Two Key Dems Throw Cold Water On Bankruptcy Bill

Sen. Dick Durbin announced Monday night that after weeks of negotiations between Senate Democrats and the financial industry, a compromise had been reached on bankruptcy legislation -- but it remained to be seen whether that compromise would win 60 votes.

On Tuesday, a key Democrat came out against the compromise bill, which would allow judges in certain circumstances to modify mortgage terms -- a process known as cramdown. Meanwhile, a second crucial Democratic vote said that he doubted the bill had enough support for his vote to decide it one way or the other.

Sen. Mary Landrieu (D-La.) spoke poorly of Durbin's compromise proposal, which is now being circulated. "I don't think it's much of a compromise," Landrieu told the Huffington Post. "My community bankers are really opposed to it and I think it's important for people to realize there is a big difference right now in the country between the health of these large international financial institutions and our local community banks...I think we gotta be careful about adopting processes and procedures that would really hurt our community banks."

Asked if she was a definite no, Landrieu responded that she was "pretty close to a definite No."

Sen. Evan Bayh (D-Ind.) wouldn't say whether or not he supported the compromise, but he nevertheless expressed deep skepticism.

"My concern about this is that in our appropriate zeal to help the four or five percent of Americans who might be faced with bankruptcy, we don't unduly raise the costs of homeownership on the 95 percent who never will," Bayh, who supported the legislation last year, told the Huffington Post.

Backers of the bill say that they are close to getting the 60 votes needed; Bayh and Landrieu are key votes needed for passage. Bayh, however, painted a much more pessimistic picture, saying that he was unlikely to be the deciding vote.

"I'd be surprised if that were the case," he said. "There's been a tendency on the part of some who are advocates for the legislation to overestimate the number of votes in favor...When I was actively involved at the moment it broke down it was my impression there were no Republicans who were willing to support it and at least a few Democrats have stated openly on the record that they were in opposition. How you get to 60 with those numbers is a mathematical problem."

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Sen. Jon Tester (D-Mont.) previously told the Huffington Post he opposed cramdown, dealing a blow to the bill, but he has yet to comment on the new compromise package.

Bayh, who has not been a principal negotiator over the last several weeks, said that he has not yet been briefed on the compromise and didn't rule out voting for it. "I'm not opposing anything -- I was one of 36 -- I voted for it. I was for getting something done in this area," he said, referencing his previous vote in support.

"But if we're not intelligent about it we're going to raise the cost on the vast majority of Hoosiers who will never go into bankruptcy and that would not be fair to them. I am for getting something done. I voted for it last year and I'd like to vote for it again this year. It depends on what the specifics are."

Ryan Grim is the author of the forthcoming book This Is Your Country On Drugs: The Secret History of Getting High in America

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Comments

[RichardIII]

Bankruptcy helps those relatively few who are in greatest need of financial relief, and there is a moral obligation to support governmental efforts to assist this unfortunate minority. Leaders need to begin to convince majorities that lending a helping hand to the disadvantaged benfits us all, in spite of the economic costs, which are often minimal (as in the case of a relatively few mortgage cramdowns.)

The decision of these two senators is completely fear-based, self serving and politically motivated, and I hope that their respective constituencies awaken to the truth about the cost/benefits of assisting those in need.

[KrugnacTheMagnificent]

Why bother making responsible loans if the government will arbitrarily punish you for the risky actions of other banks while they are busy bailing them out?

Why not just exploit every short term profit to the max and let the chips fall where they may?

[mrfreeze]

You sure are dim. We're in this mess because deregulation allowed banks to make irresponsible loans. What universe do you live in?

[RichardIII]

Theory has its place. The fact is that there is virtually no real harm to anyone including the banks in passing this modest change in bankruptcy law. It the fanatical greed of the banks that makes it seem that the lose of one cent is an economic disaster. The sky is always falling with these folks. Pass the bill. The only people who will notice are the very few who are helped. Besides, the reality is that the banks will end up foreclosing even in light of a chapter 13 bankruptcy since most fail. Stop worrying, you'll get your most of your pennies back regardless, and you will have tried to help a few disadvantaged people in the process.

[PhilipTaylor]

What the HECK was responsible about LOANS:

1. Start at $700 payment
2. $1,400 payment in two years
3. $3,100 payment in four years
4. Massive Hidden Fees in the hundreds of pages of documents referenced with a note in the mortgage that Harvard's Elizabeth Warren says she can Not understand!

[MrMike513]

Gee, sort of like how the banks just arbitrarily raise their credit card ratesd for no apparent reason.

[PhilipTaylor]

Here is irresponsible Behavior:

Goldman runs Around Waving Big Fake Profits Saying they are Paying Back TARP!

BUT! BUT! BUT! BUT! With $1 Billion in Toxic Debt per employee is it REAL?
____________________________________________________
Goldman has $30 Trillion in Toxic Debts/Assets
Goldman has 27,898 Employees
Goldman has $1,075,345,903 per employee in Toxic Debts/Assets]

JPM has over $390 Million in Toxic Debts/Assets per employee!
___________________________________________________
JPM has Astonishing $88 Trillion in Toxic Assets/Debts!
JPM has 225,000 employees
JPM has $391,000,000 per employee in Toxic Debts/Assets

[HareRaezer]

The thing about CRAM DOWN is that the mortgage company doesn't lose anything that has value! A bankruptcy judge simply bifercates the debt into secured (the actual value of the home) and unsecured (underwater portion). He then modifies the unsecured portion of the debt and treats it like all of the debtors other unsecured debts. Right now mortgage companies get a preference in treatment because their unsecured portion of the mortgage is treated as though it is secured. There is no value there folks! The mortgage companies already lost the value when the housing market collapsed! Now they want to try to jam a consumer and keep the fiction alive that the mortgage has value. Sorry, but if there isn't cram down approval, you are going to see continued free fall in home values which effects everybody. The Obama Administration's lack of push on this is beyond outrageous. But I guess now that they are partnering with hedge funds to try to turn a profit on these underwater loans this is expected.

[vinny]

the consumer lost the value...

[PhilipTaylor]

Do you even know what you are talking about?

[KrugnacTheMagnificent]

So let's say they have a 30 year loan. They bought it for $500k, but now it's only worth $350k. The judge crams down the loan to $350k to match the current price.

5 years from now the housing market has recovered and the house is now worth $500k again. Does the just cram-up the loan, since "there's value there"?

Of course not! This is a one-way street, buddy.

So, those people in homes that have depreciated by hundreds of thousands of dollars have a huge amount to gain by gambling on such a bankruptcy cram down.

[dcrinaz]

The judge can decide to do that, or he can decide to keep the original principal and lower the interest rates, which would also lower payments. He could also get rid of the interest rate adjustment provisions and things like prepayment penalties. So the banks may not lose their principal at all.

However, even if a judge lowers the price of the home from 500K to 350k, that's still much better than what the banks are doing with foreclosure. They are lucky if the foreclosed homes are selling and if they do, they are lucky if they get 50%, far worse than your scenario. And, by the way, the value of the homes has dropped so much because of--yes you guessed it--foreclosures! So if we had stopped foreclosure a year or two ago and forced banks to either renegotiate loans or face a federal bankruptcy judge, foreclosed houses would have stayed off the market and values would not have plummeted.

You need to stop watching Fixed News--sorry, Fox News.

[Carolab]

There is a provision in the legislation that requires at least partial payback of any future equity. Didn't you catch that?

[Carolab]

"The mortgage companies already lost the value when the housing market collapsed!"

The mortgage values were inflated to begin with.

[vinny]

cramdowns make no sense... people should be grateful that they are even allowed to keep paying on an UNsecured loan...

[PhilipTaylor]

F0X is calling! Run!

Now that we have 60 Democrats it is time to deal directly with this pack of Banking Lobby Bought Conservative Democrats who are LOYAL TO Banks and NOT TO THE PEOPLE who elected them!

[vinny]

??? explain how cramdowns are going to help ???

[Hugh-Gee]

We don't have 60 Democrats in the Senate. There are 58 Democrats, one "Independent Democrat" who votes a conservative line when he feels like it, and one guy on deck in Minnesota.

Even if there were 60 Democrats in the Senate, that wouldn't mean automatic passage of squat. Democrats are notoriously fractious and independent. They don't vote in lock-step like the Republicans.

The best that those of us who support bankruptcy reform can hope for, is that the Blue Dogs support cloture (an end to a filibuster), and then vote against the bill. Since you only need 50 votes for passage, a few Blue Dogs can go their own way without necessarily jeopardizing the party's agenda.

[mrfreeze]

As I mentioned down below, "cramdown" is a fancy word used by financiers to somehow make people believe contracts should always be in favor of the creditor, no matter what. With regard to the current financial crisis, all of this garbage about the "moral hazard" of people getting out of something is ridiculous. If the banks weren't playing hard-ball and attempting to suck every single nano-penny from struggling homeowners, the economy would be running better.....Of course banks wouldn't be making such high profit margins, but so what?

[dcrinaz]

Have you read any of the comments here? First of all, loans on houses are not unsecured loans. The house secures the loan. As for the rest, just read.

[Buffyboy]

The so-called "blue dog" democrats represent another roadblock to reform. If they obstruct, the democrats need to abandon them and put others up for election.

[glockman]

Ah, yes, do as we say, or we'll chop your heads off.

I thought the democrats didn't expect their own to always tow the party line...

[vinny]

knee jerk

[dcrinaz]

Write Landry at: http://landrieu.senate.gov/contact/index.cfm

And Bayh at: http://bayh.senate.gov/contact/email/

And tell them what you think. Be polite and respectful, but firm.

And write Sen. Durbin to tell him "no compromise on H.R. 1106. Pass as is." He's available at:
http://durbin.senate.gov/contact.cfm

And tell them to look at what people are saying about them on Huffington Post.

[PhilipTaylor]

Thanks did it!

Now that we have 60 Democrats it is time to deal directly with this pack of Banking Lobby Bought Conservative Democrats who are LOYAL TO Banks and NOT TO THE PEOPLE who elected them!

[dcrinaz]

Thanks! Isn't it great to participate in American Democracy after years of the Bush Autocracy?

[mrfreeze]

CRAMDOWN is an interesting word. It evokes all sorts of terrible things, doesn't it? You know, words are powerful things and in this context think about this:

If judges chang the terms of contracts, banks go apoplectic, cry, scream and yell that there's some sort of "MORAL HAZARD" (a fancy economics term) that isn't fair to them. If, on the other hand, you or I want a credit card, we must sign a contract that basically allows the credit card company (bank) the right to do basically whatever they want (raise interest rates, close accounts, etc).

I think the term cramdown should be eliminated from the whole discussion. It's a phony, financier's, magical incantation that serves only one purpose: increasing profit margins at all costs.

[PhilipTaylor]

Exactly, They automated "CRAM UP" RATES in their "TRICK&TRAP" Adjustable Mortgages but will not tolerate an automated version of "CRAM DOWN" and isn't that the Corrupt Banking thing to do?

Why is Obama/Geithner/Summers still giving more $Trillions to the Wall Street corruption Ring?

[mrfreeze]

Philip - I went to a seminar yesterday and heard a talk by Robert Shiller who is a well-respected economist. Basically, it was his opinion that loaning money to the banks isn't perfect, but the alternatives are far, far worse. From a big macro-economic perspective, it's probably one of the only "fixes" for now.

Consumer Credit; however, is a different matter. Americans have been on an amazing spending spree for the last 30 years, due in large part, by the false sense that they were wealthier than they really were. The Credit Card companies have been allowed, through usury and unfair business practices to screw average people who bought into a fake American dream. Ultimately, Americans need to quit using their cards and stop the flow of cash to the banks. I don't think things will change until then.

[PhilipTaylor]

Instead of "CRAM" do as the Banksters do and call it "Adjustable" or "Adjustments" as it fits with the Bush policy of "Easy Mortgages"="TRICK&TRAP" Mortgages!

[Montgriz]

I agree! It is amazing how our language is being manipulated by these spinners (itself a word for liar). The new term I cannot stand is "toxic assets"....like, no one in management made a bad decision....or bad investment...it just went "toxic".....what a load of crap our government and businesspeople have developed...all to insure they never lose...ever...

[ClarkJensen]

Note that both Landrieu and Bayh are "legacy" politicians, the son/daughter of powerful political families that political were "brand names' in their respective states. Now they are both going to do their best to drag down any efforts towards meaningful reform by the Democratic Party, they could spell the death of the hopes of this country to reform in the coming years.

[PhilipTaylor]

Mary Landrieu (D-La.) Gets $5 Million from Real Estate/Legal Lobbyists/Corporations every 4 years!
Mary Landrieu (D-La.) Gets $1 Million from Banking Lobbyists/Corporations every 4 years!

Evan Bayh (D-Ind.) Gets $Half a Million from Goldman every 4 years!
Evan Bayh (D-Ind.) Gets over $4 Million from Banking Lobbyists/Corporations every 4 years!
Evan Bayh (D-Ind.) Gets almost $1 Million from Real Estate Lobbyists/Corporations every 4 years!

[DLHSR]

Everyone talks about how the Mortgage Companies and Banks are going to Raise Rates and Fees Etc. if we allow the Bankruptcy Judges to Cramdown a families Primary Mortgage. The Mortgage Companies and Banks have convinced most of you morons and the Senate that this will happen. Let's go back to 2005 when the Credit Card industry spent millions lobbying the Congress about changing the Bankruptcy Law. They said wthey can bring down Interest Rates and Fees if we get the legislation through Congress. Ok that really worked with today's interest rates at 29.99% and fees like if you make your payment One Minute after 3PM eastern time you get hit with a $39 fee or they go ahead and approve you purchase knowing it will take you over your limit and there's another $39 fee. All Congress did in 2005 is give the Credit Card Companies a license to STEAL. Now we have a bill before the Senate that will really help millions of families from Foreclosure. Not every person is going to file Bankruptcy it is a hard hill to climb. But, if the Mortgage Companies and Banks know that people have another way to get the job done, the Banks will start working with people. My best friend is trying to get a loan Modification on his home. He is $220,000 underwater; all his bank will do for him is (NOTHING). If he had the Bankruptcy Stick they would talk to him. Enough said.

[mrfreeze]

DLHSR - You're actually dead-on accurate in your description of the phony-baloney "changes" to the bankruptcy laws. Furthermore, I'm rather shocked that Americans put up with this fiasco.

[KrugnacTheMagnificent]

Texas has additional laws that restrict banks' abillity to foreclose on homes.

As a result, loans in Texas are significantly more expensive than elsewhere in the country, and many lenders refuse to operate in Texas at all.

This isn't just abstract theory, you can see the results now.

[pragmaticdallasite]

You still didn't address empirical evidence the poster just described. And this law will apply to all players in the game, so the banks can't pick and choose. Everybody will be affected equally.

[KrugnacTheMagnificent]

What right does your friend have to that home if he's unable to pay his mortgage?

Why shouldn't I be able to buy it for the current market value?

Let me guess, it's because he's your friend and I'm not...

That's sound economics, right there.

[Cunningham]

If 4 0r 5 percent of our neighbors need this to stay in their homes, I'm all for it.

Grow a conscience, blue dogs. It's shouldn't always be all about helping businesses, sometimes it's about helping individuals.

[Philip Combs]

What a lying tool this woman is. No 'community banks' are in trouble just the ones 'too big to fail...' and the ones who got greedy after Glass Steagel was repealed.

Let 'em fail.

We don't need those who are so greedy as to be stupified by the prospect of multi-year, multi-million dollar 'bonuses' paid by us tax payers. Through her and Durbin the f-$k OUT of the party of FDR.

[rabiddog6708]

Bankers don't like it......oh, that's a shame. We wouldn't want to upset the bankers.

[RealistDem]

Ah milquetoast democrats like Landrieu and especially Bayh, stand for nothing.

[talkitreal]

These Senators, and House Members need to decide if they are going to protect the citizens who voted to put them in office, OR NOT!
This bill is what the citizens of this country needs, now! So let's watch which Congress members are really on the side of the people! If the Vote against this bill, they are voting AGAINST the best interests of the millions of citizens who put them into office!

[KrugnacTheMagnificent]

Correction, they have do decide if they're going to protect the irresponsible minority of citizens, or the responsible majority.

So far, at least, Landrieu and Bayh are supporting the responsible borrowers.

[dcrinaz]

Okay, there you go again, prejudging people without knowing their circumstances. Typical Texan.

So you know that every single homeowner who is facing foreclosure or has faced foreclosure is irrresponsible? What great crystal ball you must have! Their problems could have nothing to do with fraudulent and/or predatory lending practices, personal misfortune like catastrophic illness, being laid off becuase of the bad economy. They are just all an "irresponsible minority."

Let's say your right. They are all irresponsible. Now let's talk real business. What do you think will happen to your "responsible majority" and their personal wealth if you let all these people become homeless?

Let's take a look: the responsible majorities property values will plummet. That house the "irresponsible" person lost in foreclosure is being sold at about 50% of the value of the house, so guess how that effects the value of the "responsible majorities'" houses? Your houses are now worth 50% less than they were! I sure hope you "responsible majority" didn't have a 2nd mortgage! Or were planning to make any money on your home for retirement! Cause it's gone. All because the banks refuse to renegotiate loans and a bankruptcy judge can't make them change the terms of that loan.

So you tell me, Mr. Compatriot of Bush, how this is good for the "responsible majority"?

[dcrinaz]

Landrieu, Bayh and the Republicans are only protecting the superwealthy and banks that line their pockets. They are not the change we need.

[ngoron]

funny, i didn't see the part where either of them mentioned
that they were against this bill because they were supporting
responsible borrowers.

all i heard was how the BANK needed support.

[talkitreal]

The fact is the bankrupcy bill will help to stem the millions of foreclosures that are still possible across the country. And we all do realize that if the foreclosures continues, and the toxic assest continue to pile up on the banks balance sheets, out economy will not recover, and we will take a very long time to get out of this recession. That is why this bankrupcy bill is important, and MUST get passed. This is a bill that works for the people, the citizens of this country, and it will work to prevent this economy from getting worst. We cannot allow for this bankrupcy bill to fail, if it does except to see alot more foreclosures across the country, and that is NOT good for the economy!

[KrugnacTheMagnificent]

Don't you realize that it will take years and years for the bankruptcy courts even to BEGIN going through and renegotiating all these loans?

Meanwhile, the banks are stuck with non-performing loans with people still living in them.

It would be much better to allow the foreclosures to proceed and sell the houses at market value and let the banks lock in these losses once and for all.

Waiting years to have a judge cram down the principle to the current market value will leave the banks far worse off than having it go through foreclosure.

If you think that's going to "stimulate" the economy, you haven't thought this through.

[PhilipTaylor]

What is needed is using each Markets Data to calculate automatic adjustments "Cram-Downs" for all those needing it and at the same time replacing High Rate Loans with Current Rate Loans without FEES.

These kinds of calculations are done daily on Wall Street so why not on Main Street?

To save Banks money and help Home Owners this must be done to get over this terrible HU_MP!

[ScreenName05]

Boo Hoo poor bankers, a single tear rolls down my face. The bankers caused this problem they knew the risks when they made liar loans and 0% interest ARM loans, etc. Now they need to pay for taking that risk. Oh, the poor bankers. If several houses in a neighborhood go into foreclosure all of the houses in that neighborhood lose value. We are paying for the bad decisions of those bankers already. Let them suffer some as well. Let the bankers eat cake if they are hungry.

[PhilipTaylor]

Actually, most of the Toxic Assets use the ENRON method of storing them "Off-Balance-Sheet" so they are hiding over $180 Trillion in Toxic Debts to make their primary set of books look OK!

Illegal Accounting has been made Legal over the prior 8 years and still has not been undone!

[KrugnacTheMagnificent]

Is that what Sarbanes-Oxley did? Gee, and here I thought it was the toughest new reform of financial and accounting regulations in over 50 years.

[cuomofied]

Good. This is a purely political bill. It doesn't have a bit of sound economics to it.

[dcrinaz]

This has lots of good economic fact and theory behind it. Let me repeat something in case you didn't see it; it's a scenario repeated thousands of times across the U.S.:

A lender makes a new home loan for $400K convincing the homeowner to take an interest-only ARM, because "you can always refinance." The homeowner trusting the lender agrees. However a few years later, when it's time to refinance to avoid the higher payments, the mortgage lender says, "you don't qualify for a new loan," or "the economy is bad and nobody is lending" or whatevever, so the homeowner is stuck with a loan "he could always refinance" but now can't. His loan shifts from 5% loan to a 8%, his payments rising to $2667 per month $1667, a huge difference.

Unable to pay, the bank kicks him out, forecloses on the house and sells it for $200K, if that much. It makes no sense, does it? It makes other homes in the neighborhood now worth only $200K, when they were worth $400K. Tax revenues go down. Where is the good economics in this?

Of course, the bank could have renegotiated the loan and continued his $1667 payments per month, which would have protected the bank's principal investment and kept a seriously discounted house off the market. But banks haven't been doing that. And why? Because they don't have to. However, bankruptcy reform would make them have to.

Is the issue clear now?

[KrugnacTheMagnificent]

I thought you already read that LA Times article. Most people facing foreclosure will not be helped by this sort of mortgage renegotiation at all.

If anything is seizing up the economy, it's homeowners having delusions of grandeur about how much their home is worth. If a house down the street sold for $200k, that's what the home is worth. People demanding more for their homes than the actual market value makes it so that nobody can get loans.

Even if you qualify for a $300k loan, no bank on earth is going to give you $300k to buy a $200k house. Your entire economic 'theory' will only drag out this problem even longer.

[ngoron]

Makes perfect sense to me.
But what doesn't make sense is that while some of these
banks are at the negotiating table they also are lobbying furiously against it.