Weatherford Democrat

AP Story Section

January 26, 2009

Fight building up over judges redoing mortgages

WASHINGTON (AP) — Most congressional Democrats say the quickest way to save homeowners like Troy Butler of Saginaw, Mich., is to let them declare bankruptcy and allow judges to dictate new mortgage terms.

Easy, except the lenders that would absorb the pain — and lose control of any deals to ease the terms — do not want to get dragged into bankruptcy court by millions of overextended borrowers.

Butler, 40, is a laid-off General Motors worker who has filed for bankruptcy. But the bankruptcy court has no authority to change the terms of his $90,000-plus mortgage that is more than double the value of his home.

A bill to give judges authority to alter loan terms for primary residences may be the quickest way to arrest the housing market’s collapse. Most Democrats in the House and Senate support that plan. President Barack Obama told Democratic leaders Friday he also backs it, according to a Senate aide who was not authorized to be quoted by name.

But 10 groups representing the lending industry and other businesses are fighting back fiercely. Several have engaged portions of their lobbying machines to stop the legislation. The groups spent $83 million in lobbying on multiple issues in 2008, a figure that shows the power of the banking and investing industry and their business supporters.

One Democratic backer of the bankruptcy proposal, Rep. Maxine Waters of California, said the banking industry “has owned this Congress far too long.”

Butler, the GM worker, and an industry lobbyist see things much differently.

“I’m living from day to day, hoping to make it through the day. I worry about my family, where we’re going to live, how we’ll survive,” said, Butler, who has a disabled wife and two children, ages 15 and 11.

The chief lobbyist for the Mortgage Bankers Association, Steve O’Connor, said new homebuyers would end up paying higher interest and bigger down payments if lenders are saddled with the risk that a judge could change mortgage terms.

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