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Under veto threat Senate stalls on mortgage bankruptcy
WASHINGTON (2/29/08)--With banker opposition and a threat of a Presidential veto, the Senate Thursday was unable to proceed to consider a housing stimulus bill that included mortgage bankruptcy language supported by the Credit Union National Association (CUNA). The Senate voted 48 to 46 on a motion to proceed to consideration of S. 2636, the Foreclosure Prevention Act of 2008. Sixty yes votes were needed to proceed to consideration. The bill, introduced by Senate Majority Leader Harry Reid (D-Nev.) earlier this month, would provide $200 million for housing counselors to help families about to lose their homes to foreclosure. It would also raise the cap on mortgage revenue bonds, permit Community Development Block Grants to be used on foreclosed properties, and require improved disclosures to mortgage borrowers. The bill included mortgage bankruptcy provisions modeled on language drafted by Senate Majority Whip Richard Durbin (D-Ill.) in his bill called the Helping Families Save Their Homes in Bankruptcy Act (S. 2136). After months of negotiations with Senate lawmakers, CUNA had thrown its support behind the proposed substitute amendment language to the mortgage bankruptcy title of the bill. In a letter to Senate Leadership, CUNA said credit unions recognize the need to be responsive to the current crisis in the subprime mortgage market and appreciated the effort that Durbin and his staff made over the last several weeks to address many credit union concerns. The mortgage bankruptcy substitute language would allow a bankruptcy court to adjust the terms of certain mortgage loans made before the enactment of the law. The proposal covered subprime and nontraditional mortgages and excluded all other mortgage loans, including interest-only loans originated with proper underwriting to a fully-indexed rate. Under the plan, a subprime mortgage loan would be one that has an annual percentage rate greater than 3% over the yield on a comparable security issued by the Treasury Department. If it is subordinate loan, subprime would be defined as a loan greater than 5% plus the equivalent Treasury security. The bill also includes a "means test" to qualify for the special relief and the bankruptcy court would have the authority to reduce the claim to an amount no lower than the current market value of the property. Last December, the House Judiciary Committee passed H.R. 3609, a similar although not identical bill to S. 2636. On Tuesday, President George W. Bush threatened to veto the package if passed by the House and Senate, according to Feb. 28 American Banker.
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