Friday, May 1, 2009

Mortgage Cramdown Prospects After Its Senate Defeat

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

Thursday afternoon's defeat of the bankruptcy mortgage cramdown legislation in the Senate very likely means that it will fall into the background in spite of its passage in the House, at least for a number of months and probably for the rest of this year. The defeat was almost universally expected, especially after the top Senate Democratic leadership stripped it off the broader housing bill with its enticements for the banking industry and made it stand alone in the form of an amendment. But the margin of the loss--45-51, far from the necessary 60 votes, and particularly the fact that a full dozen Democrats voted against it when virtually every Democratic vote was needed, makes it very unlikely that any bankruptcy mortgage cramdown bill could make it into law. This is all the more true in light of the Obama administration's negligible public and legislative support for the provision, indicating that it had decided to pick other battles, and presumably could not be counted on for support in at least the near future.

What's Next
Senator Dick Durbin immediately vowed to try to hang on to a bankruptcy cram down provision in the anticipated conference committee's housing bill, as the House and Senate's bills are reconciled, but the relatively large margin of the loss in the Senate makes this very likely a futile effort. There is a slight possibility of very limited success if the cramdown which came out of the conference was highly restricted, such as applicable only to subprime mortgages--which a number of Senators who voted against it said they would have supported. Sen. Durbin determined early in the negotiation process that such a major narrowing of the cram down benefits would not achieve the desired objectives, but he now has reason to reconsider that, if it is not too late.

In the meantime there will very shortly be, perhaps even by the time this Bulletin is uploaded, a Senate vote on the broader bill, without the bankruptcy provision. It includes two components greatly favored by the financial industry: 1) a huge increase in the FDIC's borrowing authority, which would have the effect of reducing by more than half a proposed special premium that banks would be required to pay the FDIC to help shore it up in the wake of bank failures, saving them $7.7 billion; 2) making permanent the temporary increase in deposits guaranteed by the FDIC., from $100,000 to $250,000. It will have no trouble passing. Then this bill will be reconciled with the already passed House bill which includes the cramdown provision, with the final opportunity mentioned above.

If No Cramdown Comes Out of the Conference Committee
Democrat Tom Carper of Delaware, who voted against the cram down, said "My guess is we're not going to see it again [in the Senate]."

Sen. Durbin was taking the long view after the defeat, clearly trying to be optimistic :
I mean, really, to lose 11 Democrats was disappointing, but, you know, I guess I've gained some ground since the issue last came up. Maybe if the mortgage foreclosures go up dramatically and I call it again next year I can pass it.
Going from 36 votes in favor of bankruptcy cram down a year ago to 45 on Thursday may seem like significant progress, except when considering the large increase in Democrats in the chamber, the change in Administrations, and the phenomenal increase in foreclosures in the meantime. And it is no solace for the hundreds of thousands of homeowners who could have been helped.

Durbin added wryly: "If we fail [at passing cramdown through the conference committee procedure] we’ll wait another year and face a worse crisis and hope that the banks won’t have as much clout.” He concluded: "I'll be back, I'm not going to give up."

The Bottom Line
From a press release from the President of the Center for Responsible Lending, one of the consumer organizations involved in the weeks of negotiations with Sen. Durbin: "The mortgage crisis continues to worsen, and the need for this legislation will only grow. Unfortunately, millions of homeowners and all Americans waiting for economic recovery will pay dearly for this delay."

A new Bulletin on this website will provide an update of this legislation and related foreclosure and mortgage modification issues as soon as there is new information to report. PLEASE EMAIL ME at 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 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