Republicans Oppose Democratic Plan to Aid Burdened Homeowners
September 23 2008 - Republicans are opposing a Democratic proposal to let bankruptcy courts revise mortgage terms to aid homeowners as part of a $700 billion plan to relieve financial companies of troubled debt.
The proposal has sparked an outcry from financial industry groups, which say it could add to credit woes even as Washington acts to remove illiquid assets from the banking system.
“Investors who are very skittish about committing funds to economic activities will merely become more skittish about committing funds for mortgage loans,” said Floyd Stoner, the American Bankers Association’s top lobbyist. “It’s bad public policy in general, but it’s particularly bad public policy at this time.”
The Democratic proposal would let bankruptcy courts reduce principal and lower the interest rate on non-traditional or subprime mortgages on a debtor’s main residence. House Financial Services Committee Chairman Barney Frank of Massachusetts and Senate Banking Committee Chairman Chris Dodd of Connecticut want to include bankruptcy law changes as part of a rescue package.
The bankruptcy provision is a sticking point in negotiations between congressional Democrats and U.S. Treasury Secretary Henry Paulson.
“I think it’s a mistake,” Paulson told the Senate Banking Committee today. Federal Reserve Chairman Ben S. Bernanke told the committee he had no position on the idea.
Senator Jon Kyl, an Arizona Republican, called the bankruptcy proposal an “extreme” measure and said Republicans won’t approve it.
Support From Groups
Among groups lobbying for the provision are the Leadership Conference on Civil Rights; AARP, a lobbying group for Americans age 50 and older; the consumer group Center for Responsible Lending, and the labor coalition Change to Win.
Nancy Zirkin, executive vice president of the Leadership Conference on Civil Rights, said her Washington-based group won’t support legislation that doesn’t include the bankruptcy change.
“This whole foreclosure problem is growing,” Zirkin said in an interview. “This is the only thing that’s going to help and help quickly.”
Senate Majority Leader Harry Reid of Nevada said the change to the bankruptcy law is an issue of fairness. Under current law, bankruptcy courts can adjust payment schedules on loans for vacation homes and investment real estate, but not primary residences.
“It’s not logical,” Reid said in an interview. “Somebody who has one home that they struggled to stay in, they lose their job, they get sick. Why can’t they go to bankruptcy court and get some leeway?”
An Ornament
John A. Courson, chief operating officer for the Washington- based Mortgage Bankers Association, accused Congress of “putting an ornament” on the financial rescue legislation.
The MBA and other financial services trade groups fought back a similar bankruptcy bill in April, when the Senate voted 58-36 to reject the Democratic-backed legislation. Republicans objected that the plan would raise costs for other borrowers because lenders would try to recoup losses in court with higher interest rates on other loans. President George W. Bush had threatened to veto the legislation.
“If it’s in there, it’s going to kill the bill,” said John Berlau, director of the Center for Entrepreneurship at the Competitive Enterprise Institute, a Washington research group that opposes the rescue plan.
Republicans Oppose Democratic Plan to Aid Burdened Homeowners
by Lorraine Woellert | Bloomberg
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