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Senators Squabble Over Mortgage Aid

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The Associated Press

Published: March 14, 2009

WASHINGTON - Disagreement among Senate Democrats over how many homeowners should qualify for court-ordered mortgage relief has stalled a key part of President Barack Obama's foreclosure prevention plan on Capitol Hill.

Behind the scenes, top Democrats are offering banks and credit unions sweeteners to drop opposition to the plan, hoping that even tepid support from lenders might win a few vital votes from skeptical Democrats and Republicans. The bill would give judges new power to lower the interest rate and principal on a primary home loan as part of a bankruptcy settlement.

The measure passed the House last week, but only after a small revolt by moderates forced Democrats to narrow who might qualify.

They made sure the help would be restricted to people who could not afford their mortgages without a court-ordered rewrite to lower the monthly payments and those who had tried to work out more affordable terms.

The House bill also lets bankruptcy judges consider whether a homeowner has been offered a deal by the lender that matched the guidelines Obama recently laid out in his housing rescue plan, one with monthly payments amounting to no more than 31 percent of the owner's income.

Lenders cheered the changes as an improvement but still were opposed to the final bill.

Seeking to avoid a similar fate this time, Sen. Dick Durbin, D-Ill., is drafting an even narrower alternative.

One option would, in effect, prohibit anyone who could get a reasonable deal with the lender from seeking mortgage relief in bankruptcy, say top Democratic aides and lobbyists familiar with the discussions. They spoke on condition of anonymity because they were not authorized to disclose the negotiations.

Sen. Evan Bayh, D-Ind., is working on a rival plan that would allow even fewer homeowners to qualify for rewrites imposed by a bankruptcy judge. Bayh and Republican Sen. Arlen Specter of Pennsylvania are discussing a measure that would be limited to subprime mortgages.

Durbin, Sen. Charles E. Schumer of New York and other senior Democrats are shopping for a deal with industry players that could win the support of key centrists in their party plus a few Republicans.

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