WASHINGTON – In a major departure from the organized credit union lobby, the leading figure among community development credit unions joined consumer advocates yesterday in calling for reform of bankruptcy laws to restructure millions of at-risk mortgages.
"We don’t have any time to spare," said Martin Eakes, president of Self-Help CU, while urging members of the Senate Banking Committee to make it easier for troubled homeowners to refinance millions of mortgages at risk of foreclosure in coming months.
Eakes, whose organization also sponsors the consumer lobby Center for Responsible Lending, has long been at odds with CUNA, NAFCU and other mainstream credit union lobby groups, who ardently oppose letting borrowers amend their mortgages in bankruptcy. The credit union lobby has opposed this amendment to the bankruptcy law for years because they say it would be costly and time consuming and make another loan subject to the whims of a bankruptcy judge.
"It is important also to provide a backstop to protect those homeowners whose lenders cannot or will not agree to voluntarily modify their loans," the CDCU figure told lawmakers. "The best, and only solution in these cases, where the homeowners could sustain a market rate mortgage, is to lift the ban on judicial modifications, and allow a bankruptcy judge to implement an economically rational solution that otherwise would be lost."
"This move," said Self-Help’s Eakes, "can immediately help stem the tide of foreclosures at zero cost to the U.S. taxpayer."
Eakes and another consumer advocate, Nancy Zirkin, of the Leadership Council on Civil Rights, appeared beside representatives of banking giants JP Morgan Chase, Wells Fargo, Bank of America and Goldman Sachs to discuss the troubled mortgage markets and the government’s responses.
The big bank representatives said they oppose the bankruptcy provision because it would disrupt the market and force them to charge higher rates to others because of money lost on so-called cramdowns, where the accept lower paybacks.
An emotional Eakes told the senators there was no evidence. "It just drives me beserk," he said of his efforts to help at-risk homeowners.
Eakes said the structure of the Treasury’s Troubled Asset Relief Program can be used as a vehicle to modify the hundreds of thousands of mortgages facing foreclosures in coming months. But those efforts need inducements for the lenders to cooperate, such as making loan modifications and condition to banks accepting cash infusion under the TARP. Voluntary efforts, such as the HOPE NOW program that encourages banks to modify loans, have "failed to stem the tide of foreclosures," he said.
