Lawmakers and Citigroup reach deal

It may have looked like just another inside-the-beltway presser and it certainly included some of the Capitol’s most recognizable faces – Senators Richard Durbin, Christopher Dodd and Charles Schumer, but the news today was really stunning. The trio had managed to convince the nation’s largest bank, Citigroup, to agree to back a bill to allow judges to rewrite mortgage loans. For months, the idea had met a wall of dissent from the financial industry. How could bankers possibly give away their underwriting powers to bankruptcy judges? No new loan could ever be written, industry supporters argued, because bankers could never be sure what the ultimate terms of the loan would be. A contract should be a contract.

If this becomes a reality, the millions of Americans struggling with onerous loan terms can tell their lender their intention to file bankruptcy, and that alone may be enough to propel a loan modification. And, a new loan could help as many as 8 million Americans who are at risk of foreclosure this year, says Durbin.

And, that’s not the only promise of this proposal, according to Dodd, who says that the bill could put a floor under housing prices which have been circling the drain for months.

Time will tell whether the effort is a success, but any effort that effectively prompts real change in loan terms for struggling homeowners is a step in the right direction.