Yesterday, Sen. Harry Reid (D-NV) announced that he plans to bring the long-delayed cram-down bill — which would allow bankruptcy judges to “cram-down” mortgage payments for troubled homeowners — to the Senate floor for a vote next week. However, it will reportedly be introduced only as an amendment, a form in which “it appears likely to lose.” In fact, Sen. Bob Corker (R-TN) has gone so far as to pronounce cram-downs “dead.”
So what is happening to this common sense proposal to address the housing crisis? First, it has been caught in a web of special interest lobbying. Various banks and credit unions have been involved in the negotiations, with different parties walking away from the table at one point or another. One lobbyist opposing the bill crowed about the mess, saying that “chaos is good.” Republicans have also been staunchly opposed to the bill, spreading various falsehoods about its effects.
While not completely necessary, it would have been helpful for the banks to support cram-downs. But Republican senators apparently pushed bailed out banks — that are operating thanks to taxpayer money — to not accept any compromises on the measure. According to CongressDaily:
GOP senators had put pressure on three big banks that were left negotiating — Bank of America, JPMorgan Chase and Wells Fargo — not to give in, according to sources. They were concerned the three lenders might agree to a compromise like Citigroup did earlier with [Sen. Dick Durbin (D-IL)], especially as they face pressure to strike a deal with Democrats because of other criticism leveled at them, including their use of Troubled Asset Relief Program funds, credit cards and mortgage lending practices. Citigroup is still feeling the wrath of GOP leadership.
JP Morgan, Bank of America, and Wells Fargo are all TARP recipients, and may have been enticed by Durbin’s offer to attach cram-downs to a bill raising the FDIC’s deposit-insurance limit. So which is worse here? Banks accepting taxpayer dollars while fighting against a measure meant to help taxpayers, or GOP Senators pushing them to continue doing so when a compromise is on the table?
Ending the tide of foreclosures is a key part of halting the economy’s slide. So as the New York Times editorial board wrote this morning, “Republican senators need to understand that a vote against this reform is a vote against economic recovery”:
As foreclosures add to the glut of unsold homes, house prices will continue to fall. That will lead to more foreclosures — declining equity is a risk factor for default — and more defaults and foreclosures will hamper the banks’ recovery and further constrain credit. And so on.