Senate leaders won the support of Citigroup, one of the nation’s largest banks, for legislation allowing bankruptcy judges to modify the terms of troubled mortgages.
It was a surprising turnaround from a mortgage industry leader. The industry has protested Senate Democrats’ proposal to allow judges to changes the terms of mortgages for a borrower’s primary residence, saying it would make loans more expensive.
But the deal reflects the changed political and economic realities of the nation’s deepening recession and puts pressure on other lenders to come aboard. President-elect Barack Obama has said he supports the provision and banks that have accepted federal aid have faced more pressure to do more to help homeowners. Also, the foreclosure crisis has worsened in the last year and industry and government efforts to keep people in their homes have had little impact.
Citigroup has received about $40 billion in government assistance last year.
The deal was announced this afternoon by Assistant Majority Leader Sen. Dick Durbin (D-Ill.), Sen. Chris Dodd (D-Conn.) , chairman of the Senate Banking Committee, and Sen. Chuck Schumer (D-N.Y.).
The legislation was initially introduced in 2007, but the provision was repeatedly defeated after industry officials protested.
The industry’s turnaround started with the National Association of Home Builders. Its’ president, Jerry Howard, said in a statement last week that the economic crisis is so severe that “every possible solution must be on the table.”
“I think it’s a major breakthrough to have a large financial institution on board,” said John Rao, an attorney with the National Consumer Law Center.
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