Durbin Bill Would Mandate Mortgage Write Downs

Sen. Dick Durbin, D-Ill., has expanded his bankruptcy reform bill so that servicers are required to use the FHA Hope for Homeowners program for qualified borrowers. "Virtually every economist agrees that the financial crisis will not diminish, and the economy will not begin to recover, until we address the root cause of the problem: the failed mortgage market," Sen. Durbin said. Congress created the Federal Housing Administration's Hope program to "encourage" servicers to write down the loan amount on underwater mortgages and refinance borrowers into affordable FHA loans. But the Senate majority whip wants to make it mandatory and require servicers to survey their portfolios for delinquent loans that could be restructured through the Hope program. For banks receiving capital injections from the Treasury Department, the Durbin bill would prohibit an increase in dividends and reduce dividends by the amount of compensation paid to the top five executives in excess of $500,000. Like the original bill, the new bill allows bankruptcy judges to modify mortgages on primary residences. The mortgage industry strongly opposes such bankruptcy "cram downs." Sen. Durbin called the bill a "marker for future action" that he wants to pass next year.