Factions Reach Deal on Housing

Posted March 3, 2009 at 6:41pm

House Democratic leaders appeared close to pulling together their party’s moderate and liberal wings on Tuesday over the contentious issue of allowing bankruptcy judges to modify mortgages to avoid foreclosures.

Concerns among Democratic moderates compelled Speaker Nancy Pelosi (D-Calif.) to postpone a planned vote last week on the housing legislation.

“Our whipping is showing we’re in pretty good shape,— House Judiciary Chairman John Conyers (D-Mich.) said, noting that more than a dozen changes were made to the legislation to win votes.

Democrats who led the call for altering the housing bill — Reps. Ellen Tauscher (D-Calif.) and Zoe Lofgren (D-Calif.) — were preparing to send a “Dear Colleague— letter Tuesday night urging support for the modified bill, Conyers said, and he predicted that liberals would fall into line as well.

“They’re happy,— he said, adding that he is “perfectly happy with it— because the underlying reason for the bill — the ability to stem foreclosures through the courts — is preserved.

Rep. Dennis Cardoza (D-Calif.) was also expected to sign on to letter, lending it an imprimatur from the Blue Dog Coalition, though some members of the conservative group said they were still undecided.

House Majority Leader Steny Hoyer (D-Md.) said that additional changes could still be in the works but that he hoped to bring the bill to the floor Thursday.

The key for many lawmakers was simply ensuring that homeowners “have made a good-faith effort— to pursue other remedies short of bankruptcy before they can get their mortgage adjusted, Conyers said. Lofgren said the compromise measure emerging Tuesday would make bankruptcy an option of last resort — a feature that gathered wide support across the Caucus.

“Essentially, the concern is we want to ensure that those people who get relief have tried the other avenues,— Hoyer said. “This is, after all, a part of a much larger but integrated effort to try to stem the tide of foreclosures and the loss of homes.—

Under expected changes to the legislation circulated among lawmakers was a requirement that homeowners consider an offer of a mortgage modification from a lender under guidelines proposed by the Obama administration, as well as an option for a bankruptcy judge to cut interest rates to as low as 2 percent without cutting the mortgage principal.

Liberal lawmakers were still examining the changes late Tuesday but said they were encouraged that a major effort to stem the foreclosure crisis appeared closer to reality.

Rep. Maxine Waters (D-Calif.) said she did not have a problem with leadership holding up the bill for a week to try to reach an accommodation with moderates but wanted to make sure the bill remains strong through conference with the Senate.

“I’m feeling really good,— she said of the bill’s prospects. “I recognize the difficulty that leadership has in trying to accommodate all of the Caucus,— she said, referencing the political power that banks continue to hold even within her own party. “The banks cannot continue to have the kind of influence they have had in this Congress. … These guys rule this place.—

Waters in particular slammed the banking industry for failing in two years to come up with a workable voluntary model for adjusting mortgages. “Don’t you think in almost two years they should have come up with a model? I’ll tell you where they’ve been — they’ve been lying to us.—

And without a strong bankruptcy provision, many mortgages cannot be modified because they contain provisions prohibiting modifications, Waters said.

“I’ve been concerned with the narrowing,— said Rep. Donna Edwards (Md.), who defeated former Rep. Al Wynn in a Democratic primary in part over his support for the 2005 bankruptcy bill.

Edwards said the provision is needed not so much to encourage people to go to bankruptcy courts but to encourage lenders to move quickly on modifying mortgages on their own and avoid foreclosures and the threat of bankruptcy.

“It’s not designed to open the floodgates,— she said.

“I’ve been working on the bankruptcy issue for seven years,— Rep. Sheila Jackson Lee (D-Texas) said. “It is an effective tool for the little guy.—

Jackson Lee said that bankruptcy judges would have the ability to ferret out individuals who abused the process and that so far the federal response to the economic crisis has been too focused on financial institutions and not focused enough on individuals losing their homes.

Many liberal Democrats wanted the “cram-down— provision added to last year’s Wall Street bailout bill and previous housing efforts, but faced strong resistance. Some of the banking interests have since acknowledged that cram-down in one form or another will become a reality but want to narrow the scope of the provision to minimize the precedent.

Rep. Artur Davis (D-Ala.) said the changes to the bill properly address some of the concerns of lenders while keeping intact the ability of struggling homeowners to get relief.

“The scope of this bill has already been narrowed significantly,— he said, noting that it will only affect existing mortgages out of concern that future lenders may restrict credit out of fear of cram-downs. “I think that concern has been addressed.—

But Republicans continued to rip the idea, arguing it would raise even more questions about the mortgages already on bankers’ books at a time when they are struggling. “It’s a crazy, crazy policy in the midst of a serious crisis like this,— conservative Rep. Jeb Hensarling (R-Texas) said.

A House Republican aide said the changes floated by Democrats amounted to “fluff— that did little to mollify their concerns.

“These minor tweaks are total fluff, and this is a real test of how heavy the Speaker’s hand will come down against Members with substantial differences on cram-down, like Congresswoman Tauscher,— a House GOP aide said.

Tory Newmyer contributed to this report.