Mortgage Bankruptcy Reform Update

by: Chris Bowers

Fri Feb 27, 2009 at 17:47


There is quite a bit to share about the state of the Housing bill that is currently delayed in the House, but supported by both progressives and President Obama alike. Here is what I have:

  • Still unclear as to who is pushing the delay: The culprit behind the delay can still be best described as "centrist Democrats" and "the financial services industry." As of this time, there are still few other specifics. I have heard second hand rumors that the New Democrats coordinated the delay in order to "flex some muscle." This would make sense, since the New Democrats have been public about feeling left out of the state of play in the House recently, and have indicated that they are going to target financial services regulations as a means of regaining influence. However, trying to get even more specific than "New Democrats" has been difficult, as the individual names I have heard behind the delay and water down effort are contradicted by my different sources.

  • On Ellen Tauscher: Two days ago, I asked Open Left readers to contact Representative Ellen Tauscher's office, urging her to stop listening to the financial services industry, and start listening to threatened homeowners. Her communications director contacted me today to point out that she voted in favor of the rule on HR 1106, which implies support. Also, I was told that Tauscher has not met with one member or representative of the financial services industry on this bill, but did work closely with the Judiciary committee which sent the bill to the House floor. In the extended entry, I provide a list of ways that her office indicated she was working to "strengthen" the bill, rather than "water it down."

  • A more complicated relationship: This week, on a couple of occasions, I have implied a crude, quid pro quo relationship between centrist Democrats and corporate PACs. The actual relationship, of course, is a bit more complicated. In particular, many centrist Dems simply see eye to eye with the corporate lobbyists who funnel PAC money their way, and no real arm twisting is needed. The corporate PACs are simply supporting like-minded individuals, many of whom have a background in the industry (such as Representative Tauscher, who worked on Wall Street). These Representatives are rarely working at the behest of the industries in question, and are instead simply working toward shared, usually pro-corporate goals on their own.

  • Durbin's slip-up: Yesterday, Senator Durbin , the sponsor of the Senate version of the bill, told a reporter that he was willing to water down the legislation so that it would only apply to sub-prime loans. While he might have been taken out of context, or simply been speaking in error, given the 60 vote threshold in the Senate it is likely that is what will happen to the legislation by the time it is delivered to President Obama's desk. Because of the current political climate, the goal of centrist Democrats and the banking industry is not actually to defeat the bill as they did in the past, but simply to narrow it and water it down. Depressingly, that effort is likely to succeed.

  • Obama administration to the rescue?: The best chance for keeping the legislation strong and applicable to as wide a range of homeowners as possible comes from the Obama administration itself. On Monday, Housing Secretary Shaun Donovan will speak to House Democrats, and make a direct appeal for not narrowing or otherwise watering down the cram-down legislation. The administration does hold a lot of sway with congressional Democrats right now, and is riding high in the polls, so this appeal might just work. Let's hope so.
This bill is another test of the Obama administration's ability to sway center-right Democrats and Republicans. Unlike the stimulus, let's hope that no concessions are made without an actual promise of votes. Also, this vote should be a great test of whether or not members are voting with corporate interests, or with the interests of their constituents.
Chris Bowers :: Mortgage Bankruptcy Reform Update
Here are the changes to HR 1106 that Ellen Tauscher's office indicates she worked out with the Judiciary committee:

The [Judiciary] Committee made several changes to the legislation that improve the uniformity of the process and to ensure we pursue other remedies prior to sending a debtor into Chapter 13. These changes include:

1)      Clawback (shared appreciation) - Increase in the percentage for the 1st 5 years

2)      Improvements to mitigate the effect of the legislation on FHA insured and VA guaranteed loans

3)      Ensure that judges use FHA appraisal guidelines in determining the fair market value of the property rather than on an ad hoc basis

4)      Mandate that the debtor make equal monthly payments when restructuring debt (predictability in payouts)

5)      Specify that in addition to a phone call requesting a loan modification, the debtor must certify that he/she provided income, expenses, and debt to the holder of the mortgage.

6)      Judge must deny judicial modification in cases where the debtor can afford the loan. The loan has to be unaffordable and not just underwater, which prevents wealthy people from taking advantage of falling real estate prices.

7)      Ensure the debtor receives credit counseling, which can occur after filing bankruptcy, but has to happen before the judge approves the workout plan.

8)      A GAO study to see whether this is working and the effect it could have on debtors, access to credit, etc.

9)      Make sure that a judge considers whether a qualified loan modification was offered. The definition of a qualified loan modification is kicked to the Administration and the regulators.

10)   Extend the pre-filing requirement to request a modification from 15 days to 30 days.

The details are wonky, and these backroom negotiations are murky. Beyond voting records, it is always difficult to know who is behind what.


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Thanks (4.00 / 1)
I appreciate the efforts to monitor the details of this.

We desperately need to regulate the financial industry.


Is there any reason (0.00 / 0)
we should be confident of passage?

Of a weak, bill yes (0.00 / 0)
Of a strong one, no.

[ Parent ]
Bankruptcy reform is a tough one (0.00 / 0)
This issue always seems to divide into Non-moderate Dems vs. Moderate/Conservative Democrats + Repubs. I'm not sure how much pressure the Adminstration can put on because there are already conservative democrats bitching about the budget and about how Obama was giving them happy talk with his "conversation about SS".  

[ Parent ]
Time to help out the Accountability PAC (4.00 / 1)
The corporate PACs are simply supporting like-minded individuals, many of whom have a background in the industry (such as Representative Tauscher, who worked on Wall Street). These Representatives are rarely working at the behest of the industries in question, and are instead simply working toward shared, usually pro-corporate goals on their own.

 And these Representatives are Democrats because...

 (I'm sure there MUST be a reason.)

"We judge ourselves by our ideals; others by their actions. It is a great convenience." -- Howard Zinn


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