Fixing the Soaring Mortgage Debacle
Homeowners whose now-ballooning mortgages have put them on the verge of bankruptcy shouldn’t expect any fast relief — especially if the housing industry has anything to do with it.
Industry groups such as the American Bankers Association, the Mortgage Bankers Association of America and the Financial Services Roundtable say they are trying to find a remedy to help curb the housing crisis that threatens to send 2 million mortgages into default.
But they say legislation that would reopen the bankruptcy bill by making it easier for bankruptcy judges to change mortgage terms for homeowners facing foreclosure is not the answer.
Besides, they say, the bill was only just signed into law almost three years ago after nearly a decade of trying.
“Granting new powers to a bankruptcy judge will undermine the entire system and will create a risk that any mortgage debt [the terms of which] could be changed in the future. That risk translates into higher priced mortgages,” Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable, said.
The groups are working intensely through individual meetings with Members; it is a lobbying campaign driven by in-house staffs with help from their outside lobbying consultants.
So far, the groups haven’t had much success scuttling the proposed mortgage-bankruptcy law.
In October, the industry lobby groups were unsuccessful in slowing down a similar House bill sponsored by Rep. Brad Miller (D-N.C.), which was reported out of the House Judiciary Subcommittee on Commercial and Administrative Law.
Now, the groups have turned their attention to the Senate Judiciary Committee, where Sen. Dick Durbin’s (D-Ill.) mortgage-bankruptcy legislation is slated to be discussed at a hearing today titled “The Looming Foreclosure Crisis: How To Help Families Save Their Homes”.
“We think it’s an example of Congress intending to do the right thing and if it were passed actually doing the wrong thing,” Kurt Pfotenhauer, senior vice president for government affairs at the National Mortgage Bankers Association, said.
But getting that message across on Capitol Hill hasn’t been easy.
“A lot of our organizations never really lobbied much outside the banking and financial services committee. We’ve expanded our activity to the judiciary committee,” Pfotenhauer said of his organization’s efforts to target the committee and Senate leadership.
And the groups say they’ve been preoccupied by several large, constantly changing battles, including the predatory-lending legislation that targets the subprime mortgage market coming out of Chairman Barney Frank’s (D-Mass.) House Financial Services Committee.
Some industry lobbyists went so far as to liken the current environment on Capitol Hill to the savings-and-loan crisis in the early 1980s — with Members looking for a scapegoat and the mortgage and housing industry their target.
“Bankruptcy law is not the area to address this problem. We believe what Barney Frank moved through, while not perfect, is the right area to address this,” Talbott said of the mortgage-bankruptcy legislation.
“The industry is working with regulators, with Congress, with Secretary [of the Treasury Henry] Paulson to see if we can come up with a solution that works for as many people as possible and minimizes the harm to the economy,” Talbott added. “Our goal is to keep as many people in their homes as possible.”
One thing on their side, housing industry lobbyists say, is the dwindling time for the Senate to get things done before officially entering the lame-duck session.
Durbin’s biggest roadblock so far has been Sen. Arlen Specter (R-Pa.), who authored his own mortgage-bankruptcy bill that is more palatable for industry groups.
While Durbin and Specter’s staffs have met over the last month to discuss the bills, there are still sticking points, including the “cram down” provision in Durbin’s bill that would allow judges to reduce the principle on loans, and the lack of any sunset provisions.
Housing industry lobbyists say they are trying to work with other groups to figure out how to best address the situation and to find a remedy fast.
“There’s a time imperative for Congress to act if we are going to get out of this crisis, or more importantly, to avoid deepening the crisis,” Jerry Howard, head of the National Association of Homebuilders, said. The NAHB and the National Association of Realtors oppose the legislation but are not taking a lead lobbying role.
Pfotenhauer of the mortgage bankers agrees. His organization is looking for Paulson to roll out a new initiative that would speed up the process of loan modifications. While the American Bankers Association’s Floyd Stoner says many of the mortgages may have to be dealt with on a case-by-case basis.
“We are sympathetic with the concerns about people who are taken advantage of by unscrupulous lenders,” Stoner said. “The problem with changing the bankruptcy law is you then raise questions about the whole mortgage system that we have developed.”