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Senate Democrats squabble over help for homeowners
Changes proposed to win support of lenders
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Published: March 14, 2009
WASHINGTON - Disagreement among Senate Democrats over how many homeowners should qualify for court-ordered mortgage relief has stalled a key part of President Obama's foreclosure-prevention plan on Capitol Hill.
Behind the scenes, top Democrats are offering banks and credit unions sweeteners to drop their opposition to the plan, hoping that even tepid support from lenders might win a few vital votes from skeptical Democrats and Republicans. The bill would give judges new power to lower the interest rate and principal on a primary home loan as part of a bankruptcy settlement.
The bill passed the House last week -- but only after a mini-revolt by moderates led Democrats to narrow who might qualify.
They made sure that the help was restricted to people who could not afford their mortgages without a court-ordered rewrite to lower their monthly payments, and those who had already tried to work out more affordable terms with their mortgage company.
The House bill also lets bankruptcy judges consider whether a homeowner has already been offered a deal by the lender that matched the guidelines Obama recently laid out in his housing rescue plan -- one with monthly payments amounting to no more than 31 percent of the owner's income.
Lenders cheered the changes as an improvement but were still opposed to the final bill. They have long said that the bill would impose steep and unpredictable costs that would be passed on to homeowners as higher interest rates. A multimillion-dollar industry lobbying effort helped kill the bill last year.
Trying to avoid a similar fate this time, Sen. Dick Durbin, D-Ill., is drafting an even narrower alternative.
One option would essentially prohibit anyone who could get a reasonable deal with the lender from getting mortgage relief in bankruptcy, according to top Democratic aides and lobbyists familiar with the discussions. They spoke on condition of anonymity because they were not authorized to disclose the negotiations.
Sen. Evan Bayh, D-Ind., is working on a rival plan that would allow still fewer homeowners to qualify for home-loan rewrites imposed by a bankruptcy judge. Bayh and Republican Sen. Arlen Specter, R-Pa., are discussing a bill that would be limited to subprime mortgages.
Durbin, Sen. Charles E. Schumer of New York and other senior Democrats are shopping for a deal within the industry that could win the support of key centrists in their party, plus a few Republicans.
Schumer has floated the idea of attaching a legislative gift that credit unions have long coveted -- killing a years-old limit on the amount they can lend to businesses -- in exchange for their support, according to people close to the talks.
Currently, just 12.25 percent of a credit union's lending can go to businesses. Efforts to lift the cap have run into strong opposition from the banking industry, which does not want the added competition.
Backing from credit unions could bring critical votes to the bankruptcy bill, because they are spread throughout the country and can activate a grass-roots network on Capitol Hill.
So far, however, credit unions are not biting.
"We have been opposed, we are opposed, but we have always said that we would be willing to find common ground," said Dan Mica, the former Democratic congressman from Florida who heads the Credit Union National Association and has spoken with Durbin and Schumer about a compromise.
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