WASHINGTON — Most congressional Democrats say the quickest way to save homeowners such as Troy Butler of Saginaw, Mich., is to let them declare bankruptcy and allow judges to dictate new mortgage terms.
Easy, except that lenders, who would absorb the pain and lose control of any deals to ease the terms, do not want to get dragged into bankruptcy court by millions of overextended borrowers.
Butler, 40, is a laid-off General Motors worker who has filed for bankruptcy. But the bankruptcy court has no authority to change the terms of his $90,000-plus mortgage that is more than double the value of his home.
A bill to give judges authority to alter loan terms for primary residences might be the quickest way to arrest the housing market's collapse. Most Democrats in the House and Senate support that plan.
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But 10 groups representing the lending industry and other businesses are fighting back fiercely with their lobbying machines. The groups spent $83 million in lobbying on multiple issues in 2008.
One backer of the bankruptcy proposal, Rep. Maxine Waters, D-Calif., said the banking industry "has owned this Congress far too long."
Butler, the GM worker, and an industry lobbyist see things much differently.
"I'm living from day to day, hoping to make it through the day. I worry about my family, where we're going to live, how we'll survive," said Butler, who has a disabled wife and two children, ages 15 and 11.
The chief lobbyist for the Mortgage Bankers Association, Steve O'Connor, said new home buyers would end up paying higher interest and bigger down payments if lenders are saddled with the risk that a judge could change mortgage terms.
"We're going to defend the industry" against "bad public policy," O'Connor said.