Banks seek to trim foreclosure help for borrowers
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Big banks, scrambling to prevent the government from forcing them to
rewrite mortgages for struggling homeowners, are using their lobbying
clout to press the Obama administration and Congress to scale back a
key measure to rescue borrowers from foreclosures. The legislation, expected to pass the House today, would let
bankruptcy judges reduce the principal and interest rate on a home
loan. That essentially would require mortgage companies to let
debt-strapped homeowners reduce their monthly payments rather than lose
their main residences. Obama called for it last week as part of his housing rescue plan.
Democrats and consumer advocates regard it as crucial to slowing the
rapid rate of foreclosures. But the mortgage industry contends the measure will impose steep
and unpredictable costs on its companies, which will be forced to pass
them along to borrowers in the form of higher fees and interest rates.
The industry spent millions last year on a successful lobbying effort
to kill the bill, which almost all Republicans oppose. Opponents call
it the "cram-down." This year, with Obama in the White House and Democrats enjoying a
broader majority, a rift has emerged in the industry. One major player,
Citigroup Inc., has bowed to the new political reality and moved to
grab a seat at the negotiating table. It cut a deal last month with Democrats to back the plan, as long as it applied only to existing
loans made before enactment and was limited to homeowners who try
working with their lender to adjust their loans before seeking relief
in bankruptcy.
Other banks have changed their strategy, but not their position.
They are continuing efforts to squash the legislation, but also have
stepped up their bid to gut key provisions. Among their goals: restrict
the measure to certain kinds or sizes of home loans, certain borrowers,
or situations where the mortgage holder -- known as the loan servicer
-- agrees to the changes. "I don't see a scenario where we can ever support this, but we're
trying to make it the least-worst way to do the wrong thing," said
Scott Talbott, a lobbyist for the Financial Services Roundtable, a
trade group representing large banks. The group spent $7.8 million last
year lobbying on this and other issues. "There are efforts being made
to change the bill right now," Talbott said Wednesday, as Democratic
leaders were putting the last touches on the measure to be voted today.
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