WASHINGTON, D.C. – January 12, 2009 – (RealEstateRama) — U.S. Senator Dick Durbin (D-IL), with Congressman John Conyers (D-MI), Senator Chris Dodd (D-CT), Chuck Schumer (D-NY) and Congressman Brad Miller (D-NC) announced that an agreement was reached with Citigroup today, on legislation that will allow homeowners at risk of foreclosure to alter the terms of their mortgages in bankruptcy. The deal brings one of the nation’s largest mortgage lenders to the table in support of Durbin’s Helping Families Save Their Homes in Bankruptcy Act, and also adds a new voice to the call for including this bill in the economic recovery package currently being drafted by the Congress.
“Citigroup’s decision to support this proposal brings us one step closer to helping millions of homeowners save their homes and putting our flagging economy back on track,” Durbin said. “The support of one of the county’s biggest lenders will hopefully spur other lenders to act. I applaud Citigroup for supporting what is in the interests of their customers as well as their own best interests as a financial institution, and I hope others will quickly follow in their footsteps. We can’t end the economic crisis until we address its root cause: the massive housing crisis facing our nation.”
“Today’s agreement is a major step forward towards bringing desperately needed bankruptcy foreclosure relief to millions of American homeowners. I have been working on this matter ever since the mortgage crisis began in 2007 and am pleased that we have been able to reach agreement today,” Conyers, the Chairman of the House Judiciary Committee, said. “This will provide an important opportunity for homeowners facing foreclosure to restructure their loans so that they can save them from foreclosure just as they can with virtually any other asset. The effectiveness of the economic recovery package will be greatly enhanced by keeping families in their homes. We particularly appreciated the good faith and assistance of Citigroup in helping us achieve this compromise.”
Durbin’s and Conyers’ bill, reintroduced on Tuesday, would change the outdated bankruptcy code to allow at-risk homeowners to alter the terms of their mortgages in bankruptcy. Durbin first introduced this bill in the fall of 2007, when experts estimated that nearly 2 million homeowners were at risk of losing their homes to foreclosure. Over the last fourteen months, that number has quadrupled. Today nearly 8.1 million homeowners – 16 percent of all homeowners – are at risk of foreclosure.
Senator Chris Dodd (D-CT), Chairman of the Senate Banking Committee and staunch supporter of Durbin’s proposal, applauded the deal and vowed to press to have the provision included in the upcoming economic recovery package.
“Citigroup’s support of this legislation is an important recognition of the need to stop the rising number of foreclosures, which is the root cause of our economic crisis,” said Dodd. “Despite efforts by Congress to address this issue, not enough lenders have come to the table to help borrowers with bad mortgages refinance into new, affordable loans. This legislation will help bring lenders to the table with borrowers to restructure their mortgages in a way that is sustainable over the long term. I commend Senator Durbin for his leadership on this issue. There is too much is at stake and no time to spare – we must get this bill done now.”
Schumer, whom Citigroup approached in December to signal its openness to endorsing the legislation, along with Senator Durbin, said the firm’s support should pave the way for other banks to lift their objections to reforming the bankruptcy code. Schumer, an original co-sponsor of the bill, indicated that even before the announcement of today’s deal, he had heard from other major financial institutions interested in discussing how they might lend their support to the legislation.
“Citigroup’s support means that the dam has broken across the banking industry. We now have a real chance to pass this legislation quickly,” Schumer said. “Other banks are already lining up to find out how they can jump on the bandwagon. This proposal will not just help borrowers who go into bankruptcy. It evens the playing field for every borrower who approaches their lender for a loan workout.”
“Reforming mortgage bankruptcy laws is the only remedy available that will provide the stick to go with the carrots that we have offered lenders to modify mortgages voluntarily,” said Rep. Brad Miller (D-NC) whose worked closely with Durbin on this issue. “We know it will work. And we need something to work right away.”
The agreement makes three changes to Durbin-Conyers legislation:
- Only existing mortgages would be eligible;
- Homeowners would be required to certify that they attempted to contact their lender regarding loan modifications before filing for bankruptcy;
- Only major violations of the Truth in Lending (TILA) would invalidate creditor claims in bankruptcy, rather TILA violations of any size.
Today, virtually every type of personal debt, including vacation homes and family farms, can be restructured in bankruptcy with the exception of mortgages on a primary residence. This exception dates to the 1970’s, when most mortgages were fixed rate, long – term agreements between local bankers and their neighborhood customers. The mortgage market has changed considerably since the 1970’s, and mortgages on primary residences are often now the primary cause of financial distress. This bill would help the bankruptcy code catch up with these changes in the mortgage market.