Mortgage principal cramdowns to get the green light?
More from the Wall Street Journal ...
"Citigroup Inc. signed onto a deal with top Democrats in the Senate to move forward with a measure that would allow judges to set new repayment terms for millions of mortgage holders who wind up in bankruptcy court, senators involved said.
"The accord on the Senate version of a bill allowing "cramdowns," when bankruptcy judges force lenders to modify mortgages, was negotiated by Sen. Dick Durbin, the Senate's second-ranking Democrat and the author of the Senate bill. Sen. Durbin, who has backed pro-consumer bankruptcy initiatives for years, has worked for more than a year on the cramdown bill.
"The deal, Senate staffers said, is likely the first of several measures being crafted this year that propose to trim the principal owed by homeowners saddled with mortgages larger than the current value of their house. It marks a surprising change of direction by the financial-services industry. Banks have consistently fought such legislation, saying cramdowns, would raise borrowing costs for all home buyers and jam courts with homeowners who would not otherwise declare bankruptcy.
"This is the breakthrough we've been waiting for, to have a major financial institution support this legislation will create an incentive for others to come our way," Sen. Durbin said in an interview. "I want to congratulate Citi for being open-minded about this [and] playing a major leadership role."