Foreclose vs. resetting mortgages: the fight goes on

The issue failed 45 to 51 in the Senate last week. Twelve Democrats voted with a united GOP caucus to defeat it. The Democrats who split with party leaders to oppose the Durbin amendment were Sens. Max Baucus of Montana, Michael Bennet of Colorado, Robert Byrd of West Virginia, Thomas Carper of Delaware, Byron Dorgan of North Dakota, Tim Johnson of South Dakota, Mary Landrieu of Louisiana, Blanche Lincoln of Arkansas, Ben Nelson of Nebraska, Mark Pryor of Arkansas, Arlen Specter of Pennsylvania (who flipped parties to join the Democratic caucus last week), and Jon Tester of Montana.

Critics, including some Senate Democratic leaders, said the vote proved that the financial services industry owns Congress.

“I hope people of this country will stand up and say to Congress, 'You’ve got the wrong friends,’ ” said Durbin, anticipating a negative outcome to his amendment last Thursday. "Your friends [should be] the families across this country who are struggling in this economy, and they need a lot of help."

In the 2008 campaign cycle, the finance, insurance, and real estate sector contributed $463.4 million to candidates for Congress, according to the Center for Responsive Politics in Washington. That’s more than contributions from the healthcare, energy, agriculture, transportation, and defense industries combined.

The finance, insurance, and real estate sector has been the No. 1 contributor to six of the 12 Democratic senators who voted against the bankruptcy reform provision, over their Senate careers, according to CRP data.

The Mortgage Bankers Association, which pulled out of negotiations over the Durbin amendment, credits Senate Democrats with agreeing to change the measure to reduce risks to banks.

"Since July 2007, the industry has helped avoid more than 3 million foreclosures through either loan modification or repayment plans,” says MBA spokesman John Mechem. “We are continuing to do more and more. Banks lose a significant amount of money when a home goes into foreclosure – upwards of $50,000 on each foreclosure. That’s a lot of motivation for banks, even if they have to modify the mortgage.

"If ‘cramdown’ were to pass," he says, "the number of people who would be helped would be dwarfed by the number of people over the long term who would be hurt.”

Senate Republicans were united against the mortgage reform provision. "There are already numbers of agreements under way to help people modify mortgages," says freshman Sen. Bob Corker (R) of Tennessee. "Should we throw to the courts the ability to change contract law that will penalize vast numbers of Americans because they build in such a risk premium for the future to solve it? No."

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