WASHINGTON — The House Judiciary Committee is expected to vote today on mortgage bankruptcy reform legislation that makes a few concessions to the banking industry but not enough to garner its support.
A new version of the bill by Committee Chairman John Conyers incorporates some changes sought by Rep. Brad Sherman, a California Democrat who succeeded in narrowing the scope of the bill when the committee passed it in December 2007.
Under the modified legislation, obtained by American Banker, lenders would be allowed to share in the appreciation of a home's value with borrowers who discharge mortgage debt in bankruptcy. The shared appreciation would be phased out over four years with lenders receiving 80% of the appreciation in year one, down to 20% in year four.
In another concession to the industry, the bill would exempt government-insured mortgages like Federal Housing Administration and Veterans Administration Department loans from judicial cram-downs but lobbyists and congressional aides said it's unclear if the language appropriately reflects that carve-out or will require further tweaking.
The latest draft also incorporates the terms of the agreement Sen. Dick Durbin reached with Citigroup Inc. earlier this month, which narrowed eligible mortgages to loans originated before enactment. The new Conyers bill also incorporates the Durbin-Citigroup requirement that a borrower attempt to contact their servicer for a workout before filing bankruptcy, but extends the minimum time period between such steps to 15 from 10 days.
Rep. Conyers' goal is to add the bankruptcy legislation to the next major piece of legislation moving through Congress after the economic stimulus bill.
House and Senate Democratic leaders are considering attaching it to an upcoming omnibus appropriations bill, although a subsequent housing package could also serve as a vehicle.
Past committee votes on the legislation have been contentious and today's 1 p.m. vote is anticipated to be no exception, with Republicans planning to offer at least nine amendments that would seek to eliminate fraudulent loans and investor properties and could place a sunset on the Bankruptcy Code changes.
Rep. Lamar Smith, the committee's top Republican is also expected to offer amendments that would place restrictions on a judges' ability to cramdown loans by first exhausting other loan modification alternatives, said an aide to the Texas Republican.
The amendments and debate could drag the vote out, but it is expected to ultimately pass the committee largely on party lines.
While passing the bill out of the committee is a significant step toward enactment, lobbyists said they hope to continue to pare down the measure before consideration by the full House and congressional aides said they would not be surprised to see further modifications.
Banking industry lobbyists are still seeking to limit which loans are eligible.
"We remain opposed to overly broad changes to mortgage bankruptcy because of the impact on both costs for mortgages on primary residences and the fact that overly broad changes will reduce availability of credit as we try to come out of this deep recession," said Floyd Stoner, the head lobbyist for the American Bankers Association.
"We will continue to work with members of both the House and the Senate on proposals that appropriately limit the impact of changes to mortgage bankruptcy. As we have been saying for some time we believe a focus on nontraditional mortgages would be more appropriate."
In December 2007 the Judiciary Committee passed a narrower bill than what it is expected to pass now. That bill limited cramdowns to subprime and nontraditional mortgages originated between 2000 and enactment with a sunset in seven years.
