CUs' Deal on Mortgage Bill Irks Bankers

American Banker (02/26/08) P. 1; Kaper, Stacy
Credit union lobbyists recently forged a compromise with lawmakers regarding legislation proposed by Senate Majority Whip Richard Durbin, D-Ill., that would permit primary mortgage debt to be forgiven and loan terms restructured by bankruptcy judges. The compromise would apply the legislation only to subprime and nontraditional mortgages written prior to the enactment date--making it much narrower than Durbin's original proposal--but it still is drawing criticism from the banking industry. Mortgage Bankers Association lobbyist Erick Gustafson says focusing only on subprime loans will neither prevent lenders from hiking interest rates nor ease investor concerns. According to him, "If I'm a lender that makes subprime loans, or if I'm an investor in subprime mortgage-backed securities I'm going to add a risk premium. That cost is going to bleed through to consumers, who are the very consumers that can least afford any sort of increase in their mortgage." Gustafson adds that cash-strapped borrowers typically cannot afford the legal fees associated with bankruptcy, and bankruptcy proceedings prevent lenders from contacting borrowers to make arrangements to avoid foreclosure. The House Judiciary Committee passed similar legislation in December that would allow only the restructuring of nontraditional and subprime mortgages originated from 2000 through the date of the law's implementation, with the bill in place for just seven years.