Mortgage/Bankruptcy Legislation Stalls in House

Washington, DC, Feb. 27, 2009--Legislation that would let bankruptcy judges reduce the principal and interest rate on mortgages for debt-strapped homeowners stalled Thursday.

The measure, backed by President Barack Obama, is the most controversial part of a broader housing package that had been expected to pass the House this week.

The snag came after a group of moderates expressed concerns about how the bill would affect homeowners who are still struggling to make their mortgage payments.

The banking industry has lobbied hard against the measure, mounting a successful multimillion-dollar effort last year to kill it.

This year, mortgage industry players who are scrambling to narrow the scope of the measure to reduce its potential cost for banks have won some key concessions.

House Democrats agreed to limit the measure to existing loans made before the bill is enacted and to borrowers who can show they tried other ways of modifying their home loans before resorting to bankruptcy, among other changes.

But banks want to go much further, restricting the bill only to subprime or other exotic loans.

Rep. Ellen Tauscher, D-Calif., the head of the business-minded New Democrat Coalition, raised concerns that the measure omitted help for homeowners who aren't staring at bankruptcy but are buckling under burdensome mortgage payments.