WASHINGTON -- As many in the mortgage lending community challenged the Emergency Home Ownership and Mortgage Equity Protection Act of 2007 (H.R. 3609), CUNA's voice was noticeably quiet as the group worked out its position on the sensitive issue.

CUNA had been a strong advocate of the overall bankruptcy reform legislation that went into effect just a couple of years ago. However, CUNA President/CEO Dan Mica's Nov. 14 letter to members of the House Judiciary Committee read, "While we have considerable concerns with any legislation that would open the Bankruptcy Code to amendment so soon after major revisions were enacted, we understand the need to be responsive to the current crisis in the subprime mortgage market. We urge the Committee to be surgical in its effort to address the current crisis through amendments to the code."

Mica's letter came on the eve of a scheduled markup in the full committee that was postponed after the bill had already passed out of the subcommittee on a 5-4 party line vote and a previously scheduled markup in the full committee had been delayed. Though CUNA was following action on the bill, the lack of a policy decision did not go unnoticed on the Hill and led one Republican staffer to refer to them as "MIA" in an e-mail to a source while NAFCU came out early on--as a number of other lenders did--stating that the legislation would dry up credit availability.

CUNA Senior Vice President of Legislative Affairs John Magill defended, "I don't believe it took that long in the first place. It's a very complicated matter." He noted that CUNA developed its policy in consultation with its Governmental Affairs Committee and other credit union leaders nationwide--a large group of very diverse thinkers. CUNA's greatest concern is for those tricky "unintended consequences," he said.

Adding to the complexity of the legislation itself is the fact that the language is about as fluid as mercury at this point.

"Anytime you look at reopening bankruptcy, there is some hesitancy," Magill added. In the end though, he said CUNA acted "judiciously and in a timely manner."

The letter outlined five points that CUNA could support in reforming the bankruptcy code as it applies to subprime mortgages:

-Permitting judges to lower the principal owed to no less than the value of the house at the time the mortgage was made;

-Permitting judges to lower interest rates to no less than current market rates for standard mortgage loans;

-Permitting judges to extend the remaining term by up to five years, but no more than 40 years;

-Permitting the cancellation of prepayment penalties;

-Extending the authority for bankruptcy judges to modify loan terms only on loans made between Jan. 1, 2003 and the date of enactment of the bill.

Markups on H.R. 3609 have been delayed while lawmakers wrangle over different provisions. Magill said that, while he could not discuss specifics, the language of the bill had been changed significantly since its introduction.

"If it were to pass as originally drafted...it would have a significant effect on the mortgage market," CUNA Chief Economist Bill Hampel said. If bankruptcy judges were given "unfettered" reins to readjust mortgage contracts it could prove very harmful to credit unions, he said.

The time frame suggested in Mica's letter would help alleviate uncertainty in the secondary market. "Finally, given likely passage of legislation prohibiting predatory mortgage lending going forward (H.R. 3915), the need to allow modification to loans secured by a borrower's primary residence would not exist in the future," Mica wrote.

"We believe that the approach we have outlined above represents a targeted and responsible response that deals with this serious public policy issue without producing numerous unintended consequences, or lasting beyond the problem itself."

Further complicating the politics of the legislation is that H.R. 3609 has many Financial Services Committee members co-sponsoring it, including Chairman Barney Frank (D-Mass.), and many Credit Union Regulatory Improvements Act (H.R. 1537) co-sponsors backing it as well. In all, 41 Democrats are co-sponsoring H.R. 3609.

The bill is also backed by the Center for Responsible Lending, which has a form letter available to the public to write in to their representatives regarding the bill. The letter states that the legislation "would provide families who are struggling to pay their mortgages access to bankruptcy relief--the same relief that people already have for their boats, vacation homes and investment real estate. Reckless lending in the subprime market has triggered the worst epidemic of foreclosures this country has experienced in at least 25 years, and the problem continues to get worse. The negative effects are extending well beyond families who lose their homes. By weakening the housing market, the subprime crisis has resulted in widespread losses in national and global markets."

Congress is currently out on Thanksgiving recess and votes in the House are expected to begin again the evening of Dec. 4. Then lawmakers are only expected to be in town for two weeks, maybe three, and working three-day weeks at that. Magill said there is a slight possibility a committee markup could take place during that small but unpredictable window at the end of the first session of the 110th Congress.

Lawmakers can pick up the bill next year in the second section where they left off without starting over.

--scooke@cutimes.com

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CUNA Urges 'Surgical' Approach to Re-Opening Bankruptcy Code

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