Financial giant Citigroup has agreed to support a controversial rewrite of U.S. bankruptcy law aimed at helping troubled mortgage borrowers, three Democratic senators said on Thursday.
Sen Charles Schumer, a Democrat from New York, a key player on the Senate Banking Committee, is brokering the talks.
New Details on Mortgage Repayment
In a FIRST ON FAST interview he revealed new details about the talks. He told us under the change, known as cramdown, bankruptcy courts could alter the terms of mortgages, subject to certain conditions.
“To reduce foreclosures you need both a carrot and a stick," Schumer says. "The carrot is sweeter terms for mortgages. The stick is to require the traunch holders to come to the table and negotiate.”
“If you have a mortgage chopped in 40 traunches -- and if 39 say we’ll renegotiate but the 40th says no -- then you won’t get anywhere. Bankruptcy says if you don’t negotiate you’re going to be in bankruptcy court and lose everything.”
“And this is the only way permitted by the Constitution to allow contracts to be overcome."
What Citigroup has done is support the change in the law and that will bring other banks on board. "So this is a real breakthrough,” Schumer concludes.
Clawbacks
The senator also said that he and others in Washington are looking into clawbacks for executive pay to bank CEO’s.
“I think there’s a real thirst to deal with this issue.. and the people who made high salaries should pay a price,” Schumer says.
In case you’re wondering, Investopediadefines clawbacks as previously given monies that are taken back due to specially arising circumstances.
We’ll see where that one goes over the course of the year.
Out In Front
Turning attention back to the cramdown -- these negotiations are said to reflect Citigroup's desire to "get out in front" of the growing U.S. mortgage foreclosure problem and show Democrats it's willing to be constructive on an important issue.
Plans to lower mortgage rates are seen as one of the most promising federal efforts to stabilize the housing market, which is in its worst downturn since the 1930s. Soaring foreclosures are fueling a downward trajectory in home prices, which in turn puts more pressure on the slumping economy.
Check out our exclusive interview with Charles Schumer. Watch the video now!
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