Credit unions reject Hill plan for mortgage relief
WASHINGTON — Negotiations between the banking industry and Senate Democrats on a mortgage relief plan hit a snag Wednesday after a trade association representing credit unions said it could not endorse the proposal.
The National Association of Federal Credit Unions said in a letter to Illinois Sen. Dick Durbin that it still had questions about Democrats’ plans to let cash-strapped homeowners modify their mortgages through bankruptcy proceedings.
Durbin, the Senate’s No. 2 Democrat, had been hoping to win industry support before a Senate vote on the matter, which is expected in the next few weeks.
The measure, which has already passed the House, is considered a key piece of President Barack Obama’s foreclosure prevention plan. But banks and credit unions have spent millions to lobby against it, contending that the forced easing, or “cram down,” of mortgage terms by a bankruptcy judge would spur a flood of bankruptcy filings and ultimately drive up mortgage rates.
Credit unions have said their loans should be entirely exempt from the proposal, but Senate Democrats wanted to make the law as broad as possible to try to stem the tide of foreclosures.
Senate Democrats had hoped to announce a deal this week, but they acknowledged earlier this week that talks were still ongoing and that a vote may occur without industry’s blessing.
Of particular concern to NAFCU was how the law would affect subordinate liens for creditors and private mortgage insurance contracts, which promise to pay creditors if a home goes into foreclosure.
“Without this information, the NAFCU Board of Directors does not believe it can fully and fairly evaluate how this legislation will impact credit unions,” wrote Fred Becker, president and CEO of NAFCU, in a letter to Durbin and the rest of the Senate. “Consequently and very unfortunately, at this juncture, we cannot ’support and defend,’ as your staff has requested of us.”
A spokesman for Durbin, D-Ill., said negotiations were still ongoing.
NAFCU has been promised additional details on the plan, which are still being worked by the Treasury Department. And NAFCU says it would reconsider its position once it has more information.
Other groups involved in the talks include the Credit Union National Association, as well as bank giants JP Morgan Chase, Bank of America and Wells Fargo.
Citigroup Inc. had already endorsed the measure.
NAFCU’s public release of its rejection letter after weeks of tightlipped negotiations signals the industry’s frustration.
The bill has been in limbo since March when it passed the House without Republican support.
For Senate Democrats, an endorsement from the credit unions was seen as particularly critical because they are spread throughout the country and can activate a powerful grass-roots network on Capitol Hill.
In a bid to win broader support, Democrats have offered to narrow the scope of eligible homeowners and “sunset” the provision in 2014. To attract the credit unions in particular, they also proposed lifting a decade-old limit on the amount the unions can lend to businesses.
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