Skip to: Content
Skip to: Site Navigation
Skip to: Search

Among Democrats, a rift over siding with banks

Twelve Democratic senators joined a united GOP on Thursday to prevent bankruptcy judges from being allowed to rewrite mortgage terms for homeowners facing foreclosure.

By Staff writer / May 1, 2009

Democratic Sen. Richard Durbin of Illinois, pictured with House Speaker Nancy Pelosi last year, introduced a measure that would have let bankruptcy judges alter the terms of underwater mortgages. The measure was defeated on Thursday, when 12 democratic senators broke ranks to side with the GOP and banking industry.



With Sen. Arlen Specter exiting the GOP this week, Senate Democrats appeared to be one Minnesota recount away from an unassailable supermajority – that is, until they lost 12 of their own on a key housing vote.

Skip to next paragraph

It’s a reminder that Senate votes come one at a time – despite what the fundraising appeals on both sides of the aisle say about getting to that game-changing 60-vote threshold.

The 45-to-51 vote also uncovers a significant rift in the Democratic majority’s ranks on a defining issue: How far to accept the finance industry’s view of the nation's economic crisis and its solution.

At issue in the vote was whether to empower bankruptcy judges to rewrite mortgages to help families avoid foreclosure. The amendment, sponsored by Senate majority whip Richard Durbin, adds bankruptcy reform to a housing and consumer protection bill that enjoys bipartisan support.

The underlying bill increases borrowing authority for the Federal Deposit Insurance Corporation to $100 billion, up from $30 billion, and makes permanent a temporary increase for FDIC deposit insurance to $250,000, up from $100,000 last year. It also expands access to the $300 billion Hope for Homeowners program. Courts can now write down the interest or principal on vacation homes, yachts, and other big-ticket items involved in bankruptcy proceedings, but not on primary homes.

Banking industry lobbyists favor the bill but strongly opposed Durbin's amendment, which they dubbed “cramdown.” It’s sure to “raise mortgage costs for consumers,” said the Mortgage Bankers Association in the runup to Thursday's vote. Bankers say that if a court can lower interest rates or the principal owed on a mortgage, then it follows that banks will have to take that new risk into account when they price new mortgages — and the cost of borrowing will be higher for all consumers.

Senator Durbin negotiated with banks and consumer groups for months before Thursday’s vote, but negotiations broke down, he says. But the biggest blow to Senate Democrat leadership was the depth of opposition in their own party's ranks.

“We won’t get out of this recession until we deal honestly and forthrightly with this foreclosure crisis. And I just don’t know what it will take to bring people around to the belief that these bankers don’t have the right formula for the future of this country,” said Senator Durbin.

“I am sick and tired of being asked to give billions of dollars to these banks when they won’t in any way help people facing mortgage foreclosure,” he added, at a leadership briefing on Thursday.

“They’re not renegotiating these mortgages. If they have no sympathy for 8 million families facing foreclosure in this country, I don’t have any sympathy for them.” Durbin says that he won’t support any further requests for taxpayer bailouts for banks under the Troubled Asset Relief Program (TARP).

"This is an issue that Democrats, Republicans, independents in the country want something done [about], and I feel kind of sorry for senators that don’t support this legislation, because I think [that] can really backfire," said Senate majority leader Harry Reid, also at the briefing.

But the dozen Democrats who voted with a unified Republican caucus on the issue saw it differently.