Jan

31

Citigroup’s Support for Cramdown Amidst Mounting Opposition

Posted In: Investing Tips

A new proposal to help Americans struggling with mortgage debt overcome their problem has gained the support of baking giant Citigroup. This move, a legal reform initiated by US lawmakers dubbed “cramdown”, would result in courts wiping out mortgage debt and millions of families across the country stand to benefit from it.

Although the banking giant is the first US lender to back the proposal, it does not enjoy such approval from all interest groups. Opponents have already driven home the strong point that the gesture “is like robbing Peter to pay Paul” in that it could result in the cost of homes becoming expensive for future homeowners. Giving bankruptcy judges such powers that would lead to writing off mortgage debt, they argue, is not in the best interest of all.

A similar proposal was equally rejected last year as politicians, from both the Republican and Democratic parties, as well as banking and housing industry lobbyists were united in presenting a staunch opposition. Similarly, they advanced the view that it would adversely impact on the cost of homes for those aspiring to get on the property ladder.

Citygroup’s support as a breakthrough
One factor that may have played a role in winning Citigroup’s support for the plan is deepening recession which has put the housing market in disarray. Now that a major mortgage lender has thrown its weight behind such move it shows a strong possibility that the bill would succeed, some US politicians have opined. “Citigroup’s support means that the dam has broken across the banking industry,” said Democratic Senator Charles Schumer, just as he expressed optimism that the legislation would soon sail through. He revealed that he had, through his office, made contacts with banking officials who reiterated their support.

Also, speaking in glowing terms about the decision by the lender Democratic Senator Christopher Dodd described it as a major step forward. “This is a breakthrough. Foreclosure is the cause of our economic problems and we have got to address that,” the chairman of the Senate’s banking committee explained.

Truly, the plan is fast gaining currency even among groups that hitherto opposed it. The National Association of Home Builders, for example, now is no longer opposed to it, while the National Association of Realtors, which had appeared somehow neutral, is now considering lending support.

Growing opposition
Despite the above gains, however, opponents remain unmoved and vow to continue to staunchly say no to a new law that would see home loan defaulters evade foreclosure while others defray the cost in the future.

This group, which includes top banking industry bodies, has also criticised the Citigroup’s U-turn, stopping short of saying they were coerced into buying a government agenda they never believed in. Buttressing the argument an analyst, Gary Townsend said:

One big snag for those hoping that this would be a huge relief is th“The big change between now and a couple of months ago is that the government is backing Citigroup’s balance sheet…The government has a lot of leverage that wasn’t there before.”at the law would only cover borrowers whose home loans were taken prior to the enactment of the bill and they would need to show they tried contacting their lender before filing for bankruptcy.

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Article Source: Citigroup’s Support for Cramdown Amidst Mounting Opposition