Bank of America, the nation's largest lender and its biggest bank by assets, now supports changing the law to give federal judges the power to modify mortgages in bankruptcy.
The bank joins Citigroup, the nation's third-largest bank by assets, in supporting a change to existing law to give homeowners more leverage. Unlike other forms of debt, bankruptcy judges presently lack the power to change mortgage terms. The banking and home mortgage industry want to keep it that way -- by not allowing judges the authority to change the terms, troubled homeowners are at the mercy of their lenders. They take what they get.
But Tuesday, before a nearly-empty Congressional hearing room, Barbara J. Desoer, president of Bank of America Home Loans, said her bank now supports leveling that playing field.
"As we've gone through the lessons that we've learned with modifications and other programs, there probably is some segment of borrowers for whom that would be an appropriate alternative," Desoer said before the House Financial Services Committee.
"So you would support that in some circumstances?" asked Rep. Brad Miller (D-N.C.) in a follow-up to his original question.
"In some circumstances, yeah," Desoer responded.
In December, the House failed to pass an amendment to its financial reform bill that would have given judges this authority, despite the fact that it passed the chamber the previous March. The Senate defeated it the next month after banks and mortgage lenders of all sizes mobilized to kill the measure.
Bank of America, though, is the nation's largest lender and servicer of home mortgages. Desoer oversees a home mortgage unit that accounts for "about 20 percent of the U.S. mortgage origination market, with a $2 trillion servicing portfolio serving nearly 14 million customer loans," according to the bank's website.
Its support now gives homeowner advocates in Congress added ammunition to pressure lenders to either do more to give distressed homeowners sustainable mortgage modifications, or to threaten the rest of the mortgage industry with the possibility of reintroducing a bill that would allow federal judges the authority to unilaterally do it on their own.
Citigroup supported the change last year as Congress debated the proposal. Its position has not changed, bank spokeswoman Molly Meiners told the Huffington Post. Together, Bank of America and Citigroup hold a combined $4 trillion in assets, according to regulatory filings with the Federal Reserve.
After Desoer appeared to qualify her support, committee Chairman Barney Frank (D-Mass.), who supports giving judges the authority to treat home mortgages like other forms of consumer debt, interjected in hopes of getting additional clarification.
"Obviously the law would have to be modified to allow that circumstance," he said. "We should make clear that we can't change the bankruptcy law obviously case by case, so it would have to be an [inaudible] change."
Miller then asked a follow-up question.
"You would support a legislative change in the bankruptcy law to allow the modification of home mortgages in bankruptcy?" he asked Desoer.
"Yes," she replied. "And I believe that there is a segment of borrowers for whom that is the appropriate alternative, subject to them having gone through qualification for HAMP, or something like that, and failed." HAMP refers to the administration's main foreclosure-prevention initiative, the Home Affordable Modification Program.
"There is a segment of borrowers for whom that might be an appropriate alternative, yes," Desoer added.
In an interview after the hearing, Frank told HuffPost that Bank of America's new position was "encouraging."
"We may be able to reopen that," Frank said. "And of course, Citi stayed with it. We now have two of the four [biggest banks in the country]" supporting judicial mortgage modifications.
Frank added that he would tell the House Judiciary Committee about Bank of America's now-public position. Judiciary has jurisdiction over bankruptcy law, he said.
"Maybe we can revisit this," Frank said.
Odds are slim. Banks still wield tremendous influence in the Capitol.
"I'm not confident. I'm hopeful," said Frank. "Look, you've got the credit unions, the community banks -- people tend to overestimate the importance of the big banks. Frankly, it's the smaller entities that have more political clout, and I don't see that this has moved us elsewhere. It's helpful, but it's not conclusive."
The panel was quickly reminded that Bank of America and Citi were alone in their support for homeowners.
Mike Heid, co-president of Wells Fargo Home Mortgage, butted in after Desoer finished responding to Miller, and added his two cents:
"I think you'd have to ask yourself whether a change in bankruptcy law is really the best way -- and the fastest way -- to achieve assistance for homeowners. I think there's other alternatives," Heid said in a response to a question that wasn't asked of him.
Miller quickly retorted, "We're trying to do other alternatives now, and have been for three years, and without much to show for it."
Last year lenders foreclosed on more than 2.8 million homes, according to real estate research firm RealtyTrac. The firm estimates three million homes will get foreclosure notices this year; more than one million of them will be repossessed by lenders
