For the first time since the housing crisis began, a major mortgage lender agreed Thursday that courts should be allowed to order reductions in the principal of “underwater” loans for some troubled borrowers, cracking what had been fierce and unified industry opposition.
The agreement struck between congressional Democrats and Citigroup Inc. would permit bankruptcy judges to change the terms of mortgages as part of court-ordered debt restructuring. Democrats hope to include the provision in the upcoming economic rescue legislation under negotiation between Congress and the incoming Obama administration.
Getting the rest of the lending industry on board with the Durbin cramdown bill won’t be easy, but Citigroup’s support might make it politically more difficult for congressional Republicans to filibuster or otherwise block the legislation, if they’re of a mind to do so.
Sen. Durbin’s bill is S.61, if you’d like to track its progress.
Update: See this post by Tanta at Calculated Risk for a good primer on the cramdown situation.