As the banking industry continues to try to narrow the scope of any mortgage bankruptcy legislation, a key ally in their battle might be Sen. Evan Bayh.
The Indiana Democrat, a moderate, said in a brief interview Thursday that he is looking to craft a bipartisan compromise, possibly with Sen. Arlen Specter, R-Pa., to restrict a judge's ability to cram down primary mortgages to the riskiest existing loans. Sen. Bayh said he would like to work with Sen. Dick Durbin of Illinois, the No. 2 Democrat in the Senate, who has been leading the reform charge, to narrow Sen. Durbin's bill to target subprime and alternative-A loans along with a handful of other limits.
"We need to make sure we don't have adverse long-term consequences in terms of higher interest rates and less home affordability, so we have to strike an appropriate balance. And I know some of my colleagues, Sen. Durbin in particular, has been active in this area and we want to work with him to make sure we strike that right balance," Sen. Bayh said.
Sen. Durbin reached a deal with Citigroup Inc. on Jan. 8 to confine his cramdown legislation to loans originated before the bill's enactment, but Sen. Bayh said Thursday that he such legislation should be more targeted.
"We are looking at things, clearly limiting it to people retrospectively, not prospectively so that it is limited to the crisis we are dealing with now. … My feeling is that we ought to — we are looking at perhaps limiting it to subprime loans, alt-As, so they are not mainstream borrowers, but the riskiest part of the sector," he said.
Sen. Bayh said there are "about four or five refinements that we thought might help to strike the right balance between meeting the short-term need, but not creating harmful long-term effects."
Sen. Bayh said his staff has been talking with members of Sen. Specter's staff. Sen. Specter has previously supported legislation that would let judges cram down mortgage debt only with lender consent.
"I believe our staff has had some outreach there and so we were going to make it a bipartisan effort, and there has been a fair amount of interest with some members on our side as well," he said. "Action may be necessary, but we need to make sure that it's prudent," he said.
An aide said Sen. Durbin is trying win further lender support for his legislation and said the senator is still hoping to attach his bill to a major must-pass piece of legislation moving through Congress soon.