WASHINGTON — The House Judiciary Committee's vote for mortgage bankruptcy reform legislation Tuesday offered industry lobbyists little sign of hope they can narrow the bill, but on Wednesday they pledged to keep fighting.
Before the 21-to-15 vote along party lines to support his bill that would give bankruptcy judges broad discretion to discharge mortgage debt, committee Chairman John Conyers easily defeated numerous Republican attempts to kill or weaken the legislation.
The bill, whose goal is to reduce the number of foreclosures, moves next to the House floor, and industry lobbyists are focusing their efforts there.
"We will continue to try defeat the bill or make it as small as possible," Scott Talbott, the senior vice president of government affairs for the Financial Services Roundtable, said in an interview Wednesday.
But Jaret Seiberg, a political analyst at Stanford Group Co., said the industry is in no better position now than it was before the bill's advance through the Judiciary panel.
"There is tremendous support among Democrats to move this legislation," he said. "The industry's challenge to stop it just gets greater every day."
In the Senate, mortgage bankruptcy legislation may skip the committee process altogether. This month the lead sponsor there, Sen. Dick Durbin, D-Ill., cut a deal with Citigroup Inc. that narrowed the mortgages eligible for judicial cramdowns to loans originated before enactment.
Leaders in both chambers want to attach bankruptcy reform to an omnibus appropriations bill — the next major must-pass bill after the economic stimulus package.
"Everybody's looking for a fast-moving piece of legislation that we can put this on and get it through as quickly as possible," said an aide to Sen. Durbin. "There's unanimous agreement that this needs to happen, and this is one of the quickest ways we can prevent a lot of the foreclosures that are dragging the housing market further down and exacerbating the larger economic crisis."
The bill approved by the House Judiciary panel incorporated a few concessions to the banking industry. They were agreed to by Rep. Conyers and Rep. Brad Sherman, D-Calif., before debate on the bill began.
The revisions would let lenders share the appreciation of a home's value with borrowers who discharged mortgage debt in bankruptcy. The shared appreciation would be phased out over four years with lenders getting 80% of the appreciation in year one, declining to 20% by year four.
The House bill also incorporates the Durbin-Citigroup deal on mortgage eligibility and a requirement that borrowers try to contact their servicers for a workout before filing for bankruptcy, but it would extend the minimum period between such steps to 15 days, from 10.
The committee approved, 21 to 3, an amendment by Rep. Steve King, R-Iowa, stipulating that a borrower may not benefit under bankruptcy if he misrepresented himself or committed fraud.
But banking lobbyists failed to get several other changes they sought.
For instance, they wanted special treatment for government-insured mortgages like those backed by the Federal Housing Administration or the Veterans Administration. Government insurance should cover a lender's loss when a judge crams down mortgage debt, they argued, or such loans should be ineligible for cramdowns in bankruptcy.
But Rep. Conyers refused to budge on the latter issue.
"FHA is included," the Michigan Democrat said in a brief interview after the vote. "They're eligible for a cramdown."
Asked whether the bill is likely to change before being considered by the House, he smiled and said, "It's always possible."
Separately, House Financial Services Committee Chairman Barney Frank told reporters he plans to hold a hearing Tuesday on a housing and liquidity package that would be coupled with the mortgage bankruptcy measure. Rep. Frank said that, after the hearing, he would move quickly to a committee vote on the housing package before attaching it to the omnibus appropriations bill.
Rep. Frank's bill would remove hurdles to the FHA's Hope for Homeowners refinancing program. It would also make permanent the temporary increase in federal deposit insurance to $250,000 and would increase the Federal Deposit Insurance Corp.'s borrowing authority to $100 billion, from $30 billion, as FDIC Chairman Sheila Bair has requested. The bill would also give additional clarity to protect servicers from investor suits when granting loan modifications.
Once the housing bill is enacted, Rep. Frank told reporters, he plans to act quickly to move the first part of regulatory reform legislation to address systemic risk regulation; the Federal Reserve Board is likely to get that authority.
"The administration would like to get something in place by the G-20 meeting" in April, he said.
