Snowstorm delays vote on Bankruptcy Cramdown Bill

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US Dems Mull More Restrictions On Mortgage 'Cram Down' Bill

Monday March 2nd, 2009 / 23h38



By Jessica Holzer Of DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- House Democrats are discussing further restrictions to a measure allowing strapped borrowers to have their mortgage debts reduced in bankruptcy, as the legislation continues to stir concerns among the centrists in their ranks, people familiar with the matter said.
After pushing a set of changes last week, lawmakers are discussing whether to tighten language in the legislation to clarify that Chapter 13 bankruptcy is a last resort only after efforts at voluntary mortgage modifications fail.
The measure, which would cause a profound power shift in favor of debtors in their negotiations with creditors, has exposed a rift between liberal Democrats and the party's more business-friendly wing.
Centrists pushing to narrow the measure have provoked an angry backlash in the liberal blogosphere in recent days, where they are being portrayed as cold-hearted toward struggling homeowners and in the pockets of banking industry lobbyists.
BraveNewFilms, an organization devoted to creating and disseminating Internet videos to further liberal causes, on its Web site raised the specter of a campaign targeting in the next election those Democrats who oppose the measure.
Under the legislation, bankruptcy judges would be able to reduce the principal amount of mortgage loans for struggling borrowers - known as "cram down."
The measure is a central plank of the Obama administration's strategy to right the housing market. Proponents say it will act like a cudgel, encouraging mortgage servicers to take advantage of government incentives for voluntary loan modifications.
The banking industry warns the measure will raise borrowing costs for all homeowners and clog the bankruptcy courts, prompting judges to write off tons of other consumer debt just when lenders are reeling from the financial crisis.
The legislation's fate is up in the air after Democratic leaders last week postponed a vote on the measure until Tuesday, after support softened among some of the rank-and-file. That vote is now likely to happen no earlier than Wednesday, due to a snowstorm that disrupted the House schedule.
According to one person familiar with the matter, Democrats may push consideration of the measure until later in the week in order to allow time to hash out a compromise with the measure's Senate sponsor, Sen. Richard Durbin, D-Ill.
Led by Rep. Ellen Tauscher, D-Calif., a group of centrist Democrats last week pushed successfully for restrictions on the measure, such as lengthening from 15 to 30 days the advance warning borrowers must give their lenders before seeking a judicial modification. Borrowers would also have to prove they provided the lender with written statements of income, expenses and debt.
Yet many Democrats still appear to have misgivings about the bill, with 26 voting Thursday against a procedural motion to proceed to the measure.
Many lawmakers from conservative districts remain wary of supporting controversial legislation only to have the Senate approve a narrower version. Republicans, who largely oppose the measure, hold considerable sway in the upper chamber.
Tauscher, who said she plans to support the cram down measure, said centrist Democrats were looking for more details of the Obama administration's housing plan. She said they wanted assurances that homeowners would have access to federal loan modifications, not just the bankruptcy courts, for relief.
The Democratic caucus will meet Tuesday evening with Housing Secretary Shaun Donovan to discuss judicial loan modifications and other aspects of the administration's housing plan.
"We want the 1-800 number. We want the Web site address, so our constituents can begin to access a federally-qualified loan modification," Tauscher said.
As many as 10 million homeowners are at risk of default on their mortgage loans over the next couple years, estimates Moody's Economy.com. The cram down measure, if it is well designed, could spur mortgage servicers to help many of them, Mark Zandi, Moody's Economy's chief economist, said. But tinkering with the bankruptcy code could lead to unpredictable results, he warned.
-Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@dowjones.com
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Monday March 2nd, 2009 / 23h38 Source : Dowjones Business News

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