Conyers argues for reconsideration of mortgage ‘cramdown’ provision

U.S. Rep. John Conyers (Creative Commons photo by Matthew Bradley via Flickr)

Voluntary loan modification programs are not saving people from losing their homes to foreclosure, U.S. Rep. John Conyers Jr. of Detroit told a House panel, and the problem is acute in the Detroit area where 195 Wayne County homes are entering foreclosure each month.

“I recently learned about the case of Paula Thomas from my hometown of Detroit,” the veteran Democratic lawmaker told the House Judiciary Subcommittee on Commercial and Administrative Law. “Ms. Thomas was behind two months on her mortgage when she lost her home to foreclosure. It was purchased for $864 by a Florida investor.”

Conyers said people are needlessly losing their homes because their loans are being packaged and resold in ways that make it nearly impossible to modify mortgages.

“The financial services industry insisted it would voluntarily modify mortgages to help homeowners avoid foreclosure. This has not happened. Ms. Thomas sought to modify her mortgage and, like most in her situation, the loan servicer failed to help her save her home from foreclosure. It is time for Congress to finally pass my mortgage modification bill, the Helping Families Save Their Homes in Bankruptcy Act, and level the playing field for homeowners in distress.”

Conyers’ bill would allow bankruptcy judges to rewrite the terms of mortgages, a process known as “cramdown.”

U.S. Rep. Barney Frank (D-Mass.), who chairs the Financial Services Committee, and U.S. Senate Whip Richard Durbin (D-Ill.), echoed Conyers call for renewed focus on cramdown legislation during the hearing.

Mike Lillis of The Washington Independent, Michigan Messenger’s sister site in the nation’s capital, noted this week that Frank’s panel is prepared to add the provision into a legislative package later this year:

Frank spokesman Steven Adamske said that, if the servicers don’t make “significant progress” on loan modifications in the coming months, the Financial Services chairman will add the cramdown provision to a larger package of finance reforms that House Democrats plan to take up later in the year.

They have a tough road. Although House lawmakers already passed mortgage bankruptcy reform legislation this year, the proposal hit a wall of bipartisan opposition in the Senate, after the Obama White House abandoned its previous support for the proposal. On top of that, the finance industry, despite its remarkable collapse, remains a powerhouse of influence on Capitol Hill, giving hundreds of millions of dollars to lawmakers each election cycle.

While legislators struggle to enact reforms to make it easier for people to modify their loans, some municipalities are taking legal action against lenders for “reverse redlining” — a practice of steering African Americans into higher cost, riskier loans.

At Wednesday’s hearing on the role of the lending industry in the home foreclosure crisis Suzanne Sangree, chief solicitor for the city of Baltimore, said that her city, which is majority African American, is suing Wells Fargo for violating the Fair Housing Act with racially targeted predatory lending that has created devastating financial impact for the city.

“High level ex-employees of Wells Fargo have submitted affidavits with our amended Complaint,“ she said, “detailing the economic incentive structure at Wells Fargo which encouraged employees to engage in racial targeting — to steer African-Americans into subprime loans even when they qualified for prime loans, and to engage in numerous other deceptive practices to induce unsuspecting borrowers into unfavorable loans.”

City officials in Memphis, Tenn., are also developing a legal strategy to hold lenders responsible for damaging racial discrimination, U.S. Rep. Steve Cohen (D-Tenn.) said at the hearing.

Detroit faces epic unemployment brought on by the decline of the auto industry. While people from all walks of life are staring down the foreclosure crisis, there is evidence that discriminatory lending practices played a role in starting the wave of foreclosures that is reshaping the city.

According to a report by the NAACP, more that 70 percent of the subprime mortgages made in Michigan in 2006 involved African American borrowers.