Four major industry trade groups are urging Senate Judiciary Committee members to vote against a bill that allows U.S. bankruptcy courts to set up loss mitigation programs where homeowners and servicers can negotiate a loan modification.
But in a new letter, lenders said they feel the Limiting Investor and Homeowner Loss in Foreclosure Act does not offer "true mediation" and lender participation would be "involuntary." The legislation was sponsored by Sen. Sheldon Whitehouse, D-R.I.
S. 222 will "effectively place a moratorium on foreclosures unless and until lenders agree to cram down the principal balance and make other significant changes," they said.
The American Bankers Association, the Financial Services Roundtable, the Independent Community Bankers of America, and the Mortgage Bankers Association all signed the letter, which was sent to committee members late last week.
The Senate Judiciary Committee was originally scheduled to mark up and vote on S. 222 March 10, but the measure was held over. The markup is now slated for Thursday morning.
Sen. Whitehouse contended that current loan modification programs leave too many homeowners stranded and frustrated. He believes the mediation program gives struggling homeowners a last chance to meet face-to-face with a person who has the authority to modify their loan. Bankruptcy judges overseeing the negotiations can ensure both parties are making a good faith effort to prevent foreclosure.
The Rhode Island senator also claims this mediation process will benefit mortgage investors because servicers will not be able to reject a reasonable settlement.
Industry groups counter that S. 222 would "create a one-sided program to force creditors to surrender their contractual and statutory rights" and it would undermine existing voluntary loan modification programs. "If S. 222 were to be enacted, bankruptcy courts would become venue of final resort, in which some borrowers would 'shop around' for a forced loan modification or a mortgage cramdown."