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Updated February, 2010
The response to the subprime crisis has brought about an array of legislative proposals, which include a major reworking of bankruptcy law and legislation addressing mortgage lending issues. NAFCU remains concerned about the unnecessary regulatory burdens that these expansive mortgage lending proposals will place on credit unions, which did not cause the current economic crisis.
Initially, the primary vehicle for mortgage bankruptcy reform in the 111th Congress was the Helping Families Save Their Homes Act of 2009. The bill was introduced by Representative Conyers as H.R. 1106 in the House, and by Senator Dodd as S. 896 in the Senate. H.R. 1106, which passed the House on March 5, 2009, included language that would provide bankruptcy judges with authority to unilaterally modify mortgage loan terms for consumers in bankruptcy proceedings (known as “cram-down”). Although the bill passed the House, the Senate instead took up its own version of the legislation, which did not include the cram-down language. Senator Durbin introduced the cram-down provisions as an amendment to S. 896.
NAFCU lobbyists spent several weeks negotiating with Senator Durbin’s staff, seeking a more targeted approach to the mortgage bankruptcy proposal. NAFCU pushed to limit mortgage cram-downs to subprime or Alt-A mortgage loans, or alternately, NAFCU sought a carve-out for loans made by not-for-profit organizations, such as credit unions. NAFCU was also concerned about the potential impact the cram-down amendment could have on second liens and private mortgage insurance (PMI). When these proposals were rejected and further clarity on second liens and PMI was not provided, NAFCU did not support the passage of the broad cram-down provisions contained in Senator Durbin’s amendment.
The Durbin Amendment came to the Senate floor on April 30, 2009, and was defeated by a vote of 45 to 51. The final version of S. 896, which included the creation of a corporate credit union stabilization fund, passed both houses of Congress and was signed by President Obama on May 20, 2009.
This issue resurfaced in December 2010 when the House considered H.R. 4173, the “Wall Street Reform and Consumer Protection Act.” During consideration of this broad regulatory overhaul of the financial system, Representative Conyers offered an amendment on the floor which, if passed, would have attached the cram-down provision to H.R. 4173. The Conyers’ amendment was defeated by a vote of 188-241, which means that efforts to grant broad cram-down authority have been defeated in both the full House and full Senate in the 111th Congress.
NAFCU is pleased that the merits of a broad cram-down approach to mortgage bankruptcy reform has been rejected in both chambers of Congress and will work to make any cram-down proposal being considered as favorable as possible for credit unions. With foreclosure numbers remaining bad into 2010, there is a chance that this issue could re-emerge once again.
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