Reply #54: Senate Rejects Proposal to Allow Bankruptcy Judges to Alter Home Mortgages By DAVID M. HERSZENHORN

[Demeter]

http://www.nytimes.com/2008/04/04/business/04housing.html?_r=1&ref=business&oref=slogin

WASHINGTON — The Senate on Thursday rejected a proposal to let bankruptcy judges modify mortgages on primary residences to help financially distressed homeowners, but lawmakers continued to work on a bipartisan bill that includes other foreclosure assistance as well as tax breaks intended to stabilize the housing market.

The proposal to let bankruptcy judges alter loan terms on primary homes, as they can already do on vacation homes and investment properties, was the most controversial in a series of amendments to the larger housing measure. It faced stiff opposition from many Republicans as well as the banking and mortgage loan industries.

Senator Richard J. Durbin, Democrat of Illinois, had championed the bankruptcy provision but asked that it be set aside when it threatened to stall the larger bill — a move that won him praise. Tabling the amendment effectively killed it.

After the Senate voted, 58 to 36, to table Mr. Durbin’s amendment, lawmakers resumed debate on other amendments with final passage of the bill expected next week.
....
A more aggressive legislative rescue effort for homeowners is expected to pick up steam next week in the House. Representative Barney Frank, Democrat of Massachusetts and chairman of the Financial Services Committee, will hold hearings on a plan to provide up to $300 billion in federally guaranteed loans to help refinance the mortgages of as many as 1.5 million homeowners at risk of default.

That proposal would require lenders and loan service companies to agree to cut the principal balances of troubled loans and take a loss, with the hope of avoiding further losses in a foreclosure. Senator Christopher J. Dodd had hoped to include a version of that proposal in the Senate package but said it was too complicated and would require separate legislation.

Instead, the more modest Senate bill includes a new standard property tax deduction of up to $1,000 for couples and $500 for individuals that will benefit 28.3 million tax filers who do not itemize their deductions.

The bill includes $10 billion in tax-exempt bonds for local housing agencies to refinance subprime loans and provide mortgages for first-time home buyers, $4 billion in grants for local governments to buy foreclosed properties and $100 million to expand counseling for homeowners at risk of defaulting on their loans.

It would also give a $7,000 tax credit to buyers of foreclosed homes and a tax break for home builders and other businesses, allowing them to claim current losses against taxes paid in previous years. Officials said the proposals would cost taxpayers $15 billion to $20 billion.

In the Senate, where a lawmaker’s bad mood can bring proceedings to a standstill, Mr. Durbin’s move to table his amendment drew high praise.

“That is unheard-of in the Senate,” the majority leader, Senator Harry Reid of Nevada, declared. “He did that in an effort to move this along. He knew where the votes were, and I want the record to be read with the fact that this is a fine legislator, a good human being.”