A hotly-contested bankruptcy reform provision that would allow judges to modify principal amounts of mortgages on primary residences was included in a new housing reform package unveiled Thursday by Senate Democrats. The new measure, introduced by senator Harry Reid (D-NV), seeks to go further on housing issues than the recently-passed economic stimulus package signed into law by President Bush on Wednesday. Called the Foreclosure Prevention Act of 2008, it adds in a number of projects that Democrats had wanted to add to the original stimulus package. "In the face of an uncertain economy and with so many Americans struggling, we know that more needs to be done to address the housing crisis," Reid said. "The provisions we are announcing today is [sic] another step in the right direction." American Banker reported that Senate Democrats will allow the bill to bypass the usual committee review process and fast-track the legislation for consideration after Congress returns from recess:
"If you're a financial services company that wants to derail this bill, you need to be very nervous," said Jaret Seiberg, an analyst with Stanford Group Co. "This has a lot of provisions that play very well to voters, and you have a lot of members up for re-election, and in such a situation, bills that should be dead on arrival find themselves enacted into law."
MBA chairman Kieran Quinn offered a cautious outlook on the bill, praising some provisions but warning that the bankruptcy reform provision would be a strong sticking point. "By including language to reform bankruptcy and allow judges to modify mortgage contracts, the bill threatens to hurt those it is designed to help," Quinn said. "As long as this consumer-unfriendly provision is included, we cannot support the package as a whole.� In addition to the bankruptcy reform provision, the bill would also provide $10 billion to allow housing finance agencies to issue bonds for refinancing subprime mortgages, a measure senators John Kerry (D-MA) and Gordon Smith (R-OR) had tried to include in the original stimulus package. The bill would earmark $200 million in additional funds for third-party credit counseling, while also providing $4 billion in Community Block Development Grant funding for managing vacant properties; Senator Chris Dodd (D-Conn.) has been pushing for expansion of HUD's CBDG program in recent weeks, in addition to calling for a federally-funded distressed mortgage agency. "I'm pleased that some of these ideas, including increased funding for local governments to buy abandoned and foreclosed-upon properties, are part of this package," Dodd said in a statement Thursday. "But more needs to be done by the Administration, as well, to help people keep their homes." The idea that current administration efforts to deal with a surge in foreclosures isn't enough also coursed through a Senate hearing earlier in the day, where Treasury secretary Henry Paulson was grilled by members of the Committee on Banking, Housing, and Urban Affairs, including Dodd. "The Administration has been working at cross-purposes with us," Dodd said during the hearing. "They have in essence sanctioned backsliding from the kind of aggressive, broad-based effort that is more urgently required by the day. The latest Administration effort – dubbed 'Lifeline' – is a lifeline more to lenders than to borrowers." As for the latest housing bill, it's unclear if it will have bipartisan support; sources that spoke with HW suggested the bankruptcy provision will likely be a large sticking point for Republicans.