The U.S. Senate voted against adding an amendment to a housing market rescue bill that would have given bankruptcy judges the power to ease mortgage payment terms for some distressed borrowers.
Offered as an amendment by Illinois Democratic Sen. Richard Durbin to a broad bill hammered out earlier this week, the amendment was opposed by Republicans and the banking industry.
The overall bill, estimated to cost $15 billion to $20 billion, would give homebuilders and other businesses hit hard by the recent housing slump a $6 billion temporary tax break.
It would also give the Federal Housing Administration a bigger role in the mortgage market and create additional tax incentives to stimulate the housing business.
Bone of Contention
The proposed bankruptcy law change had been the most contentious part of a Senate debate on responding to the housing crisis that appears to be dragging the economy into recession.
Mortgage bankers and Republicans oppose the bankruptcy change, saying it would intrude on contract law and drive up mortgage interest rates.
The measure would have allowed judges, in limited cases, to revise the terms of a mortgage on a primary residence for a homeowner in Chapter 13 bankruptcy. That is now prohibited, although judges may revise the terms of loans for vacation homes, farms, ranches or boats in bankruptcy cases.
Durbin's provision would have allowed mortgage changes only for a primary residence and only for borrowers unable to afford their current mortgage.