Politico reported today that Senate Banking Committee Chairman Chris Dodd (D-CT) “has given housing advocates two weeks to find a compromise that would win 60 votes for a long-stalled proposal to allow bankruptcy judges to restructure mortgages”:
“So we get back here [after a two-week spring break], we’re either there or we’re not there,” Dodd said. “We have to move along on these things.” When asked if that meant he was willing to drop the bankruptcy provision, Dodd hedged. “Well, I’m not saying that,” he said. “I’m going to think optimistically.”
This sounds eerily similar to Sen. Harry Reid’s (D-NV) announcement that he would “drop a cram-down provision from a House-passed banking bill if the language threatened to keep the Senate from passing the overall bill.”
Reportedly, “moderate Democrats” consider the current language “too generous in terms of who could access bankruptcy for foreclosure relief.” But we’ve noted time and again how important it is that cram-down legislation is passed. And just last week, that case was bolstered by data showing that mortgage modifications — comprising half of the Obama administration’s effort to stem foreclosures — are hitting roadblocks and not actually lowering homeowners’ mortgage payments.
Thankfully, a proposal “to limit the bankruptcy option to subprime mortgages only” has been labeled “a non-starter” by cram-down’s main supporters, Sens. Richard Durbin (D-IL) and Chuck Schumer (D-NY). This attempt to restrict cram-downs to certain types of loans denies the extent of the housing crisis and doesn’t alter the current unfair nature of bankruptcy law.
In any case, Dodd’s reason for laying out a deadline — and therefore signaling his willingness to pass a bankruptcy bill that has nothing at all to do with bankruptcy — is unclear. There has been intense, behind-the-scenes lobbying against cram-downs, with the American Bankers Association, the Credit Union National Association and the Independent Community Bankers of America “involved in the talks,” but that opposition has been there all along and isn’t going away. Ultimately, cram-downs are a necessary part of the response to the housing crisis — a crisis that we haven’t yet adequately addressed.