This vote was on an amendment by Dick Durbin, D-Ill., that would allow bankruptcy judges to reduce the principal and interest rates of some delinquent mortgages if the creditors and debtors cannot otherwise agree on a loan modification (a process often referred to as “cramdown.”) It would apply only to homeowners at least 60 days delinquent on mortgages of no more than $729,000 whose loans began before Jan. 1, 2009. The amendment was offered to a bill that would ease application and eligibility requirements for a $300 billion foreclosure prevention program enacted to help blunt the impact of the economic downturn.
Durbin said with one in every six homes in foreclosure, his amendment makes sense as a lifeline for struggling every-day Americans.
“Two years ago, before we even started in on this crisis as we know it, I proposed a change in the bankruptcy law, a change which I think could have forestalled this crisis we know today. Along the way, there has been resistance to this change. By whom? The banks that brought us this crisis in America have resisted this change to do something about mortgage foreclosure. That is a fact. Last year, I offered this amendment to change the bankruptcy law, and the banking community said: Totally unnecessary; we don’t need this kind of a change. This mortgage foreclosure is not going to be all that bad,” Durbin said. “In fact, the estimates were of only 2 million homes in foreclosure last year from our friends in the banking community, the so-called experts. Here we are a year later. The estimate is now up to 8 million homes in foreclosure.”
Jon Kyl, R-Ariz., said he has no doubt that Durbin sincerely believes his amendment would help homeowners, but he said many experts believe that the amendment could have drastic consequences for the mortgage market in the form of higher interest rates for everyone.
“It would result in higher interest rates for all home mortgages, exactly what we do not want while we are trying to entice people back into the market,” Kyl said. “While attempting to solve a specific problem for a particular group of people, we could end up exacerbating this situation for all the people who would want to refinance or to take out loans in the future.”
By a vote of 45-51, the amendment was rejected. Of Democrats present, 43 voted for the amendment (including the most progressive members) and 12 voted against it representing some of the Democratic senators who preferred to limit the amendment to only the very riskiest mortgages, often referred to as “subprime”). Every Republican present voted against the amendment. The end result is that the measure went forward without language that would have given bankruptcy judges the authority to lower principal and interest rates on certain mortgages that are seriously delinquent.