Good news for the rule of law. Senate Defeats Measure to Allow Bankruptcy Judges to Change Mortgage Terms
For the second time in two years, a provision to allow bankruptcy judges to modify mortgages died in the Senate today, handing the Obama administration a significant defeat in its plans for arresting the foreclosure crisis.
Supporters argued the measure would keep 1.7 million borrowers in their homes, but it ultimately foundered in the face of fierce financial industry and Republican opposition. The bankruptcy modification provision, which was offered an amendment to a broader housing bill, failed by a vote of 45 to 51.
Senator Dick Durbin, Dem from Illinois, was the sponsor. He’s not happy:
“At some point the Senators in this chamber will decide the bankers shouldn’t write the agenda for the United States Senate. At some point the people in this chamber will decide the people we represent are not the folks working in the big banks, but the folks struggling to make a living and struggling to keep a decent home.”
The bad bankers, that is. The good ones can have carte blanche:
But the measure ran into trouble in the House among moderate Democrats before ultimately passing that chamber. Then it faced an even tougher battle in the Senate. Durbin negotiated with Bank of America, J.P. Morgan Chase and Wells Fargo for weeks, hoping their support would bridge the gap. Even after the proposal was weakened significantly, the financial services industry refused to sign on.
What is cramdown?
The measure would have allowed bankruptcy judges to modify troubled mortgages, lowering the interest rate or principal balance, a process known as a cramdown. Bankruptcy courts can already make those changes for a second home or investment property, but not a primary residence.
What is it’s political purpose?
…The Obama administration characterized the measure as the stick in its housing program that would encourage lenders to help borrowers stay in their homes.
What it does in reality is encourage bankruptcy. Opponents saw that as a bad thing:
“Instead of encouraging homeowners who are at risk of foreclosure to file for bankruptcy, the federal government should continue to encourage lenders to work with owners to modify loans where it is economically viable for homeowners to remain in their homes,” Republican Whip Sen. Jon Kyl (R-Ariz.) said. “While it is regrettable that not all homeowners are eligible for a loan modification, Congress should not incentivize bankruptcy by making it the only means to save one’s home.”
A small step back to personal responsibility.
H/T Freedom Politics