Friday, January 9, 2009

Chapter 13 Mortgage Cramdown Bill Now Expected to Pass Within Weeks, May Be Attached to Stimulus Package: Citigroup Withdraws Opposition

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys,

At a press conference yesterday afternoon Senators Dick Durbin, the Senate's second-ranking Democrat, Christopher Dodd, the Senate Banking Committee Chairman, and Charles Schumer of New York announced that Citigroup had just agreed to a deal to withdraw its long-standing opposition to Durbin's mortgage cramdown bill, in return for some concessions in its contents. Citigroup's CEO Vikram Pandit wrote in a letter to the legislators: "Given today's exception economic environment, we support [the bill's] swift passage." The Senators said they wanted to attach the bill to the major stimulus package, which appears to be President-elect Obama's highest priority after he is inaugurated just a few days from now.

Senator Durbin had just reintroduced the bill in the new Congress on Tuesday, very similar to the bill, S. 2136, the Helping Families Save Their Homes in Bankruptcy Act, which had been defeated in a Senate vote in April 2008 with only 36 Senators voting in favor of it. That bill had been co-sponsored by 13 Senators, one of the earliest being Barack Obama, followed by Joe Biden and Hillary Clinton. Last September the bill was included in several versions of the $700 billion financial bailout package but was excluded from the final version. On Tuesday, Rep. Brad Miller, D-N.C., re-introduced complementary legislation in the House.

Prospects for Passage
According to Senator Schumer, "Citigroup's action has broken the dam. . . . My office has now been called by heads of the -- of most of the major banks in the country, saying they want to hop on board. And I'm now hopeful that we can get the banking industry to be supportive of this provision -- at the very least, [to] not oppose it."

A article posted late on Thursday acknowledged that, even before the Citigroup announcement, the financial services industry was in a position of having to compromise:
[A]s recently as December, industry officials were promising an ugly fight, and saying they might still be able to head off the measure entirely. No longer. Citigroup’s announcement comes even as the same officials acknowledge that a compromise is likely — though perhaps not this compromise. “I think the politics, the substance, the economics, the tax angle all work against the industry on this one,” a financial-services industry official said in an interview Wednesday night, before the Citigroup agreement was public.
A Wall Street Journal website article yesterday assessed the bill's prospects as follows:
While the [Citigroup] agreement makes eventual passage of the measure more likely -- particularly in the new Democratic Congress -- the bill must still pass both chambers.

The cramdown agreement goes further than any compromise discussed with lenders before the current Congress. Now, Democrats have the votes they need to pursue bold pro-consumer measures that were repeatedly defeated last year, particularly in the closely-divided Senate, where Republicans used procedural maneuvers to quash many of Democrats' favorite initiatives, including cramdown.
A less sanguine attitude was expressed by M. Jonathan Hayes of BankruptcyProf Blog who said: "I expect this legislation to pass later this month and then "whoa nelly."

The Concessions to Citigroup

At yesterday's press conference, the Senators revealed the three negotiated changes to the original cramdown bill:
1. Only existing mortgages, specifically those entered into before the date of enactment of the new law, would be eligible for the cramdown, on the theory that this would put less upward pressure on future home mortgages, in order to at least partially undercut the industry's persistent argument that bankruptcy modifications would drive up the cost of future mortgages;
2. Homeowners would be required to certify that they attempted to contact their lender regarding loan modifications at least 10 days before filing for bankruptcy;
3. If a lender is found to have violated the Truth in Lending Act (TILA) in certain minor ways during the bankruptcy, it would be subject to fines but would not have to forgive the loan, bringing it in line with the statute as it is outside bankruptcy; major violations would still be subject to full sanctions under TILA.

The Bill's Language

As of very late Thursday, January 8, The Library of Congress' legislative information service "THOMAS" did not seem to have the new 2009 version of Durbin's bill available on its website, nor could I find it on the Senate's website. I noticed other bloggers were also searching for it. As soon as it becomes available, I will dedicate a Bulletin to its terms, and update its prospects for passage.

In the meantime, I was inclined to provide here a quick review of Durbin's Senate Bill 2136, of LAST year's session, the Helping Families Save Their Homes in Bankruptcy Act, but its two versions--as introduced in October 2007 and then as amended in July 2008--were sufficiently different as to the core amendments to Section 1322 of the Bankruptcy Code that it makes more sense to see what the new bill actually contains, including the new changes just negotiated with Citigroup.

by Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
PLEASE NOTE that this Bulletin and the entire contents of this website are NOT designed for the general public but rather only for attorneys. The writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

© 2009 Bankruptcy Litigation Support for Attorneys