After weeks of negotiations between Senate Democrats and major players in the financial industry, a compromise bankruptcy reform deal has been reached, Majority Whip Dick Durbin (D-Ill.) said on the Senate floor Monday night. Whether it will pull 60 votes, the number needed to overcome a GOP filibuster, is a question that will be answered later this week when the Senate takes up Durbin's amendment to the House-passed bankruptcy bill.
In order to garner the support of conservative Democrats and a few Republicans, the proposal has been watered down. The bankruptcy legislation will still allow homeowners to renegotiate mortgages in bankruptcy - the so-called cram down provision - but only under strict conditions. The banking industry has lobbied fiercely against cram down, but Durbin said on the Senate floor Monday night that the compromise was supported by Citigroup, which has been at the negotiating table.
"In the past, some of my colleagues understood the need for action but have been uncomfortable with the original language. Let me be clear: this amendment is different," said Durbin. "The amendment I'm going to offer will make a modest change in the bankruptcy code with a lot of conditions. It won't apply across the board. This amendment limits assistance in bankruptcy to situations where lenders are so intransigent that they are unwilling to cooperate with the foreclosure prevention efforts already underway - Obama's homeowner assistance and stability plan and the Congressionally-created HOPE For Homeowners, which this bill will greatly improve."
If banks refuse to take part in either of those programs, which allow homeowners to renegotiate mortgages under certain conditions, then a bankruptcy judge would be able to reduce a homeowner's monthly payment.
Durbin didn't release any further details. The compromise, which he said is also supported by the Center for Responsible Lending, AARP and the Leadership Council on Civil Rights, is being shared with wavering members and staff leading up to the vote.
Meanwhile, the banking lobbyists are furiously lobbying against it and Durbin acknowledges it will be difficult to "muster the votes, although I know it will be hard."
It is "hard to imagine that today the mortgage bankers would have clout in this chamber but they do," said Durbin. "They have a lot of friends still here. They're still big players on the American political scene and they have said to their friends, stay away from this legislation."
While Citigroup, Bank of America, Wells Fargo and other major banks were negotiating with Durbin and his allies, the major bank lobbies were whipping up opposition to it.
"The groups that are leading the charge against me on this are familiar names on Capitol Hill. The Mortgage Bankers Association, the people who brought us this wonderful subprime mortgage crisis," said Durbin, adding, "the Financial Services Roundtable, the biggest names in financial services in this nation, the ones that have had their hands out for federal money, opposed this idea of helping people facing foreclosure. And the American Bankers Association. What a disappointment. What a disappointment that a great association like that, representing so many good banks, would not even sit down at the table to discuss this provision. It's a source of great disappointment to me because as a congressman and senator I work with them on so many issues."
The ABA left the negotiating table several weeks ago and has been furiously lobbying against the bill.
"I've never found them more unyielding and unreasonable than on this issue. They say, 'Don't worry about it, Senator. We're experts, we're going to handle it. Don't tell us what we need to do.' Well, many of those same banks are the first in line when it comes to federal money," said Durbin.
Eight years ago, Durbin said, he introduced an amendment that would have prevented predatory lenders from recovering damages in bankruptcy court. Then-Sen. Phil Gramm (R-Texas) fought back, arguing that the amendment would put the subprime mortgage industry out of business. It failed by one vote.
"This will be another test," said Durbin. "Who's going to win this debate? The mortgage bankers and the American Bankers Association, or the consumers across this country?"
Ryan Grim is the author of the forthcoming book This Is Your Country On Drugs: The Secret History of Getting High in America