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Senate kills relief measure for those facing foreclosure

Fri., May 1, 2009

WASHINGTON – The financial services industry may be in trouble over its role in crashing the world economy, but that doesn’t mean its lobbyists have lost all their muscle on Capitol Hill.

Exhibit A: On Thursday, the Senate delivered a stinging rebuff to President Barack Obama and consumer advocates by rejecting a measure to help beleaguered homeowners facing foreclosure.

The vote was 51-45, with 12 Democrats joining Republicans in opposing the proposal, under which bankruptcy judges could order lenders to reduce the principal on home mortgages.

The proposal, which sailed through the House in March, was a key part of Obama’s plan to reduce the tide of foreclosures in the shattered housing market.

Its defeat in the Senate marked a turnaround for the Democratic supporters of the bill, who had hoped that the party’s new majority would ensure its passage.

Instead, Democratic leaders were furious to see bankers lobbying against consumer protection measures after Congress had approved enormous sums to shore up the financial services industry in troubled economic times.

“I am sick and tired of being asked to give billions to these banks,” said Senate Democratic Whip Richard J. Durbin, of Illinois, who threatened to oppose any further industry bailouts. “If they have no sympathy for homeowners facing foreclosure, I don’t have any sympathy for them.”

The home-loan measure, sponsored by Durbin and known as cramdown because it would allow judges to require lenders to reduce or “cram down” the amount that homeowners owe, would remove an oddity in current bankruptcy law:

Judges handling bankruptcy cases can already reduce the principal – and thus the payments – on a vacation home, car or boat, but not on a mortgage for a primary residence. The bill would have changed that. Sponsors hoped that would give banks an incentive to modify existing loans to give relief to borrowers facing foreclosure.

The proposal, which had been defeated in Congress in the past, was thought to have much better prospects this year because it was backed by Obama as part of his plan to help distressed homeowners.


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