Negotiations Continue on Bill Allowing Judicial Modification of Mortgage Terms
April 17, 2009 by senatus
Senate Democrats “are negotiating with a handful of the nation’s largest banks and some credit unions to limit a controversial bill allowing judges to write down the value of home mortgages,” The Hill reports.
After passing the House in March, the bill has stalled in the Senate, leading to weeks of negotiations that have so far failed to produce a compromise.
“There are a number of points we’re discussing,” said Max Gleischman, spokesman for Senate Majority Whip Dick Durbin (D-Ill.), a key backer of the policy known as “cramdown” in the financial industry. Gleischman said discussions concern whether to limit the bill to certain types of loans or to the date on which the loans were issued. The financial industry strongly opposes cramdown.
When President Obama unveiled measures earlier this year to support the housing market, he signaled that he supported judicial modifications as a last-resort option. Obama indicated that banks or servicers of mortgages should work with borrowers to reach an agreement voluntarily before borrowers turn to the courts. The bill’s supporters argue that cramdown is necessary to force changes to mortgages.
A draft proposal has slowly started to take shape, although it’s not yet final.
A draft compromise proposal indicates that borrowers who have been offered modifications consistent with the president’s Homeowner Affordability and Stability Plan or with a congressional program on refinancings would not be able to turn to courts to modify their mortgage. Under the proposal, judges would be able to reduce mortgage principal to a “fair market rate” and limit interest payments to a conventional rate plus a “reasonable” risk premium. Only loans made before 2009 and less than $729,750 would be eligible.
Senate staff and industry sources cautioned that the proposal is fluid and a compromise has not yet been reached.