Tuesday, March 24, 2009

Mortgage Cramdown Legislation Stalled in the Senate, Not Likely Seeing Action Until Late-April, After Easter Break

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

Although there had been some indications that the Senate would quickly take up the Chapter 13 mortgage cramdown legislation after the House of Representatives passed its bill on March 5, because of political distractions and fierce negotiations this will not happen until late April or even later.

Hurry Up and Wait
When the House passed HR 1106, the "Helping Families Save Their Homes Act of 2009" on March 5, the Democratic Senate leadership signaled that it would attempt to bring the matter to a vote within the following week or two. That same day Bloomberg.com reported that the senior communication advisor to Senate Majority Leader Harry Reid, Jim Manley, one of the most powerful Senate staffers, said the Senate could vote on its bill as early as the following week.

But with more than two weeks having
passed and the start of the two week Easter recess a little more than a week away--it starts Friday, April 3--it appears highly unlikely that the Senate will take any action on its bill, S. 61, until after this recess. Indeed, according to a recent Associated Press story, the bill did not make it onto Senator Reid's list of priorities to accomplish before the Easter recess.

The Behind-the-Scenes Negotiations
The Senate situation echos what occurred in the House. There the House Judiciary Committee passed H.R. 200 with amendments on January 27, and the full House was scheduled to vote on it on February 26, but was delayed a week while additional amendments were hammered out and the necessary votes rounded up. (See my earlier Bulletin on this delay in the House.)

The wrangling in the Senate continues the House battles on how much to narrow the types of mortgage eligible for Chapter 13 cramdown. The horsetrading is closely tied to the need to attract virtually every one of the 58 Democratic votes (with the potentially 59th Minnesota vote still tied up in litigation) and a few Republican votes to reach the 60 needed to break filibuster. Republican Arlen Spector of Pennsylvania has long been a potential supporter, but apparently only a narrower version, so Democratic Sen. Evan Bayh of Indiana and he are working on a proposal limiting cramdown only to subprime mortgages. There are also discussions among the Democratic leadership and various creditor organizations, such as the Credit Union National Association, to include provisions favorable to them, in an effort to win their support and that of on-the-fence Senators.

The Personal Politics
While Sen. Dick Durbin of Michigan is the sponsor of S. 61, the "Helping Families Save Their Homes in Bankruptcy Act of 2009," Sen. Christopher Dodd of Connecticut has been an influential and vocal supporter. He is the Chair of the Senate Banking, Housing, and Urban Affairs Committee to which the House bill was referred after it passed. He spoke at the press conference along with Sen. Durbin in early January when the "deal" with Citigroup was announced. (See my Bulletin about that.) In his speech on March 12 to the Consumer Federation of America, he emphasized the importance of and his support for the bankruptcy legislation.

But Sen. Dodd has been buffeted by a number of controversies involving personal financial matters--he is under Senate ethics investigation for a couple of Countrywide mortgages he received, and in the last two weeks has been soundly criticized in the AIG executive bonuses brouhaha. AIG's notorious Financial Products division is based in Connecticut, and Sen. Dodd was the largest recipient of AIG executives' political contributions in the US Senate, according to the Center for Responsive Politics. He vacillated about his role in the stimulus bill which allowed those AIG bonuses, first denying involvement and then trying to pin the blame on the Treasury Department, until Secretary Geithner accepted responsibility. Dodd is up for election in 2010, and in spite of being the longest-serving Senator in his state's history, in a state that has recently tended to vote Democratic, is in a close race with his anticipated Republican challenger.
It is hard to say what effect his political vulnerabilities will have on the controversial bankruptcy legislation, but these circumstances do not seem conducive to risk-taking.

The Latest on the Prospects
A month of delay, including a two week recess, is a very long time in this economic and political environment, making assessing the legislation's prospects impossible. This delay gives opportunity for Senators to be influenced by all the interest groups, especially those who can most afford to pay for that influence. But it also perhaps gives them the opportunity to see the detrimental impact of home foreclosures upon their voting constituents and neighborhoods.

The House vote earlier this month had to some degree been slowed down by the controversies of the prior few weeks surrounding the huge stimulus bill, and now Congress is digging into controversial budgetary issues with the same potential effect on the Senate side. And for the first time there are serious hints of the possibility that no version of the legislation will pass, or only a highly restrictive one, given the skepticism expressed by a number of "centrist" Democratic Senators, and by Republican Senators who had appeared more amenable earlier. The fate of the legislation will depend on the direction of the economic and political winds of the next several weeks.

A new Bulletin on this website will provide an update of this legislation as soon as there is new information to report. PLEASE EMAIL ME at Andy@BLSforAttorneys.com IF YOU WOULD LIKE TO BE EMAILED A LINK TO IT AS SOON AS IT IS UPLOADED onto this website.

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.

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