ABA: Citi Worked Alone on Cram-Down Deal
The American Bankers Association said Friday morning that it opposed recently proposed cram-down legislation that was surprisingly endorsed late Thursday by Citigroup Inc. ($51.66 0.06%), and suggested it wasn't apprised of the negotiations between the financial giant and key members of the Senate.
“ABA was not a participant in the recent agreement between Citigroup and Congressional proponents of mortgage cram-down legislation," said Floyd Stoner, the executive director Congressional relations & public policy at the ABA. "ABA is opposed to the agreement because it will leave in place overly broad mortgage cram-down authority and other provisions that will harm thousands of banks across the country that have made, and continue to make, good loans."
Key Senate Democrats have long advocated allowing judges to modify principal amounts of mortgages on primary residences in Chapter 13 bankruptcy cases filed by debtors; currently, such modifications are precluded by law. In contrast, Republicans and most industry groups have strongly opposed so-called ‘debt cram-down’ proposals for mortgages, saying that allowing cram-downs would add to the costs of a mortgage for most consumers, and swell the ranks of borrowers filing for bankruptcy protection.
Sen. Richard Durbin (D-IL) in November re-introduced legislation to reform bankruptcy law in order to allow for cram-downs, called the Helping Families Save Their Homes in Bankruptcy Act. Citi’s agreement to support the proposal likely signals that the proposal will face lesser headwinds in being passed by legislators, and it certainly curried favor for the financial giant — which has taken dollars from the government — in the eyes of Congressional leaders. See earlier story.
“The ABA has consistently opposed proposals that would give bankruptcy judges broad authority to unilaterally modify the terms of mortgages," Stoner said via a statement distrubuted by the ABA. "Such proposals would bring additional risk and uncertainty to an already volatile mortgage market and would make home loans more expensive and less available for consumers."
“Several important issues still must be addressed and ABA looks forward to working with Congress and the Administration as discussions continue on this important issue.”
The Mortgage Bankers Association also suggested Thursday evening that it would oppose the proposal, despite Citi's newfound support for cram-down legislation.
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