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.
(Page 2 of 2)
“The cramdown approach sounds real good, but I don’t think that anybody in the business of lending will be able to determine what they have in the way of mortgages if a judge can come along and make all kinds of changes to the mortgages,” says Sen. Ben Nelson (D) of Nebraska, who voted against the Durbin amendment.Skip to next paragraph
Subscribe Today to the Monitor
“It potentially raises the rates for all the folks who don’t end up in bankruptcy. The cost shift is something that I’m quite concerned about. We’ve had banks back home raise the question. I don’t know anybody back home who’s for it,” he says. But he adds that he wasn't pressured very hard on the issue by banks.
Freshman Senator Kaufman, who voted for the Durbin amendment, said that it bothered him that current law allows judges to modify loans for automobiles and second homes but not for primary residences. “Why should a home be treated any differently than any other asset under bankruptcy?” he said. “I’m going to look at every individual vote and call them as I see them.”
Senator Carper, who opposed the amendment, says that “one of the reasons why mortgage rates are cheaper for primary homes is that the markets have the certainty that the judge won’t be invited in to change the terms of the mortgage.” Responding to claims that banks own the Senate, he said: “The banks sure don’t think so.”
A new Gallup poll, released April 23, reports that the percentage of Americans saying they have a "great deal" or "quite a lot" of confidence in US banks has fallen to 18 percent – down 14 percentage points from a June 2008 Gallup poll and 23 points from a June 2007 poll.
“To think that [banks] have clout in this chamber to dictate what we’re going to do in terms of mortgages and foreclosures really troubles me,” says Durbin.
“They spent $60 million in the last campaign…. They have the lobbyists; they have the people on the phones, they’re the ones who were working to defeat this amendment. Make no mistake about it: That’s where the opposition comes from. I can’t match what the bankers did in terms of lobbying,” he says.
The banking industry supports the underlying bill, a version of which passed the House on March 5. But industry lobbyists say that the Durbin amendment was a "poison pill" that would have scuttled the bill.
“The bankers really recognized that Senator Durbin was offering his proposals in very good faith, but we didn’t see how that proposal was going to get the deposit insurance provisions [in the underlying bill] enacted into law,” says Steve Verdier, director of congressional affairs for the Independent Community Bankers Association of America, which participated in the negotiations.
Banks objected to “cramdown,” because of the “precedent it sets for mortgages that might be made in the future or affected by a future Congress,” he adds.
“I think Obama has a pretty good plan on the table, and it’s just going to take some time. The economy is going to have to get better so that people can make even reduced terms on their mortgages. If they’re not working, they can’t even make reduced payments,”says Mr. Verdier.