WASHINGTON — Credit union lobbyists are seeking to limit thedamage from what they see as an all-but-certain congressionalpassage of legislation allowing bankruptcy judges to rewrite theterms of mortgages.
Both CUNA and NAFCU say the measure, which is likely to be includedin the economic stimulus package working its way through Congress,would penalize credit unions even though they didn't cause thesubprime crisis and would make credit unions less likely to makehome loans to some consumers who are deemed to be high creditrisks.
The measure, including the so-called cram-down provision, wouldallow judges hearing the cases of people who file for Chapter 13bankruptcy to rewrite the terms of mortgages if the consumercontacted the lender about a reduction before filing forbankruptcy.
CUNA and NAFCU are pushing to limit the provision to subprimemortgages, but lobbyists for those groups said that the sentimenton Capitol Hill seems to be to include all mortgages.
“Many people received loans that were not in their best interest,and they are having trouble making payments. But the economicconditions are such that even people with prime mortgages arehaving trouble, so that's why the change in Congress,” said RyanDonovan, CUNA's vice president for legislative affairs.
Donovan noted that his organization is working to include aprovision requiring people who sell their property for more thanthe cram-down amount to repay the difference to the lender.
The measure received a shot in the arm when Citigroup, which hasreceived $45 billion under the Troubled Assets Relief Program,became the first major financial institution to drop its oppositionto the measure. But other major financial institutions have notfollowed suit.
The American Bankers Association and the Financial ServicesRoundtable both remain opposed to the measure.
NAFCU Director of Regulatory Compliance Anthony Demangone said eventalk of a cram-down measure makes their members worried.
“It could affect the bottom line of credit unions and raise safetyand soundness concerns because of the possibility of assetsvaporizing,” he said. “And it will also lessen the stigma ofbankruptcy.”
Modifying the terms of mortgages does not always mean an end totrouble for consumers. Almost 37% of consumers whose mortgages weremodified during the first quarter of last year defaulted onpayments within six months, according to a study by the Office ofThrift Supervision.
Consumer groups are pushing for the measure, and this will be oneof the first tests of their newly found strength on Capitol Hilland in the executive branch.
“It is painfully clear that the continuing, and indeed worsening,foreclosure crisis is perhaps the single largest impediment toeconomic recovery,” said a coalition of consumer and civil rightsgroups. “We cannot afford to have the mortgage foreclosure crisisgo on one day longer than is necessary as a millstone around theneck of our struggling economy.”
This is one of the issues that CUNA and NAFCU lobbyists predictedthey would be playing defense on throughout the two-year session ofthe 111th Congress, which opened earlier this month. It is one ofthe reasons that both associations ramped up their politicalinvolvement and worked to ensure more of their friends were electedor re-elected.
Other issues include changes to the rules regarding credit cards,additional changes to the bankruptcy laws and making credit unionscomply with the provisions of the Community Reinvestment Act.
Senate Majority Whip Richard Durbin (D-Ill.) is the main sponsor ofthe cram-down measure in that chamber, and it also has the supportof other key Democrats, including Senate Banking Committee ChairmanChristopher Dodd (D-Conn.). House Judiciary Committee Chairman JohnConyers (D-Mich.) and Rep. Brad Miller (D-N.C.), a member of thehouse Financial Servicess Comittee, are the key backers in thatchamber. Miller is one of the closest allies and advisers of HouseSpeaker Nancy Pelosi (D-Calif).
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