It's Baaaaack!
Ample debate time in Washington can bring the good with the bad. As healthcare reform continues to dominate the congressional agenda leading into the fall, lawmakers have been granted an opportunity to finely tune the legislative details of financial reform—but also a window to resurrect previously rejected ideas from the dead.
This week, House Financial Services Committee (HFSC) Chairman Barney Frank (D-MA) announced his intention to include the so-called “cramdown” legislation into his chamber's broader financial reform package, injecting new life into a divisive proposal that would allow bankruptcy judges to modify mortgages by extending the term, reducing the interest rate, or writing down the principal amount.
During a HFSC subcommittee hearing yesterday to assess the progress of the Making Home Affordable (MHA) Program, Chairman Frank joined a chorus of lawmakers in expressing disappointment that the Obama administration’s loan modification program has not assisted more distressed homeowners. According to Treasury data, MHA has only modified the loans of 12 percent of eligible delinquent borrowers. Figures from some of the large banks are even lower, with Wells Fargo reporting 11 percent of eligible borrowers and Bank of America coming in at 7 percent. Despite the low percentages, the administration is citing statistics that the program has helped reduce the monthly payments of 350,000 homeowners since March.
Facing stark opposition from the financial industry, the cramdown proposal has now been rejected twice by the Senate—most recently last spring when the Senate voted down an amendment offered by Sen. Richard Durbin (D-IL) by a 51-45 vote. The prospects for passage do not yet appear any better the third time around, but Frank's renewed push could change the momentum. While the Obama administration has not explicitly endorsed cramdown, the administration is not opposed either. When pressed by Democratic lawmakers at yesterday’s House hearing, Treasury Assistant Secretary for Financial Institutions Michael Barr and the Department of Housing and Urban Development’s Assistant Secretary for Housing David Stevens stated that retrospective cramdown legislation would not have a negative effect on the MHA program. Influential Senate Republicans on the banking committee do not expect cramdown to make a comeback. If cramdown is rejuvenated in the Senate, it will likely be due to a change of heart by some of the following ten Senate Democrats who voted against it last spring:
Bennet (CO),Byrd (WV), Carper (DE),Dorgan (ND), Johnson (SD), Landrieu (LA), Lincoln (AR), Nelson (NE),Pryor (AR),Specter (PA)
