Mortgage Bill Dies Quiet Death

Ed Roberts, Credit Union Journal
April 23, 2008 | COMMENTS

A controversial measure that would have allowed troubled homeowners to file for bankruptcy to get their mortgages rewritten was quietly put to death last week when the Senate voted to remove it from its mortgage rescue package.

The measure would have allowed bankruptcy courts—currently prevented from restructuring mortgages on primary residences—to amend the terms of a home loan as part of a bankruptcy restructuring.

Still, the provision, which has support from Senate Democrats and Democrat members of the House, could resurface as Congress continues to craft a comprehensive mortgage rescue package, noted Fred Becker , president of NAFCU, which has been working to limit any impact of the bankruptcy provisions, even as it opposed the measure altogether.

“Look, we (credit unions) didn't cause the problem, so we shouldn't be part of the collateral damage,” said Becker, of the provision aimed at restructuring millions of subprime mortgages that are expected to default in the coming months. The measure, said Becker, would create havoc in the mortgage market by encouraging troubled homeowners to seek protection under the bankruptcy code.

But knowing that the measure was favored by Democrat leaders of both the House and Senate who control Congress, NAFCU worked to minimize the effects if the measure had gone through by working with Democrats to develop language that would have restricted the bankruptcy provision to subprime and other “non-traditional” mortgages, which make up just 2% of all credit union home loans.

CUNA also opposed the bankruptcy provision, but was more circumspect in the negotiations on the bill.

Democrat sponsors of the Senate measure backed off after Republicans and a handful of Democrat colleagues made it clear they would not vote for the mortgage package if the bankruptcy provision is in the bill. That prompted its chief sponsor, Senator Richard Durbin of Illinois, to withdraw the measure as part of the mortgage bill.

President Bush also expressed his opposition and said he would veto the bill if it passes Congress with the bankruptcy language in it.

But Becker noted the provision still has support in the Democratically controlled House, where it has passed the Judiciary Committee and could find its way back into the bill in a so-called conference committee, which will eventually combine the Senate bill with a House mortgage rescue package. However, given Republican opposition, that is a long shot, according to Becker.

As a result, the mortgage rescue bill that was expected to be approved by the Senate late last week has little of significant impact for credit unions.

It would: provide $4 billion in block grants for communities to buy foreclosed homes; authorize $10 billion in bonds to refinance subprime loans; provide a $7,000 tax credit to anyone buying a foreclosed home; and provide $200 million in additional funding to finance counseling for troubled homeowners.

It would also: extend to nine months the time a lender must wait to foreclose on a soldier returning from active duty; allow homeowners who do not itemize on their taxes a deduction of up to $1,000 for property taxes; and provide tax breaks for troubled homebuilders.

This article appeared at www.cujournal.com and is reprinted with permission.