Senate Drops Key Bankruptcy Provision from Foreclosure Prevention Bill
Feature Story by Tyler Lewis - 4/4/2008
Last night, the Senate dropped an amendment that would have given homeowners a second chance to keep their homes through the Chapter 13 bankruptcy process.
The amendment to the Foreclosure Prevention Act could have reduced mortgage payments for homeowners who have filed for bankruptcy to more affordable levels; saving more than half a million homes from the current foreclosure crisis.
Under pressure to address the growing wave of foreclosures, the Senate reached a bipartisan compromise on the Foreclosure Prevention Act, a package meant to address problems in the housing and lending industries. The bill initially included bankruptcy relief for troubled borrowers, but in the wake of strong opposition from the lending industry, it was left out of the compromise. Sen. Richard Durbin tried to put the provision back into the bill, but housing industry-backed opponents in the Senate managed to block his efforts.
Civil rights groups say that a final bill without the bankruptcy language is incomplete.
"If the Senate foreclosure agreement doesn't include a bankruptcy provision, it's not a solution. Without the Helping Families Save Their Homes in Bankruptcy Act, this bill amounts to dancing around a fire when Congress is supposed to be putting it out," said Wade Henderson, president and CEO of the Leadership Conference on Civil Rights.
The bankruptcy provision has long been the most controversial proposal to address problems in the housing market, which is part of the reason that proponents in the Senate have had trouble moving the legislation forward. A month ago, 45 senators used a procedural vote to block the bill from debate.
Under Senate rules, a minority of Senators, 41 out of 100, can block debates or votes on any legislation.
In the wake of a controversial government bailout of Bear Stearns, which is one of the largest investment banking firms in the world, many civil rights groups say that Congress has to do something to help ordinary American homeowners.
"When the government can bail out Bear Stearns – a company that made a fortune in bad mortgages – it can surely ease the strains of ordinary American homeowners who aren't as sophisticated as a Wall Street firm, and help them keep their biggest asset," said Henderson. "The impact on more than half a million homeowners is just as important and has just as broad an effect on the economy as one big time investment firm whose overseers played 'fast and loose' with its lending."
Civil rights groups also point to the fact that minorities, particularly Blacks and Latinos, have been hardest hit by the foreclosure crisis. A December 2006 CRL report found that the foreclosure crisis would hit minorities particularly hard, affecting 8 percent of Latino families and 10 percent of African-American borrowers, compared to just 4 percent of white borrowers.
Henderson, said the situation could amount to the "greatest loss of wealth in African-American and Latino communities in modern history."
