Three Senate Democrats said Thursday they have reached an agreement with Citigroup to allow bankruptcy judges to alter home loans in an effort to prevent foreclosures. Other lenders are expected to follow.
Sen. Charles Schumer of New York said several banks have already expressed support for the plan, which would be limited to loans made before the bill is signed. President-elect Barack Obama has also said he backs the concept.
Only mortgages entered into prior to the date of enactment of the bill would be eligible for the treatment. Homeowners would have to certify that they tried to contact their lender before filing for bankruptcy, lawmakers said.
Illinois Sen. Dick Durbin and Connecticut Sen. Christopher Dodd also helped forge the agreement, which had been opposed by the lending industry in the past.
Lawmakers said they would attach the plan to Obama's stimulus package. In a speech at George Mason University Thursday morning, Obama promised to rewrite financial regulations in an effort to address the foreclosure crisis and keep "responsible" families in their homes.
Schumer said he received calls Thursday from several banks — which he did not name — indicating their interest in supporting the idea.
"Citigroup's action has broken the dam," Schumer said in a news conference on Capitol Hill.
The so-called "cramdown" proposal has been backed by Democrats over the past year as a potential solution to the foreclosure crisis. But the lending industry has battled fiercely against the idea, arguing it would force lenders to hike mortgage rates because they would have to charge more for loans that could be altered later by a judge.
"This would hurt the housing market at the exact time we're trying to stimulate it," Scott Talbott, chief lobbyist at the Financial Services Roundtable, said Thursday.
From NPR staff and wire reports
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