Government Foreclosures Program Clipped by Senators

by Peter Vernon on Foreclosure Crisis

The bankers won the day as the U.S. Senate voted on Thursday 51 to 45 to reject a measure that would have provided President Obama’s government foreclosures program an additional tool to enforce its schemes to help distressed American homeowners.

The amendment would have given judges handling bankruptcy cases to modify a homeowner’s mortgage loan if the lender refused to restructure the borrower’s loan to reduce monthly payments based on home value and income.

The measure failed to collect 15 more votes to reach the 60 votes required, as 12 Democrats joined the Republicans in rejecting the proposed amendment.

Senator Richard Durbin, the Democratic Party Whip from Illinois, reiterated that the banking industry has refused to do something to help the government foreclosures program that would solve the housing crisis the industry caused.

Durbin has tried to negotiate a compromise with major banks such as J.P. Morgan Chase, Bank of America and Wells Fargo, but the parties failed to reach an agreement.

Arizona Republican Senator Jon Kyl argued that lenders will be forced to charge higher interest rates if the government takes away their right to repossess properties from delinquent borrowers.

Senate Majority Leader Harry Reid, a Democrat from Nevada, said that the amendment will be reconsidered and will be passed.

Meanwhile, housing advocates such as the Center for Responsible Lending were shocked that the bankers fiercely campaigned against the amendment after they were helped out of bankruptcy under the government foreclosures program.

Charles Gabriel, head of Capital Alpha Partners, was especially concerned about the 12 Democrats who voted against the bill and about how Durbin handled the party’s stand.

The bankruptcy measure was part of Obama’s government foreclosures program when it was launched in February. It was aimed at compelling more lenders and servicers to restructure loans. Under George Bush’s government foreclosures program, only a few loans were modified because program participation by lenders was voluntary.

Nevertheless, Obama’s government foreclosures program would not become useless, according to Barry Zigas, housing policy director at Consumer Federation of America. He said mortgage servicers handling 75 percent of the country’s mortgage loans are now modifying loans and reducing monthly payments to about 31 percent of borrowers’ income.

According to the Hope Now Alliance, it has helped restructure about 134,000 mortgage loans in March, a jump of nearly 20,000 from the average number of monthly loan modifications since September 2008. It said it hopes to modify more under President Obama’s government foreclosures program.