1-10-09 Citigroup's support for a plan to let bankruptcy judges modify the terms of troubled mortgages and help borrowers avoid foreclosure left its banking counterparts on the defensive yesterday, insisting that the plan would do more harm than good.
Congressional supporters of the proposed law are cautiously optimistic about its prospects. Banking executives acknowledge that some type of legislation is likely to pass, but they said they want to limit the loans eligible to be modified.
All of the banks affirmed their opposition to the deal. Industry groups including the Financial Services Roundtable, the American Bankers Association, the Mortgage Bankers Association and the American Securitization Forum have all issued statements opposing the deal. However, according to a congressional aide, two other large banks are actively negotiating with Sen. Richard J. Durbin (D-Ill.) to be included in the agreement.
This comes as more borrowers are facing foreclosure despite government and industry efforts to help. Under the legislation being considered, a bankruptcy judge could change the terms of a loan by reducing its interest rate, extending its length, or lowering the principal or loan balance, known as cramdown provisions. The law would apply only to existing loans and not to loans made after the law passed. Currently, judges are allowed to modify the terms of a mortgage for a second or vacation home but not a primary residence.
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