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Congress Crams on Cram-Down

After weeks of negotiations, banks and credit unions are continuing to drag their heels, at least publicly, on committing to compromise language in a bill that would give bankruptcy judges the power to modify mortgages.

No official compromise has been reached, but Sen. Dick Durbin’s (D-Ill.) staff is working urgently to get several banks and credit unions on board by midweek.

A final version of the provision is expected as early as Monday evening, according to financial services lobbyists.

Representatives from the Credit Union National Association, the National Association of Federal Credit Unions, the Independent Community Bankers of America, Wells Fargo, Bank of America, JP Morgan Chase & Co. and others met with Senate aides during the Congressional recess to try to forge a bill that the industry could support.

The talks, which leadership staff say are far from over, were expected to continue over the weekend.

“Negotiations are ongoing,— Durbin spokesman Max Gleischman said. “We are making progress, but are still a ways away from having an agreement,— Gleischman added.

Durbin’s staff is pressing the credit unions and banks to endorse the principles they laid out in a one-page memo obtained by Roll Call that details the core elements of the bankruptcy provision.

In return for their support of the housing bill, the financial services industry would be given the ability to pick which borrowers can have their primary mortgage modified instead of allowing them to go into bankruptcy.

“For any mortgage that’s in trouble, all that a servicer has to do to block the borrower from going to bankruptcy to get that mortgage modified is to offer the borrower a mortgage modification that conforms to the Obama Administration or Hope for Homeowners standards,— according to the memo.

Additionally, only loans originating before January of this year would be eligible for modification. Details on the bankruptcy provision’s sunset were still being hammered out with dates ranging from 2012 to 2016.

How second mortgages will be treated is also another issue that has to be decided.

Still, CUNA is expected to support the agreement, according to lobbyists familiar with the negotiations.

CUNA spokesman Patrick Keefe said that negotiations were ongoing and declined to confirm or deny CUNA’s endorsement of the principles.

Citigroup has already signed on to a compromise, but other banks such as Wells Fargo and Bank of America have been more reticent to voice their support, lobbying for more restrictions on reducing the amount borrowers owe.

Other groups do not yet appear to be on board at all.

Some of the early negotiation participants such as the Independent Community Bankers of America and the American Bankers Association have not participated in the most recent rounds of talks.

The ICBA, for its part, is discussing the proposal with its membership, according to a lobbyist familiar with the group.

The Mortgage Bankers Association is also opposed to cram-down legislation.

“We continue to believe cram-down would be bad for the markets and would destabilize the markets,— MBA lobbyist Steve O’Connor said.

If Congress goes forward with a bill, O’Connor said, the MBA wants the provision to be tailored as narrowly as possible.

The larger financial services community has also been skeptical of cram-down legislation.

Should the Democrats be successful in achieving a compromise, the legislation is still in danger, with GOP Members in nearly universal opposition to the cram-down provision.

While Republicans had participated in some of the earlier conversations, in recent weeks none has been at the negotiating table, according to lobbyists familiar with the talks.

Additionally, even if the banks and credit unions agree in principle on the cram-down provisions, it’s unlikely that they will expend a lot of political capital to try to push the bill forward, according to financial services lobbyists.

“The difficulty in achieving an agreement demonstrates the basic philosophical divide on the issue,— Scott Talbott of the Financial Services Roundtable said. “The bulk of the industry remains opposed to the negative effects the bill will have on the market.—

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