In a dramatic about-face Citibank’s chief executive voiced support Thursday for a Senate bill that would allow bankruptcy judges to modify mortgages for persons seeking Chapter 13 bankruptcy.
In letters to congressional leaders, Vikram Pandit praised the measure, saying that “given today’s exceptional economic environment, we support its swift passage.”
The bill, sponsored by Democratic Senator Dick Durbin of Illinois, would allow bankruptcy judges to modify the terms of mortgage holders who are seeking bankruptcy protection. Judges will be allowed to extend the term and/or lower the interest rate and principal on the loans.
Under terms negotiated with Citibank and other banking interests, the law will apply only to mortgage loans made before the bill is enacted.
Congressional leaders say that the bill will force the hand of banks who have been slow to negotiate loan modifications with homeowners who have fallen on hard times financially. Democrats are pushing for banks to modify mortgages in an attempt to halt the rise of foreclosures in the United States.
Critics point to a report issued by the Comptroller of the Currency shows that 37% of homeowners whose mortgages were modified in the first quarter of 2008 were in default again in six months to argue against the plan.
They also say that it will undermine contract law and drive up the cost of borrowing for everyone.
Since the November election gave Democrats larger majorities in both the House and Senate, many expect that the measure will pass. President-elect Barack Obama has voiced his support in the past for allowing bankruptcy judges to modify mortgages.
