Gone from the final financial stability legislation is what's known as the "cramdown," one of the provisions of the Democratic counterproposal to Treasury Secretary Paulson's financial rescue plan would have allowed bankruptcy judges to revise mortgages terms for principal residences. In a blast e-mail Friday, House Republicans decried the language:
TRIAL LAWYERS - Instead of investigating the scandal-plagued American trial lawyer industry, the Democratic Congress has showered it in pork, tucking special benefits into major bills to benefit the industry at the expense of American taxpayers - and the economic rescue bill has been no exception. Working drafts of the bill include so-called "cramdown" provisions allowing bankruptcy judges to reduce mortgage principals under the guise of helping those at risk of foreclosure. If enacted into law, the provision would be a bonanza for trial lawyers and undercut the effectiveness of any economic recovery effort by making it even harder to value mortgage-backed securities.
Senate Democratic Whip Richard Durbin (D-IL) had pushed for cramdown language earlier in the year as part of the original housing bailout bill. (See this Washington Post story and this L.A. Times article.)
The Mortgage Bankers Association of America was the leading opponent of the provision, sending a letter to Capitol Hill last week outlining its objections. Other major financial groups were also fiercely opposed. The Wall Street Journal law blog has more on recent related developments.