Banks Alarmed at the Prospect of Empowerment of Judges to Contain Foreclosures

March 9th, 2009 | Tags: Foreclosures

The banks are alarmed and at the same time trying to come to terms with the prospect of empowerment of judges to contain foreclosures. Scott Talbott of Financial Services Roundtable, a group representing big banks said he couldn’t envisage a scenario where the banks will give support to the idea of allowing judges to alter mortgage terms. The group had spent large amounts to the tune of $7.8 million lobbying against this and related matters. He is concerned that efforts are on to give the finishing touches to the bill to get it through.

The bankruptcy plan is part of a larger housing measure and is being sponsored by Rep. John Conyers (Democrat) the chairperson of Judiciary Committee chairperson. According the plan a boost will be given to FDIC in attempting to stop foreclosures. Senator Dick Durbin, the second most important Democrat had joined hands with the Banking Committee chairperson Chris Dodd (Democrat) as well as Senator Charles E. Schumer (Democrat) on this bankruptcy issue. Within few weeks the outcome of the voting will be clear.

Coming to grips with ground realities the banks are now trying to make the best of a bad job and squeeze out maximum bargaining points. Francis Creighton of Mortgage Bankers Association said, “We continue to be opposed to the bill and that hasn\’t changed, but we do live in the real world, and we do understand that this is very likely to happen, and we owe it to our members to recognize that reality and to limit the damage as much as possible. We\’re encouraged by the fact that the bill is moving to limit the damage of cram-down rather than make it worse.”

Citigroup has been the first to open talks with the Democrats. Now JPMorgan Chase and Bank of America have followed suit.

It was agreed that borrowers would be allowed to take the help of bankruptcy laws only after they have proved failure in attempts to try all other routes. It would also be applicable to only those borrowers who absolutely could not afford to continue without alteration of terms.

Michael Calhoun representing Center for Responsible Lending said, “The bank opposition has had a profound impact on the bill as it stands today. They\’re very powerful special interests. They\’re a force in Washington. Look at the concessions they extracted from the bill and are still extracting.”