Senate nixes mortgage 'cram downs'
Industry opposed court-imposed loan mods
By Inman News, Friday, May 1, 2009.Bankruptcy judges won't get the power to rewrite the terms of mortgages on primary residences anytime soon, after a dozen Democrats joined Republicans in the Senate on Thursday and voted against tacking bankruptcy "cram down" legislation onto another housing bill.
In a 45-51 vote, the Senate rejected an amendment to S 896, the Helping Families Save Their Homes Act. Introduced by Sen. Dick Durbin, D-Ill., the amendment would have allowed cram downs on mortgages when homeowners were already in foreclosure and lenders had not offered a loan modification.
In a 234-191 vote March 5, the House of Representatives signed off on cram-down language in passing the House version of the bill, HR 1106 (see story).
Cram-down supporters say they want to force lenders to step up efforts to help homeowners avoid foreclosure. Bankruptcy judges already have cram-down powers over mortgages on second homes and investment properties.
But opponents in the lending industry continued to lobby against an expansion of cram-down powers. Judicial modifications of mortgages on primary residences would raise the cost of borrowing, they said, by introducing new risks for lenders and investors who fund lending through purchases of investments backed by mortgages.
While loan servicers are on track to engage in 3 million "workouts" with borrowers this year, foreclosure starts hit an annualized rate of 3.5 million in March, according to numbers released by the HOPE NOW loan servicers (see story).
Both HR 1106 and S 896 would provide a legal "safe harbor" for loan servicers who modify loans, and expand the scope of the Federal Housing Administration's "Hope for Homeowners" guarantee program for refinancings.
House and Senate lawmakers had a similar split on cram downs a year ago. After the House included cram-down language in a foreclosure relief bill, the Senate passed its own version of the bill without such a provision (see story).
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Submitted by Matt Carter on May 1, 2009 - 1:44pm.
The lending industry pulled out the stops lobbying against cram downs. Here's a letter e-mailed to Mortgage Bankers Association members today:
Dear MBA Member:
On Thursday April 30, MBA, and you our members who have been so active in the Mortgage Action Alliance (MAA), earned a hard fought victory when the U.S. Senate once again rejected an amendment that would have given bankruptcy judges the ability to modify, or "cram down," terms of a primary mortgage.
The amendment, offered by Sen. Richard Durbin, D-Ill., as part of a broader bill (S. 896), failed by a 45-51 vote. Durbin needed 60 votes for the amendment to be included in the broader bill; it is the fourth time in the past two years that a Durbin-sponsored cram down amendment has failed, this time by the largest margin yet.
Playing a key role in the defeat were the more than 300 participants who came to MBA's National Policy Conference in Washington this week. On the day of this crucial vote, hundreds of MBA members, including 84 Certified Mortgage Bankers (CMBs) and 33 alumni of MBA's Future Leaders program, visited congressional offices on Capitol Hill, pressing senators to vote against the amendment.
MBA was the leading voice in the 18-month campaign to defeat cramdown. Your association testified on Capitol Hill twice in the last year-and-a-half that the effects of cramdown could raise interest rates for consumers and dry up access to credit.
In addition, through MAA every United States Senator understood how bad this legislation was, and how many people in our industry opposed it. This is a great example of your effectiveness as advocates for our industry in Washington.
MBA's advocacy effort left no stone unturned. We combined intense lobbying with an integrated communications campaign that put MBA spokespeople and allies in a wide range of print, broadcast and news media to take our message to policy-makers and thought leaders throughout the country.
While I am pleased to report this week's victory, MBA will remain vigilant on this front. Senator Durbin has promised, "this is not the last time" he will raise the issue.
As always, if you have any questions please don't hesitate to call on us.
Again, thank you. This is your victory.
Yours Very Truly,
John A. Courson
President and Chief Executive Officer
Mortgage Bankers Association
David G. Kittle
Chairman
Mortgage Bankers Association