Citigroup Inc.’s agreement to back legislation that lets bankruptcy judges cut mortgage rates for at-risk borrowers drew criticism from bank industry lobbyists who said the compromise with Senate Democrats was flawed.
Citigroup endorsed the bill after Senate Banking Committee Chairman Christopher Dodd, and Senators Charles Schumer of New York and Richard Durbin of Illinois, said they will limit the legislation to existing mortgages, rather than future loans. Durbin, the Senate’s second-ranking Democrat, brokered the deal with Citigroup and sought similar agreements with other lenders.
“We remain opposed to bankruptcy cram-down legislation because of the destabilizing effect it will have on an already turbulent mortgage market,” said John Courson, president of the Mortgage Bankers Association, in an e-mailed statement.
The revised bill Citigroup endorsed would give judges the ability to adjust principle payments or interest rates on existing loans, and could extend the term on the loan, according to the language of the bill, which would force lenders to take losses without a say in bankruptcy court proceedings.
Bottom line: We will all pay higher mortgage rates because of this. Banks will have to factor it into their pricing.
Message from the government? As I’ve said before, these federal foreclosure prevention measures send a loud and clear signal to responsible borrowers:
This new path to big government, the “Irresponsible Home Buyers’ Amendment,” is set to be attached to Obama’s ARRP stimulus plan. I’m guessing (and I imagine the senators and Citibank are hoping) that it will hardly be noticed, lost in the massive trillion dollar plan.
Just in case you didn’t personalize Michelle’s comment from above, don’t forget: TARP Was Chump Change And We’re A Bunch Of Chumps.
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1 Comment
May 2, 2009 at 8:39 am
Not too knowlegable about how the massive banking system works, I have a question that may seem a bit neive. With all of the bail-out money, why doesn’t the government force the banks/investors to reduce EVERYONE’S principal and interest? Make the banks take the loss. This is the industry that caused a majority of the problems by lending to irresponsible borrowers. These borrowers are now the ones who can no longer afford their homes and are getting short-sales, while those who ARE responsible and pay every month on time, but can’t sell, are stuck in less than ideal situations. These banks continue to pay huge bonuses to their employees while those of us in the real world have to sit and spin. Let’s force them to bring reality back to house prices by refinancing everyone. This will make it easier for those who are behind, to pay; those that want to sell, to sell; and those who want to buy, to buy. Maybe I’m too simple minded, but I think we should just get our money back from the banks and spread the wealth. This is a major crisis; could the solution be that simple?