Posted on 08 Jan 2009
The Wall Street Journal reported that Citigroup Inc. is leading other lenders in advanced discussions with key senators on legislation that would allow judges to set new repayment terms for millions of mortgage holders who wind up in bankruptcy court.
A person close to Citigroup said that it is still negotiating details of an agreement with lawmakers, and that it hasn't made a final decision to embrace the "cramdown" legislation. But the efforts mark a surprising change of direction by the financial-services industry. Banks have consistently fought such legislation. They say that cramdowns, when bankruptcy judges force lenders to modify mortgages, would raise borrowing costs for all home buyers.
"All tools to address the worsening foreclosure crisis are on the table," said Edward Yingling, president and chief executive of the American Bankers Association, the banking industry's main trade and lobbying group.
Jerry Howard, president of the National Association of Home Builders, said in an interview that his organization has reversed its yearslong opposition to cramdowns, as foreclosures choke the market for new homes.
"Until you stop the trickle of inventory onto the market through foreclosure, supply will increase more than it should," Mr. Howard said. "This is an about-face for our organization."
Many congressional Democrats and President-elect Barack Obama have supported changing the law, saying banks that have accepted federal aid should be doing more to help homeowners wrestling with debts they can't pay. The U.S. government last year pumped a total of $45 billion in fresh capital into Citigroup and also agreed to shoulder hundreds of billions of dollars of potential losses on the company's risky assets.
While specifics are still being negotiated, a bill allowing court-ordered home-mortgage workouts has the potential to help several million Americans now at risk of losing their homes, its architects say.