2nd UPDATE: House Vote On Mortgage 'Cram-Down' Bill Delayed
February 26 2009 - 5:18PM
Dow Jones News
House Democrats have pushed back until next week a vote on
legislation to allow bankruptcy judges to reduce the principal
balance of mortgage loans, after some in their party raised
concerns about the measure.
Speaker Nancy Pelosi, D-Calif., said the vote, which was
scheduled for Thursday, will be postponed so that House Democrats
can meet Monday evening with Housing Secretary Shaun Donovan to
discuss the measure.
The vote is now likely to occur no earlier than Tuesday, though
the House began debating the measure Thursday.
The postponement comes shortly after the legislation's Senate
author, Sen. Dick Durbin, D-Ill., said he would be open to limiting
the measure to just subprime mortgages.
Some centrist Democrats began to waver after the remarks,
balking at supporting a controversial bill amid signs that the
Senate might pass a narrower version. The Obama administration,
which backs the measure, also proposed tighter restrictions than
are contained in the House legislation.
At a meeting of House Democrats Thursday, centrist Democrats
raised concerns that the measure offered little help for troubled
homeowners who don't want to turn to the bankruptcy courts for
relief, Rep. Ellen Tauscher, D-Calif., said.
The bulk of her constituents who are struggling with mortgage
payments "want a quality government loan modification," Tauscher, a
leader of the business-friendly New Democrat Coalition, said.
She added that she and other New Democrats would support the
legislation, but wanted assurances from Donovan than the Obama
administration was moving swiftly on its plan to offer incentives
for mortgage servicers to modify loans. They also want to hear more
details about the plan, Tausher said.
"As of now, we have a skeleton of a program and there still are
some Gordian knots that need to be worked out," she said.
The administration is set to release the details of its plan
next Wednesday.
Under the legislation, strapped borrowers could have the
principal balance of their mortgage loan reduced by a bankruptcy
judge - known as cram down. Currently only vacation properties, and
not primary residences, can be crammed down by a judge.
The banking industry has been lobbying fiercely against the
measure, contending it would raise borrowing costs on all
homeowners. The measure has nonetheless gained momentum in recent
weeks due to the shift in power in Washington and the perception
that mortgage servicers haven't done enough to help strapped
borrowers.
The Obama administration has made it a central plank of its plan
to prop up the housing market. However, officials say they view it
as a last resort, to be used only when serious attempts at
voluntary modifications fail.
Proponents have already made one major concession to the banking
industry, limiting the cram down authority only to existing
mortgages in exchange for Citigroup's (C) backing. Industry
lobbyists are pushing to add further restrictions.
Some House Democrats appear unlikely to support the measure
unless it is narrowed. "The criteria judges use [to rework
mortgages] needs to be tightened," Rep. Allen Boyd, D-Fla., a
leader of the Blue Dog group of conservative Democrats.
In the Senate, it is unclear if proponents have the 60 votes
necessary to avoid procedural obstacles to a vote. Only one
Republican, Sen. Arlen Specter of Pennsylvania, has backed the
measure.
Durbin on Tuesday told the American Banker trade publication
that he was willing to restrict the authority to subprime
mortgages.
Aside from the bankruptcy measure, the House legislation
includes provisions to erect a safe harbor against investor
lawsuits for servicers that modify loans. It would also revamp the
Hope for Homeowners program, started last fall to help refinance
troubled borrowers into more affordable government-backed
loans.
-By Jessica Holzer, Dow Jones Newswires; 202-862-9228;
jessica.holzer@dowjones.com
(Michael R. Crittenden contributed to this report.)