Senate to sink mortgage relief plan
WASHINGTON — The centerpiece of President Barack Obama’s plan to keep thousands of people from losing their homes amid the worst economic crisis in decades is headed for defeat next week in the Senate.
Allowing people to seek mortgage relief in bankruptcy court is opposed by Republicans and enough Democrats to block it. They remain worried that the legislation would unleash a torrent of loan defaults, ultimately driving up mortgage rates and introducing fresh uncertainty to an already ailing economy.
The rejection would deal a blow to the popular president pushing an ambitious agenda to stabilize the economy.
“I just want to underscore our commitment … to doing everything we can to help mitigate the damage homeowners are facing across the country,” Treasury Secretary Timothy Geithner told lawmakers this week.
The number of homes under threat of foreclosure has shot up since last year, when 2.3 million households received foreclosure filings.
RealtyTrac Inc., a foreclosure listing firm, has reported that some 650,000 homes received at least one foreclosure-related note in the first three months of 2008. This year, nearly 804,000 homes have already received foreclosure notes.
Economists also estimate that about a fourth of U.S. mortgage-holders owe more to the bank than their property is worth.
In February, Obama announced his plan to save some 9 million debt-ridden individuals from losing their homes by providing incentives to lenders to cut homeowners’ monthly payments or refinance loans for individuals whose home’s market value has sunk below what they owe.
As part of the plan, Obama said he also wanted to change bankruptcy laws so a judge can reduce a person’s mortgage payment based on its market value. The option was cast as a last resort for homeowners who were unable to otherwise modify their loans.
Bankruptcy judges can already reduce loans on investment properties or personal property based on the property’s current value.
Congressional Democrats championed the legislation, which passed the House in March. But the measure quickly stalled in the Senate amid a multimillion-dollar lobbying effort by banks and credit unions that said the forced easing, or “cram-down,” of mortgage terms would impose steep and unpredictable costs.
Sen. Dick Durbin, D-Ill., has led negotiations with the banking industry under the assumption that a deal would shore up Democratic support and win over a few moderate Republicans to reach the 60 votes needed to pass the bill.
This week, the National Association of Federal Credit Unions released a letter from its board of directors rejecting the proposal. While other groups, including banking giants JP Morgan Chase, Bank of America and Wells Fargo, remained at the table, Democratic aides said the prospects of an agreement looked dim.
Believing the Senate needed to move on, Senate Majority Leader Harry Reid, D-Nev., tentatively scheduled a Thursday vote.
“There’s no reason why every Republican shouldn’t be on record for opposing a provision that could help tens of thousands of Americans,” said Reid spokesman Jim Manley.
The bankruptcy provision will be offered as an amendment to popular legislation aimed at freeing up capital for banks by increasing the borrowing authority of the Federal Deposit Insurance Corp.
Last year, Republicans and 10 Democrats, along with Connecticut independent Joe Lieberman, voted to scuttle similar legislation in a 58-36 vote.
Among those expected to reject the bill next week were Democratic Sens. Jon Tester of Montana and Ben Nelson of Nebraska. Tester and Nelson were among those who voted last year to block the proposal.
Tester said in a statement on Friday that while he supports helping homeowners to modify their mortgages, he believes the bankruptcy bill would be ineffective and potentially harmful.
Likewise, a Nelson spokesman said the senator believes the provision “would raise interest rates on other borrowers and further destabilize the mortgage industry.”
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