but the president’s allies in the Democrat-led Congress blamed lobbying by the banking industry for killing the bill.

Mortgage banking industry lobbyists, who gave more than $1.8 million in campaign contributions to Senate members in 2008, fought fiercely against the legislation, which was offered as an amendment to a housing bill.

Among those opposing the provision was Pennsylvania Sen. Arlen Specter, who demonstrated in his first vote since joining the Democratic Party that he will not be a rubber stamp for the administration.

Mr. Obama meanwhile scored a victory in the House, where lawmakers overwhelmingly passed a bill that imposes new rules on credit card companies and protects consumers from sudden interest rate increases on existing balances.

Senate Majority Whip Richard J. Durbin, Illinois Democrat and the prime sponsor of the cram-down amendment, led intense negotiations for weeks but failed to assuage the bankers. He vowed to bring the legislation up again.

“At some point, the senators in this chamber will decide that the bankers shouldn’t write the agenda for the United States Senate,” he said, arguing that the measure would save about 1.7 million homeowners from foreclosure.

Senate Minority Leader Mitch McConnell, Kentucky Republican, said the bipartisan rejection of the measure demonstrated that the plan had been ill-conceived. The cram-down amendment, he said, would lead banks to raise mortgage rates because of the greater uncertainty in the market.

“It’s clear that we cannot fix the housing problem by implementing bad policies. The vote today was a bipartisan rejection of an interest rate hike, which is exactly the wrong solution for jobs, homeowners and the economy,” Mr. McConnell said.

On the key vote, Senate Democratic leaders could muster only 45 votes, far short of the 60 needed to end a filibuster and force a vote on the provision. A dozen Democrats joined 39 Republicans in opposing the cram-down amendment. No Republicans supported the amendment.

Cram-down supporters had argued that giving judges the authority to renegotiate mortgages on primary residences - a power judges already have for loans on vacation properties and business real estate - would stem a rising tide of threatened foreclosures that could further destabilize the economy.

About 2.3 million U.S. households last year received foreclosure notes, and an additional 800,000 homes reportedly have received notices so far this year.

But the bill’s opponents said the new bankruptcy rule would spur a wave of loan defaults by homeowners anticipating a mortgage bailout, add more uncertainty to the shaky housing market and force banks to raise interest rates for new homebuyers.

Mr. Obama has long promoted the cram-down idea, saying it would give mortgage lenders greater incentive to renegotiate with troubled borrowers to avoid a bankruptcy court battle.

Lobbyists for mortgage bankers and brokers last year gave more than $1.1 million to Democrats and about $686,000 to Republicans, according to campaign finance data compiled by the Web site OpenSecrets.org, which tracks money in U.S. politics.

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