NYT: Senate Refuses to Let Judges Fix Mortgages in Bankruptcy

By STEPHEN LABATON

WASHINGTON — The Senate handed a victory to the banking industry on Thursday, defeating a Democratic proposal that would have given homeowners in financial trouble greater flexibility to renegotiate the terms of their mortgages.

The House of Representatives, meanwhile, overwhelmingly approved a bill backed by the Obama administration that would limit the ability of credit card companies to charge high fees and penalties. The bill, approved 357 to 70, still faces obstacles in the Senate, where — as the action on Thursday illustrated — the industry has more clout, particularly among Republicans and moderate Democrats. In recent days the White House, partly in response to polls showing the significant public outrage over high fees charged by credit card companies, has begun to work for its passage.

The mortgage provision garnered only 45 votes in the Senate, falling well short of the 60 votes necessary to break a threatened filibuster to a measure sponsored by Senator Richard Durbin, Democrat of Illinois, that would give bankruptcy judges greater flexibility to modify mortgages. In recent weeks, major banks and bank trade associations worked closely with Senate Republicans to stop the measure. Twelve Democrats joined all the Republicans in voting against it.

The defeat clears the way for a final vote as early as Friday for the legislation, which has several features that the banking industry has sought. One provision would have the effect of reducing a proposed special premium the banks would owe the Federal Deposit Insurance Corporation later that year by more than 50 percent — a $7.7 billion saving. A second provision would make permanent the temporary increase in deposits guaranteed by the F.D.I.C., to $250,000, from $100,000.

Once the Senate completes its action on the legislation, it will have to be reconciled with a similar measure already adopted in the House before it can become law.

The House bill contains the bankruptcy provision. But the Senate’s defeat of the so-called bankruptcy cramdown measure all but makes certain it will disappear from the final bill.

It also demonstrates that, even though Democrats are close to gaining 60 votes in the Senate with the recent decision by Senator Arlen Specter to leave the Republican Party, the increasing number of Democrats does not prevent the Republicans — with the support of a handful of moderate or conservative Democrats — from blocking legislation. Mr. Specter voted against the provision.

Bank lobbyists had maintained that the legislation, if adopted, would have resulted in higher rates for all mortgage holders. A letter signed by 12 industry organizations this week to senators warned that the legislation would “have the unintended consequence of further destabilizing the markets.”

“Though interest rates today are at all-time lows, this legislation would result in higher costs for future borrowers,” the letter said.

But supporters of the legislation disputed that argument. President Obama sought the cramdown provision during the election, although the White House has done virtually nothing to move it through Congress.

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