WASHINGTON - The credit union lobby convinced Senate leaders last week to carve out most credit union mortgages from a bill that would give bankruptcy courts the ability to rewrite the terms of home loans for the first time, just as the bill was moving towards a vote by the full Senate.
But the prospects for the bill-which credit unions really don’t want anyway–were dim because President Bush last week promised to veto the bill if it passes Congress.
Hoping It Goes Away
“We’d rather not see a bill at all,” CUNA Senior Lobbyist Ryan Donovan said of the CU carve-out. “But this is something that Congress wants to do, and if we aren’t a part of the process, then this could be bad for credit unions.”
The bill would allow the growing number of delinquent homeowners to file for bankruptcy and have the court decide how to restructure the mortgages. As many as 1 million homeowners are projected to be in this situation over the next year.
At the heart of the congressional debate is whether the growing number of defaults and foreclosures should be solved by the private sector or whether the government should intervene. The Bush administration has been loath to involve the government and has taken a dim view of any congressional efforts to bail out borrowers or lenders.
Credit unions are stuck in the middle of this ideological debate because they have few subprime loans on their books, according to Brad Thaler, senior lobbyist for NAFCU, which helped develop the credit union carve-out. “Credit unions didn’t cause the problem.”
NAFCU also prefers not to have any bill because of the havoc it could create, as it would encourage borrowers to file for bankruptcy to protect their homes and leave the terms of a mortgage to the whims of a bankruptcy judge, according to Thaler. But if there is a bill “we want to make sure credit unions are protected,” he said.
Keep Focus On Subprime
The carve-out language agreed to by NAFCU and CUNA with Senate leaders would allow only those mortgages considered subprime in nature, including so-called non-traditional loans and certain interest-only prime loans. Since credit unions have few of these types of loans on their books it would exempt most credit union loans from the bill.
The CU support for the bill, as crafted, has raised the ire of the banks that have huge portfolios of subprime loans on their books. While some community banks, which also have few subprime loans, have agreed to support the measure with its carve-out language, the big banks and their lobbyists have pledged to fight the bill.
Passage of the bill is questionable, anyway. A House version of the bill narrowly passed the Judiciary Committee, with all but a single Republican opposed to the measure. That signals that if the bill gets to the House floor for a vote, Republicans, many who share President Bush’s aversion to a government bailout, will vote against the bill.
