Bankruptcy Legislation Changes Make It Less Unappealing to CU Trades
At press time, the House was scheduled to vote on a measure that had more restrictions on the use of judicial loan modifications known as cram-downs.
The bill included provisions that required consumers to make a good faith effort to work with lenders and to participate in the Obama administration's program aimed at preventing foreclosures.
Credit unions and banks successfully pushed for provisions to require borrowers to give 30 days-rather than the original 15 days-notice before they seek a judicial modification. They were also able insert a provision requiring the homeowner to share with the lender any profit on a subsequent sale of a house that has a modified mortgage.
"It's a step in the right direction, but we are not sure it does enough," said CUNA Vice President for Legislative Affairs Ryan Donovan.
NAFCU Director of Legislative Affairs Brad Thaler said they still have "serious concerns."
Both Donovan and Thaler said they hoped for more improvements to the bill in the Senate. Many Senate Republicans-and some Democrats-have expressed concerns about the measure and because of that chamber's rules, they could defeat it even though they are in the minority.
CUNA and NAFCU have been pushing to limit the cram-down provision to nontraditional and subprime loans, but House leaders did not include it in the measure.
CUNA, NAFCU and other trade groups maintain that giving judges the power to modify mortgages would make credit costlier for consumers and cause financial institutions to sustain more losses.The administration had to balance those concerns with its desire to provide relief to homeowners facing foreclosure.
Because a homeowner would have to exhaust the other options, the administration said it hopes that the cram-down provision wouldn't be used often. But CUNA and NAFCU said that even using it as a last resort is harmful. CUNA Senior Vice President John Magill said, "The very idea of it, even used sparingly, is toxic to credit unions."
That's why both CUNA and NAFCU worked hard to forge a coalition that included an array of Democrats to pressure House Democratic leaders to modify the measure.
Although CUNA and NAFCU give money to politicians of all ideological stripes, their contributions to moderate and conservative Democrats paid off on this issue. When 26 Democrats voted against the original measure during a procedural vote, it caused Democratic leaders to rethink their strategy and become more open to amending it. Of the 26, the political action committees of CUNA, NAFCU or both have given campaign contributions to 21.
The New Democratic Coalition, a group of 70 moderate House members put considerable pressure on the leadership on this issue. Of the 15 members of the group's Financial Services Task Force, 12 had received contributions from the PACs of CUNA, NAFCU or both.
Both Donovan and Thaler said moderate Democrats are part of a broad support base that credit unions have among lawmakers. But both said it's not clear whether credit unions will be able to translate support on cram-downs into backing for their position on other issues.
"In Washington there are no permanent friends or enemies, just permanent interests," Thaler said.