Huffpost Politics

Democrats Reach Deal On Mortgage Relief Bill

Posted: Updated:

WASHINGTON — House Democrats, under pressure from a group of moderates in their ranks and the banking lobby, agreed Tuesday to narrow legislation that gives bankruptcy judges the power to force lenders to rewrite mortgages for debt-strapped homeowners. The compromise legislation was expected to come to a vote in the House as early as Thursday.

Under the terms of the agreement, judges would have to consider whether a homeowner had been offered a reasonable deal by the bank to rework his or her home loan before deciding whether to take judicial action to lower the interest rate or principal.

Borrowers also would have a responsibility to prove that they tried to modify their mortgages with their lenders before seeking help in bankruptcy court.

"If there is modification available, you would prefer that than a bankruptcy," said Rep. Zoe Lofgren, D-Calif., one of the centrist negotiators on the bill.

Democrats said the goal was to make bankruptcy clearly a last resort for homeowners in danger of losing their homes.

"The concern is that we want to ensure that those people who get relief have tried other avenues," House Majority Leader Steny Hoyer, D-Md., said.

Mortgage lenders who mounted a costly and successful effort last year to kill the measure, which they call the "cramdown," have been lobbying intensely to restrict the bill. They argued that mortgage adjustments made in bankruptcy would raise mortgage interest rates for all consumers and create a wave of bankruptcy claims.

Their opposition helped derail the legislation last week, even after leading Democrats had agreed to restrict it to people who had tried other means of reworking their mortgages and those who couldn't afford their home loans.

The industry has "been giving it everything they've got," said Rep. Brad Miller, D-N.C., an architect of the legislation. "They still have remarkable influence."

Still, Miller and some other backers of the idea said they support the new plan.

"It would encourage lenders to make modifications and there would be consequences if they don't do it," Miller said.

Democrats discussed the compromise in a closed meeting Tuesday with Housing Secretary Shaun Donovan, who told them the legislation would dovetail with the administration's overall efforts to reduce foreclosures. Obama unveiled a $75 billion housing initiative two weeks ago that included a call for legislation to permit adjustments to mortgages in bankruptcy court.

Following the session, Lofgren and two other moderate Democrats _ Ellen Tauscher and Dennis Cardoza of California _ circulated a letter seeking support for their compromise.

"Some may think the changes made to the bill go too far while others will contend that they do not go far enough," the "Dear Colleague" letter said. "Given the ever-deepening housing crisis, however, we ask you to place such differences aside _ as we have done _ and support this effort."

The deal would require judges to consider whether homeowners were offered a "qualified" loan workout _ defined as one that would meet Obama's goal of monthly payments equal to about one-third of a homeowner's income.

The agreement includes changes whereby bankruptcy judges would have to deny a judicial mortgage adjustment in cases where the homeowner is deemed able to afford the loan.

Lawmakers in the centrist New Democrat Coalition and the fiscally conservative Blue Dog Democrats who said they were concerned about how the measure would affect people struggling to pay their mortgages worked through the weekend to cut a deal they could support.

Some liberals said the new limits were inappropriate. Rep. Maxine Waters, D-Calif., said many mortgage companies make it impossible for homeowners to even complete a phone call to their lender, much less work out more affordable loan terms.

"I don't think people ought to have to go through that mess" to get mortgage relief in bankruptcy courts, Waters said.

She said the banking industry still has a stranglehold on Congress. "These guys rule this place," Waters said.