Lawmakers battle banks over mortgage bill

The banks were winning. But the tides turned slightly this week with the revelation that the insurance giant AIG gave out millions of dollars in bonuses.

Democratic Senator Ben Cardin says that raises questions: "What AIG did in paying bonuses is outrageous – its wrong. No one can justify that. And when you see that type of irresponsible conduct then it makes it hard to understand whose side they’re on. If they’re trying to work out the current economic problems than why would they ever suggest that those who got us in trouble should be rewarded with these multi-million dollar bonuses."

AIG may give Democrats the push they need to pass the bankruptcy bill. It has already passed the House, but has been stalled in the Senate. It’s referred to as "cram-down" because it gives bankruptcy judges the power to cut the cost of a mortgage — or to cram it down.

Francis Creighton is a lobbyist for the Mortgage Bankers Association. He says lending institutions are already trying to keep people in their homes: "Bankruptcy is not something that benefits consumers – it certainly doesn’t benefit lenders. The only people who benefit in a bankruptcy proceeding are the bankruptcy attorneys."

There have already been over ten thousand foreclosures in Maryland since January first, according to the Center for Responsible Lending. But Creighton says the cram down bill will just make it harder for people to get home loans. He says if banks know a judge could slash the price of a mortgage they will just increase prices up front: "We believe that is going to drive up costs for consumers. Higher down payments. Increased fees. Increased interest rates."

Democratic Senator Barbara Mikulski says she isn’t buying that argument: "Oh, I’m tired of hearing about the banking industry. They got us in this mess. They ought to stop taking the bonuses; get their hand out of the taxpayer’s pocket and start helping us solve our problems."

Mikulski says the bankruptcy bill is one tool to help Marylanders deal with the bad economy: "I think a lot of people have been punched into bankruptcy through no fault of their own. They need help."

Even with the billions of dollars the government has given banks lawmakers say they aren’t doing enough to keep people in their homes.

Democratic Congressman Elijah Cummings says he knows banks still want more money, which gives the government leverage: "But I think that there will be enough companies who have to come back, and I think the administration can then use its power of persuasion to get them to do what needs to be done."

Even with AIG’s massive bonuses in the headlines, the bankruptcy bill could still fail in the Senate. But because of AIG, lawmakers are now exploring ways to tighten regulations on the financial industry. That could bode well for Marylanders facing foreclosure, but for many homeowners it could come too late.

Created by Bureau Chief and Executive Producer Melinda Wittstock, Capitol News Connection provides insightful, localized coverage of participating stations’ congressional delegations.

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