Banks Playing Both Sides On Bankruptcy Bill, Have Reform On Life Support

Senate Majority Whip Dick Durbin (D-Ill.) and other Senate Democrats have spent the last several weeks negotiating with major banks, including JPMorgan, Bank of America and Wells Fargo, hoping to come to a compromise on bankruptcy legislation that moved with great fanfare through the House in early March.

Meanwhile, those banks' umbrella group, the American Bankers Association, has been whipping votes against it after having left the negotiating table in late March. Community banking groups and Senate minority whip Jon Kyl (R-Ariz.) have also been whipping votes against it. Backers of the bill have been waiting to come up with a compromise to start whipping support, said a person familiar with the negotiations, and it appears to have backfired, with the banks picking up votes in opposition.

The central debate is whether to allow bankruptcy judges to reduce -- or cramdown -- mortgages for homeowners who enter bankruptcy. The banking lobby strongly opposes allowing cramdown.

Sen. Jon Tester (D-Mont.), a key vote on the banking committee, dealt a blow to the bill Wednesday, telling the Huffington Post that he is "opposed to cramdown."

He went on: "I just think a deal's a deal. I have a lot of empathy for folks who tend to get led astray, but I just think it's going to create some problems - pretty obvious, actually. I don't have to list them. I'm generally opposed. I don't think it works well."

The Durbin strategy, say three people familiar with the negotiations, was to come to a compromise with the banks first and then use the bank support to win the votes of conservative Democrats and a few Republicans to get the 60 needed to overcome a promised Republican filibuster. But that left the banks' umbrella group to lobby in a vacuum.

"We are no longer at the negotiating table, but the concerns we have remain," Peter Garuccio, a spokesman for the ABA, told the Huffington Post.

"You're right to say it's kind of a vacuum right now," said a Senate aide involved in the negotiations. "We're still working to get a deal, but we don't have a deal, so it's hard to do the math...It's premature to count votes on a bill that doesn't exist yet." The bill doesn't exist yet, say negotiators, because the Senate is heavily rewriting the House version.

A lobbyist for the banking industry said that they also now expect to win the votes of Democratic Sens. Ben Nelson (Nebraska), Mark Pryor (Ark.) and Blanche Lincoln (Ark.).

Sen. Mark Warner (D-Va.) might join that list.

A key vote on the banking committee, the conservative Democrat expressed reservations about the bill to the Huffington Post Wednesday. Asked if he was supportive of it, he said, "I'm not. I think there are probably some changes that need to be made to get something that can pass."

Warner said that he was philosophically open to cramdown, but only if it was tightly defined. "I think it could be used as a viable last resort but only in a very narrowly defined set of circumstances," said Warner. "I don't think defaulting to bankruptcy should be a way out of your obligations. There shouldn't be principal readjustment."

Warner said that any compromise needs to require, for homeowners, "an appropriate set of steps you have to go through first -- if there was a good faith effort. Can you put in place enough steps so it can be used as a tool to force a meeting of the minds pre-bankruptcy? It could be used as a tool but something that's rarely if ever defaulted to."

The Durbin strategy could ultimately pay off, said a Senate aide, if negotiators can come to a deal with the banks. "We know that Republican leadership has been very clear this will be a 60-vote threshold. The entire point of negotiation is to get enough votes to get to that point. We can have those discussions once we have a bill. But it's hard to have negations when you don't have a bill."

Warner, for his part, is still open to compromise. Asked what specific changes he wanted to see in the bill, he declined to comment because, he said, "some of these conversations are going on right now."

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Comments

[dcrinaz]

03:09 AM on 04/24/2009

Please, write Bayh at http://bayh.senate.gov/contact/email/ and demand he support H.R. 1106 with no alterations that weaken the bill or alter it to favor the banks. Please write President Obama at http://www.whitehouse.gov/contact/ and ask him to insist that the Senate pass this bill. You might as well write Chris Dodd at http://dodd.senate.gov/index.php?q=node/3128, the committee chair and ask him who makes the laws in the country, the Congress or the Banks. Tell him to stop negotiating with the banks and do what everyone knows is right.

[HareRaezer]

09:43 PM on 04/23/2009

The Wall Street Journal is reporting today that the proposed cram down legislation is dead, but the banks are getting the increased funding to FDIC so that they aren't charged additional fees. No stick, no carrot.

[DannyDanson]

02:52 PM on 04/23/2009

Don't buy the characterzation the is being spread by the right, no one voted for Obama under the false impression that he alone would change everything wrong with this country (especially with every nearly every member of the GOP in lock-step obstrutionist politi-espionange, and no one can say that he hasn't made substantial efforts to do so (even to criticism from both sides), his administration continues to meet with the parties that must be involved in a recovery back to sanity, but remember we also had a role, our job did not stop on Nov. 4th, I think that many people are more comfortable with having someone to blame in failure that they are with cooperating in drafting a solution that may potentially fail as well, call it he human conditon (Jesus didn't run this election cycle), this is what I get from the right, matter of fact this is all I get from the right, and some dems are positioning themselves now to absorb the blowback on this administration if everything isn't hanky-dory in 2010 (effectively watering down their own party to get re-elected), but in the meanwhile these cowards are torpedoing the really meaningful pieces of legislation that is needed to restore balance to the system like the EFCA, Mortagage Modifications, Banning Torture, Healthcare Reform, Immigration reform, etc these are huge changes and to expect President Obama's charisma and intellect alone to be able the force change is a childish pipe dream.

[blueken]

02:38 PM on 04/23/2009

Was a time that bankers were responible and used fiscal restraint. You trusted people in the lending practice to consider depositors and investors as well as the customer on the other side of the desk. The banker or loan officer has the superior knowledge and above all should do not harm. De-regulation and "I got mine" business practice lead bankers and loan officers to focus on one thing, and one thing only, bonus money. It's the old joke "The operation was a success, but the patient died."

[Alexei Kruglikov]

01:35 PM on 04/23/2009

i don't know about housing situation everywhere, maybe somewhere it is cheaper to pay mortgage than to rent.

In Silicon Valley buying a house and paying mortgage is still 2-4 time more expensive than renting the same or comparable one.

2000 sf house with 6000sf lot in good school area would cost you $1 million
1300sf house with 6000sf lot in good school area - $600K

why should those hous-owners should be supported by the rest of the country?

Obama says we are in the same boat.

I say, sure, but those in 2nd class subsides those in 1st. If you continue like that, one day those from 1st would be thrown overboard.

besides, there are other ships in the ocean, which we get to visit and see their room assingments and social systems.

[dcrinaz]

06:13 PM on 04/23/2009

Let me tell you what is really happening with a ot of those homes that are renting for less than what their mortgages would be. Of course, that is not logical, and unless the rental owner has the house paid off, they have a mortgage on it. But what has happened is that a lot of people who have had to move have not been able to sell their houses. So, instead of tellling the banks to stuff it and have the house forecloses on, they do the honorable thing, and try to rent it to pay the mortgage. The problem is that there is a glut of houses on the market, so they cannot rent the houses for enough to cover the monthly mortgage payment. So, in effect, the homeowner is subsidizing the renter. And why should he have to? It's the banks that caused the problem. The situation gets so bad, that after a while, the homeowner can't afford to subsidize the renter, so he has to let the bankers foreclose, because the bankers refuse to renegotiate the loan.

Why not try looking at all possibilities before declaring "why should hous-owners [sic] be supported by the rest of the country?" You're lack of knowledge on the situation is showing. And there is plenty of information in the Huffington Post--like in their "Housing Crisis" section, for you to read so you can be informed. They maybe you won't make such a thoughtless statement.

[somsoc]

01:34 PM on 04/23/2009

The reich wing rewrote the bankruptcy laws when the GOP controlled congress and unfortunately Clinton signed off on that disaster- no guts Clinton. Now his fellow bluedog democrats aka DINOs, are working against the interests of "WE THE PEOPLE" again, they do not give a good god damn about the working men and women of this nation when push comes to shove. It is time for real progressives to sink these dogs.

[DannyDanson]

01:53 PM on 04/23/2009

I agree 100%, if these Dems want to be Republicans then let them change parties, there's no place for them here, we should be contacting those flip-floppers and pressuring them to respect the majority of Americans who have let their positions be known, these banks have already milked the country of every dime of debt that the public could be convinced to agree to, they've taken our tax revenues and have stopped lending and to me they are making aconcerted effort to derail any progressive measures that this administration has attempted to make to fix this economy, I think like Limbaugh they are delaying their cooperation with the administration in wait for failure or the unification of the right and an organized politically motivated push-back by the rightward leaning public, we have work to do people, we can not relax and wait for change while forces are trying to resist that change we have to continue the effort we made to get this presidetn elected, by pressuring represenatives and building our own "enough is enough, didn't you get the message on Nov 4th movement" to reveil these secret plutocrats and coporate do-boys for the cowards and opportunistic contribution hounds that they are, on both sides of the aisle ours make our entire side look hypocritical whe the country can least afford it.

[toypiano]

01:32 PM on 04/23/2009

We need to cut the salaries of those in Congress to the MEDIAN American salary, no more - no less. We the people can't afford to bankroll lawmakers who are colluding with corrupt banksters -- and that appears to be all of them. It's not working for us.

Lowering Congressional salaries would not be enough. We also need to remove their taxpayer-funded healthcare and pension benefits so they understand what's at stake here. They have been allowed to float so far "above" how the vast majority of Americans live that they can no longer act in our best interests.

We also need to give serious thought to making lobbying individual Congressmembers a punishable offense, for both lobbyist and Congress member. And, of course, monitor the financial records of Congress members every year and limit corporate influence.

Let's demand accountability from those whom we elect -- and stop electing wealthy do-nothings who are looking out only for their own personal gain at OUR expense.

[TheFriendlyAtheist]

11:18 AM on 04/23/2009

Private banks are going to destroy this country. They have no loyalty to America or its' citizens. They will take our taxpayer dollars that we gave them and invest it in foriegn nations where labor is cheap and returns are high. The high interest they charge chokes off economic growth and their risky schemes will have us bailing them out time after time after time. Get rid of them.

[who38]

01:03 PM on 04/23/2009

Hear, hear. Their latest actions indicate that they are only interested in taking the money and run. I am considering removing my money from the banks and putting it into credit unions.

[DannyDanson]

01:57 PM on 04/23/2009

Great idea, I'm doing the same. we should find out exactly what institutions are fueling this anti-American middle class push and put them on blast

[Reality Czech]

02:31 PM on 04/29/2009

So we should revert to public banks?

[Moshe]

11:11 AM on 04/23/2009

The Wallstreet crowd wants your money. All of it. It's that simple.

And if they have to destroy the economy (again) to do it, it's not like their conscience is going to keep them from doing it (again).

The Rule of Law, if it was actually enforced, could control their greed.

They have no conscience. They do, however, fear real consequences.

But you will never be able to negotiate with these thieves. It will always be a heads they win/tails you lose game.

[just saying]

11:04 AM on 04/23/2009

I think any family that does not qualify for the new housing help should be able to stay in their homes as renters, set to current comparable rates in their areas. The banks should be forced to rent to them at that rate until they can find a suitable buyer. The renters now have a chance to look for suitable housing and there isn't as much disruption to the family. No one is out on the street, the neighborhoods don't have to deal with empty houses, and the banks get their money back when they sell.

[Koolmorning]

12:05 PM on 04/23/2009

Sensible enough and Robert Reich said all it takes is for Geithner to rescind a ban that was
ordered some 50 years ago.

But it won't happen. Banks have their lobbyists. No one is lobbying for people. .

Congress has an ear for the powerful and the rich.

[orianna]

10:04 AM on 04/23/2009

Biggest Rip off secret of the financial World: Interest rates, currently based on FULL 30 YEARS, whether you pay off in 1, 2 or 3 years.... means almost no principle paid with early payoffs ....

$100,000 note is about $300,000 paid over 30years (200% interest). In first 5 years of a $1,000/mth mortgage, of the $60,000 you've paid, the bank keeps something like $55,000 or so and you still owe about $95,000! How fair is that?!??!!!!

Fight for New Banking Legislative Solution:

At time of early loan payoff - Recalculation of the interest to JUST the years you had the loan.... i.e., if you sell home and move in 5 years (statistical average), then you re-calculate interest only for the years you had the loan.....benefit is that instead of your 5 years of mortgage payments being 80-90% interest and 10-20% of principal (equity).... it'd be more like 75% of your payments going towards your equity during those years!!!! So of that $60,000 you paid in towards the initial $100,000 note, now you've given the bank $15,000 in interest and apply $45,000 you paid them to the note, leaving your payoff at only $55,000 (unlike the $95,000 it is after 5 years with current banking rules).

[mdn]

09:30 AM on 04/23/2009

The word is, very little help is actually getting to the homeowners.

[Carl Caroli]

09:01 AM on 04/23/2009

They're not weak kneed, they're bought and paid for.

[who38]

01:05 PM on 04/23/2009

And, in turn, buy and pay for the Congresspeople who give them taxpayer money.

[murphy80]

08:05 AM on 04/23/2009

ever notice how Harry Reid is knifing this bill in the back?

[Oakland]

05:46 AM on 04/23/2009

Sen. John Tester (D-Mont.), a key vote on the banking committee, dealt a blow to the bill Wednesday, telling the Huffington Post that he is "opposed to cramdown."

When Tester comes back to the netroots for more money to run again, he can drop dead. A deal is a deal for you, too, Tester.