The score: Banks 1, Homeowners 0. That is because the U.S. Senate has caved in to the banking lobby and refused to allow bankruptcy judges to modify primary residential mortgages for homeowners facing foreclosure. This would have been the best way to prevent hundreds of thousands of foreclosures, because the threat of court-mandated modifications would have prodded more banks and loan servicers into negotiating in good faith with struggling homeowners. President Barack Obama, who claimed to support the idea, didn't fight hard enough for it and the banks won.
The Senate defeated an amendment last week to give bankruptcy judges the power to alter the terms of home mortgages. The opponents who sided with the mortgage industry over homeowners included 12 Democrats and 39 Republicans — including Florida Republican Mel Martinez. You would think a senator from the state with the second highest mortgage foreclosure rate in the country last year would have seen the wisdom of giving bankruptcy judges more discretion. Florida Democrat Bill Nelson showed commendable backbone, standing up to the banking lobby and voting for the amendment.
The banks fought hard to send this modest initiative down in flames and prevent federal judges from lowering interest rates, extending payment periods or reducing principal — known in banking parlance as "cramdown." Primary residential mortgages are the only type of loan that cannot be restructured in bankruptcy court.
Majority Whip Richard Durbin of Illinois, who was the measure's chief champion, declared that banks "are still the most powerful lobby on Capitol Hill. And they frankly own the place." Many of these banks, including Wells Fargo, Bank of America and JPMorgan Chase, are recipients of taxpayer-funded bailout money. Essentially, they are using taxpayers' money to fight against a public policy that would have helped many taxpayers — including many in Florida. And the Senate let them win.
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