WASHINGTON — With the administration's loan modification program as unpopular as ever, lawmakers on Tuesday discussed involving bankruptcy judges in foreclosure mediation efforts.
A bill introduced last week by Sen. Sheldon Whitehouse, D-R.I., would let bankruptcy courts compel servicers and homeowners to enter mediation before initiating foreclosure.
At a Senate Judiciary Committee hearing Tuesday, Whitehouse said that more forceful measures were needed considering the poor performance of the administration's program, which provides resources to servicers to perform voluntary workouts.
"As the foreclosure crisis continues … the administration's Home Affordable Modification Program, while well intentioned, has not succeeded in producing anywhere near enough modifications to stem the tide of foreclosures," said Whitehouse, who chaired the hearing.
Whitehouse later told reporters that an inability to get borrowers and servicers in the same room has been a stumbling block.
Some bankruptcy judges have already attempted to force mediation in states such as Rhode Island and New York, but their efforts have been challenged by banks. Whitehouse's bill, he said, would validate judges' authority.
"The mere fact of sitting a homeowner down with someone who was the authority to modify the mortgage or agree to another commonsense settlement often is enough to avoid a costly and painful foreclosure," he said. "It is often the first time that the homeowner has had that opportunity.
"The Rhode Island program is modest, but I believe it has the potential to help many thousands of homeowners and help is definitely needed."
Other Democrats, including Sens. Richard Blumenthal, D-Conn., and Al Franken, D-Minn., have supported the measure, but it remained unclear if it had any Republican support. Sen. Chuck Grassley, R-Iowa, questioned whether "another government program" could work or if it would "actually damage our suffering economy."
Whitehouse's bill in some ways resembles legislation touted by Sen. Richard Durbin, D-Ill., that would allow bankruptcy judges to write off a troubled borrower's mortgage debt.
Durbin's efforts to get his bill passed in previous congressional sessions have met resistance from banks and the GOP.
"We must always be very careful before we grant judges — who are not elected and in the case of bankruptcy judges, not subject to Senate review through the confirmation process — new unchecked powers," Grassley said.
"For example concerns also include questions about whether judges will use these programs to mandate cramdowns."
But Whitehouse made clear his bill was separate from Durbin's. He said that his would not let judges force a particular outcome such as a modification and that the goal is simply to make it easier for borrowers to have direct communication with a "live person."
Yet getting the bill passed, he added, "obviously depends on working with my colleagues here on the committee."
Members of the committee spent a good part of the hearing Tuesday unloading their criticisms on the administration's modification program.
"Particularly disturbing is the fact that the Treasury Department still hasn't established performance goals or benchmarks" for Hamp, "meaning that there's no effective way for us to know whether this $75 billion program is accomplishing its intended purpose," Grassley said.
