Banks May Reluctantly Back Bankruptcy Bill

Sandeep Dahiya, an associate professor at Georgetown University, says that more banks may decide to support the bill because this way they can exert some influence as to how the measure is passed. "Instead of having it forced down their throats, they might as well be at the table while this thing is being drafted and try to get some features," he says.

While banks worry writing down loans will only encourage people who can -- and should -- pay back their loans to ask for concessions, the bottom line is someone has to take the loss, he says.

The American Bankers Association, a trade group representing national and community banks, opposed the legislation because "it will leave in place overly broad mortgage cramdown authority and other provisions that will harm thousands of banks across the country that have made, and continue to make, good loans," according to a statement issued Friday.

Democrats have been pushing to get more help to homeowners, especially those in dire situations. Some congressmen have criticized Treasury's $700 billion Troubled Assets Relief Program, saying it does not help consumers enough. The new legislation is one way that borrowers could get more relief if passed.

On Friday, Rep. Barney Frank (D., Mass.), chairman of the House of Financial Services, noted in a press conference that measures to reduce mortgage foreclosures were included in legislation he was introducing that is intended to amend facets of the TARP bill.

In a letter to lawmakers, Citi CEO Vikram Pandit said the change to bankruptcy law "will serve as an additional tool to the extensive home-retention programs already in place to help at-risk borrowers."