CRAMDOWN’S COMEBACK?…. For a while, it looked like “cramdown” had a real chance of passing. The measure, which would have given bankruptcy judges the authority to modify mortgages, was supposed to be the centerpiece of the Helping Families Save Their Homes Act. Instead, Democrats went up against the banking industry, including institutions getting bailout money, and lost.
That was in the Spring. Ryan Grim reports that cramdown may be poised for a comeback.
House Financial Services Committee Chairman Barney Frank (D-Mass.) tells the Huffington Post he plans to revive the effort to give bankruptcy judges the authority to renegotiate home mortgages — by making it part of this fall’s much-anticipated financial regulatory reform bill.
Wall Street banks scored an overwhelming victory in April when they soundly defeated a cramdown measure in the Senate. Only 45 Democrats voted with homeowners, dealing the measure the kind of defeat that often sends legislation off into the wilderness for years, if not for good.
Frank and Senate Majority Whip Dick Durbin (D-Ill.), who led the bill in the upper chamber, both said after its defeat that it was finished. Frank was dismissive when, about a week after the vote, HuffPost asked if cramdown might come back. “Excuse me, what planet were you on last week? The vote was 45 to 51. Why would you ask that? Do I think there’s a likelihood we could overturn 45-51? No,” said Frank. “I wish it weren’t the case.”
But since then, foreclosures have continued unabated and the unemployment rate has continued to climb, increasing to 9.7 percent last month. Both forces feed on each other and create a drag on the economy.
The Obama administration had high hopes for the law Congress passed intended to encourage mortgage modifications. The law is all carrot, however, and no stick. Cramdown is the stick. If banks think they could get hit in bankruptcy court, they’re more likely to bargain.
Frank believes House action may come as soon as October, and he’s spoken to the Senate Democratic leadership and three Dem members of the Senate Banking Committee, about some movement before the end of the year. It wouldn’t be a stand-alone bill, but rather, could be incorporated into a larger regulatory reform effort.
The White House supported cramdown in April, but the administration’s efforts were largely passive. It looks like policymakers may get a second chance to get this right.