Updated from Thursday, Jan. 8
Senate Democrats late Thursday announced a deal with
to support a bill that could alleviate housing foreclosures for consumers facing bankruptcy.
The legislation, announced at a Washington, D.C. press conference hosted by Sen. Richard Durbin (D., Ill.), Sen. Christopher Dodd (D., Conn.) and Sen. Charles Schumer (D., N.Y.), would allow bankruptcy judges to alter the terms of mortgages owed by consumers filing for bankruptcy.
Senators hope Citi's support for the legislation, which mortgage lenders fiercely opposed last year leading up to the passage of the $700 billion financial bailout package Congress passed in October, will help win over other financial institutions, Durbin said.
"I think this can happen," he added.
Citi is the first banking institution to support the issue, but other banks have already expressed interest in the legislation, Schumer said. He did not name any specific lenders.
"My office has been called by heads of most of major banks saying they want to hop on board," Schumer said. "The fact that
Citigroup and soon other major institutions will start supporting this provision is a breakthrough."
Schumer hopes the legislation would eventually contribute to a bottoming of the housing market and lead to a turnaround in the economy. "You're not going to get anywhere until you get a floor to the housing market," he said.
The Mortgage Bankers Association, however, was quick to register its opposition to the legislation, due to the "destabilizing effect it will have on an already turbulent mortgage market" and a number of "crucial issues" still need to be addressed, it said in a statement.
The association says the legislation should be limited to subprime loans. "We would also want to see a sunset date that limits how long judges would be granted this extraordinary power," the group said.
The bill would apply only to loans made before it is passed, the senators said. Borrowers who want to take advantage of the modification must contact their bank or financial institution at least 10 days in advance of filing for bankruptcy, Durbin added.
Banks have fought so-called "cram-down" legislation, saying that when bankruptcy judges force lenders to modify mortgages, it would raise borrowing costs for all home buyers, said
the Wall Street Journal
, which was the first to report that a deal with Citi was near earlier Thursday.
Citi faces scrutiny by the new Congress, where Democratic leaders have questioned the bank's efforts to help struggling homeowners. The negotiations on the cramdown issue, the
reports, reflect the bank's desire to "get out in front" of the growing foreclosure problem and show Democrats its willingness to be constructive on an important issue.
Legislation allowing bankruptcy restructuring of individual mortgages was introduced in the House and Senate on Tuesday, the opening day of the new Congress.
A measure allowing court-ordered mortgage workouts could be passed separately, or as part of Congress's coming economic-stimulus package, according to the newspaper.
Shares of Citi closed trading Thursday flat.
In a letter to lawmakers, Citigroup 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," according to the